Turn the debt you can't claim into debt you can.
Habitat Finance is a Perth mortgage broker specialising in debt recycling strategies for Australian homeowners and business owners. With 3000+ clients and a loan portfolio exceeding $800 million - we know we can find the debt management strategy for you.
What debt recycling actually is.
Your home loan is non-deductible debt. The interest doesn't reduce your tax. Your investment loan generates interest that is potentially tax deductible, because the borrowed money produces assessable income.
Debt recycling is the process of progressively replacing the first kind with the second.Same total debt. Very different tax treatment.
It is ATO-accepted and entirely legitimate when the money moves in the right order through the right accounts. Done sloppily, it creates a deduction you can't substantiate and a conversation with the ATO you don't want.
That distinction is almost entirely a lending structure question. Which is our job.
The cycle in 4 steps.
Pay down your
home loan
Make regular or lump sum repayments, building redraw availability on your non-deductible loan.
Redraw and
invest
Redraw those funds immediately into income-producing assets - shares, managed funds, or property. Your accountant confirms suitability before you proceed.
Claim the
deduction
The interest on the redrawn investment debt is potentially tax deductible. Use the tax refund to make further home loan repayments. Repeat. Over time, non-deductible debt shrinks; deductible investment debt grows.
Let compounding
do the work
Each cycle converts more non-deductible debt into deductible investment debt, and the investments compound alongside it. Over a ten-to-twenty year horizon, the cumulative effect can be substantial.
What ten years actually looks like:
A Perth household with a $1.2 million home and a $600,000 home loan, recycling steadily.
Year
0
3
6
10
Non deductible home debt
$600,000
$480,000
$330,000
$120,000
deductible investment debt
$0
$120,000
$270,000
$480,000
Total debt
$600,000
$600,000
$600,000
$600,000
Year 0
Non deductible home debt
$600,000
Deductible investment debt
$0
Total debt
$600,000
Year 3
Non deductible home debt
$480,000
Deductible investment debt
$120,000
Total debt
$600,000
Year 6
Non deductible home debt
$330,000
Deductible investment debt
$270,000
Total debt
$600,000
Year 10
Non deductible home debt
$120,000
Deductible investment debt
$480,000
Total debt
$600,000
Total debt never moves. What changes is its character.
By year ten, $480,000 of that debt is producing a deduction. At a 6% interest rate that's roughly $28,800 of deductible interest a year. For a borrower on a 39% marginal rate including Medicare, that's approximately $11,200 of tax back annually, which is then recycled again. Meanwhile the investment portfolio built over that decade sits alongside it, and the home loan is nearly gone.
Illustration only. These figures assume a constant interest rate, a constant marginal tax rate, and consistent surplus cash flow, none of which hold in the real world. Your position will differ. Interest deductibility depends entirely on your circumstances and must be confirmed by a registered tax agent.
Where debt recycling goes wrong.
The strategy is simple. The execution is where people come unstuck, and almost every failure we see traces back to one of four things.
Commingling
Redrawn money that lands in an offset or transaction account before reaching the investment has arguably lost its character. The ATO looks at what the borrowed money was actually used for. Money that sits in a mixed account is money you can no longer trace.
The wrong split structure
Investment debt and home loan debt must sit in clearly separate sub-accounts. One loan doing two jobs is a deduction you'll struggle to apportion and defend.
No documentation trail
The ATO expects clear records connecting each drawdown to each investment. Build the structure so the record keeps itself, rather than reconstructing it under audit five years later.
Non-income-producing assets
Deductibility depends on the investment producing assessable income. Growth-only assets don't automatically qualify. Your accountant confirms this before a dollar moves.
Download the Perth debt recycling guide.
Twenty-four pages covering the mechanics, the sequencing rules, the structures, and the ten-year modelling. Written for Perth homeowners and business owners, not recycled American blog content.
Inside:
The four-step cycle with worked Perth numbers
How to calculate your usable equity before you call anyone
The five sequencing errors that cost the deduction
Master limit and sub-account structures explained plainly
What your broker does, what your accountant does, what your adviser does
The self-employed chapter: why business owners face a harder documentation problem and what to do about it
A pre-meeting checklist so your first conversation is a productive one
Get the guide.
Free. No obligation. We'll email it straight through.
Self-employed? The strategy isn't the hard part. The paper trail is.
Debt recycling only works if you can prove where every borrowed dollar went, for every cycle, for as long as you hold the deduction. Easy on a salary; hard in a business, where money crosses constantly between business and personal, risking the trail that makes your investment interest deductible. Most brokers avoid it for self-employed clients, not because it fails, but because holding that discipline for a decade is genuinely hard.
Habitat removes the need for it, the evidence trail builds itself, structurally. It doesn't give advice, move money, or replace your accountant; it just protects the structure. Patent-pending, currently limited to a small group of clients, fees disclosed upfront.
Who you'd be working with.
Rory Cowman
Managing Director
Michael Harris
Managing Director & Finance Broker
Our role: Finance mechanics, not financial advice.
Debt recycling sits at the intersection of lending, tax, and investment advice. Three disciplines. Three different people. Here's the split.
What we at Habitat Finance do
Structure your lending correctly, right lender, right product, right splits and sub-accounts. Coordinate with your other advisers.
What your accountant does
Confirms tax deductibility and ATO-compliant fund flow. Handles record keeping and models the tax benefit.
What your financial adviser does
Recommends which investments the equity goes into and confirms they suit your risk profile and objectives.
We don't give tax or financial advice, and we won't pretend otherwise. We do make sure the lending is built so the other two can do their jobs properly.
Debt recycling FAQ's
Is debt recycling legal in Australia?
Yes. It is ATO-accepted and entirely above board when executed correctly. The requirements are that borrowed funds go directly into income-producing investments and that investment debt is clearly separated from personal debt. Done incorrectly, it creates an ATO problem rather than a tax benefit, which is why the structure matters more than the idea.
How much equity do I need to start debt recycling?
For debt recycling specifically you can start small and build progressively, because the strategy converts debt over time rather than requiring a large single drawdown. As a practical guide, most clients start seeing it as worthwhile somewhere above $50,000 of usable equity. If you're also purchasing an investment property alongside it, you'd generally want $80,000 to $100,000 available.
How do I work out my usable equity?
Take 80% of your property's current value, then subtract what you still owe. On a $900,000 home with a $400,000 mortgage, that's $720,000 minus $400,000, so $320,000 of usable equity. If you bought more than three years ago and haven't had a revaluation, that number is likely higher than you think.
Can I debt recycle into shares as well as property?
Yes. Interest on the borrowed funds is potentially deductible provided the investments generate assessable income. Shares and managed funds are commonly used precisely because they can be bought in small increments, which suits the incremental nature of recycling. Your adviser recommends the investments, your accountant confirms deductibility, we structure the lending.
Do I need to refinance my existing home loan?
Not necessarily. Sometimes a top-up with your current lender is faster and cheaper. In other cases the structure the strategy needs, particularly a master limit with multiple sub-accounts, is only available elsewhere and a refinance is the right call. We assess both before recommending either.
What happens if my property value falls?
Your usable equity falls with it, and in an extreme case a lender could require you to reduce the balance. We structure conservatively, well inside 80% LVR, to build a buffer. It remains a genuine risk and one to discuss with your adviser before starting.
Can I debt recycle if I'm self-employed?
Yes, though the documentation burden is materially higher than it is for a salaried borrower, because business income and tax liabilities move through the same accounts your investment funds pass through. That's the problem our self-employed programme is built to solve. See the section above.
Can I use a trust or company structure?
Frequently, yes, and for business owners it is often where the strategy gets most of its value. It also raises questions about where the deduction lands, Division 7A, and asset protection that need your accountant involved from the start rather than at tax time. We coordinate that conversation.
How long does it take to set up?
A straightforward refinance or top-up runs two to four weeks from application to settlement with well-documented financials. A master limit structure with multiple sub-accounts takes a little longer to establish correctly. That upfront time is what saves you a new application every cycle for the following decade.
What does it cost to use Habitat for this?
For residential lending, nothing. We're paid a commission by the lender on settlement, and we're legally required to act in your best interests. Lender fees apply and we'll set them out in full before you commit to anything. Our self-employed programme is a separate service that does carry a fee, disclosed in full in writing before you engage it.
Should my accountant be involved before I talk to a broker?
Ideally you'd talk to us both, and in either order. What matters is that neither of us works in isolation. Most of the failures we're asked to fix involve lending set up without reference to the tax position, or a tax plan built on lending that was never going to be approved.
Get the structure right before the first dollar moves.
Debt recycling rewards patience and precise execution. It punishes improvisation.
If you're considering it, the cheapest hour you'll ever spend is the one before you start.
Book a meetingDebt recycling involves borrowing to invest, which carries risk. Investment values can fall and you may end up owing more than your investments are worth. This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute financial, tax or legal advice. Tax deductibility depends on your individual circumstances and should be confirmed by a registered tax agent before you proceed. Product features, fees and eligibility are set by the relevant lender and are subject to change. Habitat Finance does not provide financial or tax advice. Habitat Finance and Insurance Pty Ltd. ABN 54 107 730 807. Australian Credit Licence 385447.