Mortgage & Investment — Updated for 2026–2027
Debt Recycling Calculator
Enter your loan and recycling amounts to estimate the after-tax benefit and breakeven return against paying down the loan.
Debt Recycling
Results update as you edit. The starting figures are illustrative — replace them with your loan, recycling plan and investment assumptions.
Your outstanding non-deductible loan. This caps how much debt can be converted.
Recycling plan
Paid off the home loan and redrawn through the investment split at the start of year 1.
Spare cash flow recycled at the start of every year, including year 1.
Applies to both splits. Total borrowings do not change — only the deductible share does.
Investment
Total annual return including capital growth and dividends. Negative values model a drawdown.
Portion of the total return paid as dividends, taxed each year.
Share of dividends carrying franking credits for company tax already paid.
Your situation
Used to run a full assessment each year for the deduction, the dividends, and the final capital gain.
Ahead after tax
Net benefit after tax
$41,814
Breakeven total return: 4.5% p.a.
Home loan not fully converted within 10 years
- Deductible debt
- $150,000
- Non-deductible debt
- $350,000
- Portfolio value
- $200,479
- Total recycled
- $150,000
- Interest cost
- $63,000
- Net tax saved
- $14,477
- Dividend tax
- $6,313
- CGT if sold
- $7,534
- At your inputs, recycling leaves you $41,814 ahead over 10 years after selling the portfolio, paying the capital gains tax, and repaying the investment split. Breakeven total return: 4.5%.
Before you act on this projection
- You need a separate, clearly segregated split loan. The redrawn amount must be its own loan account used only to buy investments. Drawing personal spending from the same split contaminates the loan, and the interest then has to be apportioned between deductible and private use — often permanently.
- Deductibility follows the use of the borrowed funds, not the security. Borrowing against your home does not make the interest private, and borrowing against shares does not make it deductible. The Australian Taxation Office applies this use test in TR 95/25.
- Borrowing to invest magnifies losses as well as gains. The interest is owed whether or not the portfolio rises, and the debt survives a market fall. If returns land below the breakeven rate above, you finish behind — and you still owe the investment loan.
- This is general information, not personal advice. It ignores your loan contract, lender approval, cash-flow resilience, and ownership structure. Most people should have an accountant and their lender confirm the structure before recycling any part of a home loan.
Where you end up
The closing position if you sold the portfolio and repaid the investment split on the last day of the projection.
Debt after recycling
- Non-deductible home loan
- $350,000
- Deductible investment split
- $150,000
- Total borrowingsRecycling changes the deductible share of your debt, not the amount you owe.
- $500,000
Investment outcome
- Portfolio value
- $200,479
- Capital gains tax on saleSold 30 June 2036 under the 1 July 2027 rules: for parcels held over 12 months, a 50% discount on growth to 30 June 2027 and indexation at an assumed 2.5% CPI after it; a 30% minimum tax can apply.
- -$7,534
- Investment split repaid
- -$150,000
- Funded from your own cashSurplus beyond the remaining loan, plus any year where interest and tax exceeded dividends.
- -$1,132
- Net benefit
- $41,814
Year by year
How the two loan splits, the portfolio, and the running net benefit move each year. Projections hold 2026-27 tax rules constant across the full period.
| Year | Non-deductible | Deductible | Portfolio | Net benefit |
|---|---|---|---|---|
| Yr 1 | $440,000 | $60,000 | $62,400 | +$1,286 |
| Yr 2 | $430,000 | $70,000 | $75,296 | +$3,846 |
| Yr 3 | $420,000 | $80,000 | $88,708 | +$6,273 |
| Yr 4 | $410,000 | $90,000 | $102,656 | +$9,529 |
| Yr 5 | $400,000 | $100,000 | $117,162 | +$13,344 |
| Yr 6 | $390,000 | $110,000 | $132,257 | +$17,758 |
| Yr 7 | $380,000 | $120,000 | $148,080 | +$22,806 |
| Yr 8 | $370,000 | $130,000 | $164,684 | +$28,535 |
| Yr 9 | $360,000 | $140,000 | $182,130 | +$34,803 |
| Yr 10 | $350,000 | $150,000 | $200,479 | +$41,814 |
Reviewed by Ashma Ghimire, ASA, CPA AustraliaLast reviewed 1 October 2026
How debt recycling actually works
Same total debt, different tax treatment.
You pay surplus cash into the home loan, then redraw the same amount through a dedicated split and invest it. Your total borrowings are unchanged, so your interest bill is unchanged — but the redrawn portion is now used to produce assessable income, which makes its interest deductible. Deductibility follows the use of the funds, not the security behind them.
Repeat it each year with new surplus and the non-deductible balance shrinks while the deductible balance grows, until the whole loan has been converted. That progressive conversion — not a single one-off swap — is what the calculator models above.
What the calculator accounts for
The comparison is against simply paying the home loan down with the same money. Both strategies receive identical principal payments, so the non-deductible balance follows the same path in each — everything that differs is the investment portfolio, the deductible debt, and the tax consequences of holding them.
The interest deduction and the grossed-up dividend land in the same assessment, so they are assessed together rather than as two independent adjustments. That keeps bracket crossings, Medicare and offset movements correct instead of freezing your opening marginal rate. Each year's investment is tracked as its own parcel, so the 50% CGT discount — and, for a sale from 1 July 2027, cost-base indexation — is only applied to parcels genuinely held longer than 12 months. Rates come from the selected financial year — see the ATO guidance on deductions for the underlying rules.
New to the strategy? The debt recycling guide walks through the split-loan structure, the ATO use test, and when the strategy is a poor fit — read that first, then come back and model your own numbers.
Still deciding whether to invest at all rather than how to structure it? The invest vs offset calculator answers that question first, and the CGT calculator models disposals in more detail.
Frequently Asked Questions
What does the breakeven return rate mean?
It is the total annual return your investments would need to average for the strategy to finish exactly square against simply paying the loan down with the same money. Above it you are ahead; below it you have taken investment risk for nothing. Because the interest becomes deductible, the breakeven sits below your loan rate rather than above it — the deduction lowers the hurdle. That is the opposite of the offset comparison, where tax-free interest savings push the breakeven above the loan rate. Raise your taxable income in the calculator and the breakeven falls, because the deduction is worth more.
What is the calculator comparing against?
Against paying the home loan down with the same cash and not investing. Both strategies receive identical principal payments, so the non-deductible balance follows the same path in each — everything that differs is the investment portfolio, the deductible split, and the tax consequences of holding them. The net benefit figure is therefore the portfolio value, less capital gains tax on sale, less the deductible debt still owed, less any year where interest and tax exceeded the dividends and had to be funded from elsewhere.
Why does the deduction and the dividend get assessed together?
Because they land in the same tax return, and assessing them separately would get the arithmetic wrong. The calculator adds the grossed-up dividend and subtracts the interest deduction in a single assessment, then compares that to your tax without the strategy. That keeps bracket crossings, the Medicare levy and offset movements correct — a deduction that drops you into a lower bracket interacts with a dividend that pushes you up, and two independent calculations would double-count the overlap.
How do franking credits affect the result?
Franking credits represent company tax (the standard 30% rate) already paid on profits before dividends are distributed. You add the credit to your assessable income and claim it back as a tax offset. On a fully franked dividend you only pay top-up tax on the portion above the company rate at your marginal bracket, and below that rate you can receive a refund. Set the franking level to match your real portfolio mix — Australian ETFs and blue-chip shares are mostly franked, international shares are not, and the difference moves the after-tax result materially.
How does the 50% CGT discount apply, and what changes from 1 July 2027?
Capital gains tax is only applied when you sell — the modelled figure is what you would owe if the whole portfolio were sold on 30 June at the end of the period. The calculator tracks each year's investment as its own parcel with its own cost base and holding period, so a parcel bought in year four does not inherit the holding period of one bought in year one. A sale before 1 July 2027 uses today's rules: parcels held longer than 12 months get the 50% discount. A sale on or after that date uses the enacted reform: for parcels held over 12 months, growth to 30 June 2027 keeps the 50% discount and later growth is taxed on a cost base indexed at an assumed 2.5% CPI. A 30% minimum tax can apply to gains made after 30 June 2027, whatever the holding period. Gift deductions and payments that exempt you from the minimum tax are not modelled.
Do I need an accountant for debt recycling?
For most people, yes. The tax arithmetic is straightforward, but the execution is where it goes wrong: setting up the splits correctly, keeping the investment drawing uncontaminated, and documenting the use of funds so the deduction survives scrutiny. An accountant or licensed adviser can also tell you whether the strategy suits your circumstances at all — this calculator provides general information under stated assumptions, not personal advice, and it cannot see your full position.
Does debt recycling increase my repayments?
Your total debt does not change, so your total interest bill does not either — at least at first. What changes is that part of that interest becomes deductible, reducing your tax. In practice repayments can shift, because investment splits are often set to interest-only while the non-deductible home loan portion is paid down as fast as possible. That is deliberate: every dollar of principal is best directed at the non-deductible side, since that is the debt providing no tax benefit.