Debt Recycling — Worked Examples
Concrete numbers make debt recycling clearer than any explanation. Below are two worked examples: a standard case for a professional couple, and a higher-income single. Both use real FY2026-27 Australian tax rates.
Example 1: Professional Couple, $800k Mortgage
Year 1 — First Cycle
Year 5 — Compounding Takes Hold
Year 10 Summary
Vs no debt recycling: Without recycling, the couple would have the same home loan reduction ($420k in extra repayments) but no ETF portfolio and no tax deductions. Debt recycling gives them a $640k investment portfolio and $38k in cumulative tax savings — on the same surplus cash.
Example 2: High-Income Single, $600k Mortgage
Year 5 — Higher Rate Advantage
The 45% marginal rate makes each dollar of interest deduction worth significantly more. At the same income level without debt recycling — just paying off the mortgage faster — there's no tax benefit at all.
What These Numbers Don't Show
- CGT on exit. When you eventually sell the ETFs, capital gains tax applies at your marginal rate (with a 50% discount if held 12+ months). This reduces the total return but doesn't eliminate the advantage.
- Sequence risk. A 30% market fall in Year 2 means your $84k investment split is worth $59k while the loan stays at $84k. You still owe the full amount.
- Record-keeping cost. Maintaining ATO-compliant records takes time or an accountant. Budget $500–$1,500/year for tax advice during active recycling.
- Loan split restrictions. Some lenders charge split fees, restrict redraw timing, or don't allow the structure at all. Check your loan product before starting.
Read the risks guide
Debt recycling adds leverage to your home. Understand what can go wrong before starting.
Debt Recycling Risks →