Debt Recycling Calculator Australia — FY 2025-26
Convert non-deductible home loan debt into tax-deductible investment debt. See your tax savings, year-by-year projections, and risk scenarios.
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How to Use This Calculator
Tab "Strategy Overview"
Enter your home loan balance, interest rate, and the extra monthly repayment you can commit above your minimum. The calculator shows how much non-deductible interest you currently pay, how much becomes deductible after recycling, your annual tax saving, investment income (after tax), and the net benefit per year. Under "More options," set your marginal tax rate and expected investment return.
Tab "Year-by-Year"
See the strategy unfold over time. Same inputs plus a projection period. The calculator shows snapshots at Year 1, 5, and the end of your period — how much has been recycled, annual tax savings at each stage, total cumulative tax savings, and your investment portfolio value. As more debt shifts from non-deductible to deductible, the tax benefit grows each year.
Tab "Risk Check"
Understand what could go wrong. Choose an investment volatility assumption (low, medium, high) and see best-case, worst-case, and expected outcomes over 10 years. The calculator also shows the break-even return (minimum return needed) and the cash flow buffer you should hold before starting.
The Formulas
Recycled = Extra monthly repayment x 12
Deductible interest (Year N):
Deductible interest = Cumulative recycled amount x Interest rate
Tax saving:
Tax saving = Deductible interest x Marginal tax rate
e.g. $24,000 recycled x 6.5% = $1,560 interest x 37% = $577 tax saving
Investment portfolio (Year N):
Portfolio = (Previous portfolio + Annual extra) x (1 + Return rate)
Net benefit per year:
Net benefit = Tax saving + Investment income (after tax)
Break-even return:
Minimum return = Interest rate x (1 - Marginal rate)
e.g. 6.5% x (1 - 0.37) = 4.1% — investment must return at least 4.1% after the tax deduction covers interest cost
Cash flow buffer:
Buffer = (Annual recycled x Interest rate / 12) x 6 months
Interest is ONLY tax-deductible if the borrowed funds are used for income-producing investment purposes (ATO Taxation Ruling TR 2000/2). You must maintain a separate loan split and clear paper trail. The deduction is claimed under section 8-1 of the Income Tax Assessment Act 1997.
Example
Sarah & Tom — Dual Income Couple in Melbourne
Home loan $600,000 at 6.5%. Extra $2,000/month available. Tom is on the 37% marginal rate. Investing in a diversified ETF portfolio (expected 7% return).
By Year 10, the compounding effect is significant: $240,000 of their home loan has been converted to deductible investment debt, saving nearly $5,800 per year in tax alone. Their investment portfolio has grown to approximately $340,000 through reinvested returns. The home loan balance has dropped by $240,000 more than minimum repayments alone.
How Debt Recycling Works — Step by Step
| Step | Action | Result |
|---|---|---|
| 1 | Make extra repayment on home loan | Reduces non-deductible debt |
| 2 | Redraw the extra amount into a separate loan split | Creates a new deductible loan |
| 3 | Invest redrawn funds in income-producing assets | Interest on split becomes tax-deductible |
| 4 | Claim investment loan interest as a tax deduction | Reduces your assessable income |
| 5 | Repeat each month/quarter | Progressively shifts debt from non-deductible to deductible |