Debt Recycling Calculator - Merit Financial Services

Debt Recycling Discussion Paper

What is Debt Recycling?

Debt recycling is an Australian wealth-building strategy that converts non-deductible home loan debt into tax-deductible investment debt. By borrowing against existing property equity to invest in income-producing assets, you may benefit from tax deductions on investment loan interest, franking credits from Australian share dividends, and long-term portfolio growth - while accelerating the repayment of your non-deductible mortgage.

The following analysis models a debt recycling strategy based on your personal financial situation.

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Your Details

Client Name

Current Salary (Annual)

Home Value

Current Mortgage Balance

Investment Property Value (optional)

Available Cash

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Your Cashflow

Gross Annual Income

Other Income (optional)

Annual Mortgage / Rent Payments

Annual Living Expenses

Other Debt Payments

Annual Surplus Cashflow

This is the cashflow available to fund the strategy or redirect into investments

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Investment Parameters

Investment Structure

Investment Loan Amount

Interest Rate (%)

Portfolio Growth Rate (%)

Dividend Yield (%)

Franking Credit Yield (%)

Monthly Additional Investment

Investment Timeframe

20 years

Reinvest Dividends

HELP/HECS Debt

Portfolio Value (End)

Cumulative Tax Benefits

Net Wealth Created

0.0%

Effective Annual Return

Without Debt Recycling

Interest Deduction Tax Saving

Annual interest cost: $0

annual tax saved from deducting loan interest

Franking Credit Tax Offset

grossed-up credits reducing your tax payable

Dividend Income

gross dividend income per year (Year 1)

Net Annual Benefit

what you're actually better off by each year

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Portfolio Growth Projection

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Annual Net Tax Impact

Green = tax saving from interest deductions exceeding additional income tax. Red = portfolio income generating more tax than deduction saves - a sign of strong growth.

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Wealth Comparison

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Year-by-Year Projection

Year	Portfolio Value	Dividend Income	Franking Credits	Interest Cost	Assessable Income	Tax Deductions	Taxable Income	Tax Payable	Tax Without	Annual Benefit	Cumul. Benefit	Net Portfolio	Total Wealth	Without Recycling

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Tax Engine Details

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Tax With vs Without

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Tax Position Analysis

Year	PAYG Income	Investment Income	Franking Credits	Total Assessable	Interest Deduction	Taxable Income	Tax With Strategy	Tax Without	Net Benefit	Marginal Rate

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Scenario Management

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Stress Testing

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🎓 What is Debt Recycling?

Debt recycling is an Australian investment strategy that converts non-deductible debt (like your home mortgage) into tax-deductible investment debt, creating potential tax benefits while building an investment portfolio.

How It Works:

Borrow Against Your Home: Use equity in your home to secure an investment loan
Invest the Proceeds: Purchase income-producing investments (shares, managed funds, etc.)
Claim Tax Deductions: The interest on the investment loan becomes tax-deductible
Benefit from Franking Credits: Receive tax credits from franked dividends
Reinvest Returns: Use dividends and tax savings to accelerate wealth building

Key Benefits:

Tax Deductions: Investment loan interest is tax-deductible
Franking Credits: Tax offsets from Australian company dividends
Portfolio Growth: Capital appreciation and income potential
Wealth Acceleration: Leverage existing equity to build wealth faster

🧮 Tax Brackets (Stage 3, 2024-26)

$0 - $18,200: 0%
$18,201 - $45,000: 16%
$45,001 - $135,000: 30%
$135,001 - $190,000: 37%
$190,001+: 45%
Plus 2% Medicare Levy on total taxable income

⚠️ Important Risks and Considerations

Investment Risk: Investments can fall in value, potentially below the loan amount
Interest Rate Risk: Rising rates increase borrowing costs
Liquidity Risk: Loan repayments must be serviced regardless of investment income
Tax Law Changes: Future legislative changes could affect benefits
Leverage Risk: Borrowing to invest magnifies both gains and losses

About Debt Recycling

Debt recycling converts non-deductible home loan interest into tax-deductible investment loan interest. By borrowing against property equity to invest in income-producing assets, you benefit from:

Tax deductions on investment loan interest, reducing your taxable income
Franking credits from Australian share dividends, offsetting tax payable
Compound growth from reinvested dividends and capital appreciation
Accelerated wealth creation compared to saving from after-tax income alone

Key Risks to Consider

Investment values may fall below the borrowed amount
Interest rate increases will raise the cost of the strategy
Loan repayments must continue even if investment income drops
Changes to tax legislation may reduce or eliminate benefits
This strategy requires a long-term commitment (typically 10+ years)

Who Is This Strategy Best Suited For?

Higher-income earners who benefit most from tax deductions
Individuals with significant home equity and stable employment
Investors with a long time horizon and appropriate risk tolerance
Those seeking to accelerate wealth creation beyond standard savings

Disclaimer: This document is a discussion paper prepared for illustrative purposes only and does not constitute personal financial advice. The projections are based on assumed rates of return and tax rates which may not be achieved. Past performance is not indicative of future results. Investment returns and tax benefits will vary depending on individual circumstances, market conditions, and legislative changes. Before implementing any debt recycling strategy, please consult with your Merit Financial Services adviser to ensure it is appropriate for your personal circumstances, objectives, and risk tolerance. Merit Financial Services | Corporate Authorised Representatives of Paragem Pty Ltd | ABN 16 108 571 875 | AFSL 297276.