General information for Australian investors — not tax or financial advice.
Australian ContentLegislation & currency: Reflects current ATO treatment of deductibility by borrowing purpose and the direction of proposed negative gearing reforms. Deductibility of any borrowing depends on its use and your circumstances.
The investor question
You already run — or are considering — a debt recycling strategy: progressively converting non-deductible debt (typically your home loan) into deductible investment debt by redrawing and investing. The question is whether the negative gearing changes weaken the case for continuing.
Debt recycling is really a strategy about the purpose of borrowing and where capital is deployed. The negative gearing changes touch how a resulting investment loss is treated — one input — but they do not, on their own, dismantle the logic of shifting debt from non-deductible to deductible purposes.
What the negative gearing changes alter
The tax treatment of borrowing in Australia turns on the purpose of the borrowing, not the security behind it. Debt recycling exploits exactly that: the redrawn funds are invested to produce assessable income, which is what makes their interest deductible — while your home debt, borrowed for a private purpose, is not.
What the negative gearing changes can alter is the value of a loss produced by that deductible investment debt. If losses on affected investments are treated less generously, the near-term tax benefit of running the geared position is smaller. That changes the size of one advantage — not the underlying home-debt-versus-investment-debt distinction the strategy is built on.
| Type of debt | Home (non-deductible) debt | Investment (deductible) debt |
|---|---|---|
| Borrowing purpose | Private — funding your own home | Producing assessable investment income |
| Interest treatment | Generally not deductible | Generally deductible where the purpose test is met |
| What debt recycling does | Progressively reduced | Progressively built as capital is deployed |
| Touched by the changes? | No | Only the treatment of a resulting loss — not the deductibility of purpose |
What the changes don't determine
The changes do not decide whether debt recycling suits you. That still depends on inputs the tax setting never touched:
- the interest cost on the investment borrowing;
- the return you expect from the investments the capital funds;
- the resulting investment cash flow, and your capacity to carry it;
- whether deploying that capital elsewhere would produce a better expected return; and
- your tolerance for the leverage the strategy introduces.
A smaller near-term tax benefit may make debt recycling less compelling at the margin — but the strategy's core value has always been the long-run conversion of non-deductible debt into deductible debt and the investment returns that capital earns, not the annual tax loss alone.
Model the investment decision
Model the strategy on its own economics: the after-tax interest cost of the investment debt against the after-tax return of the investments it funds, and the pace at which non-deductible debt is retired. Test it with a smaller assumed tax benefit and see whether it still stacks up — the Debt Recycling Calculator lets you flex those inputs directly.
Questions for your accountant
Debt recycling depends heavily on borrowing purpose and record-keeping — both areas where individual circumstances drive the outcome.
“If I change how I allocate or repay debt because of the negative gearing changes, how might the purpose and structure of each borrowing affect its tax treatment?”
The deductibility of any borrowing depends on its use and your circumstances — this is a personalised tax question.
“How should I structure and document redraws so the purpose of each borrowing is clear?”
“Does my investment fall under grandfathering arrangements, or is it affected by the changes?”
“How could a change in how losses are treated affect the after-tax cost of my investment debt?”
Akweno can help you identify useful questions to discuss with your accountant when considering an investment decision. It does not provide tax advice or identify every matter that may require professional advice.
Explore the numbers
Try the calculators
Debt Recycling Calculator
Model the conversion of home debt to investment debt with your own assumptions.
Open calculatorCash Flow Calculator
Check the investment cash flow the strategy relies on you being able to carry.
Open calculatorGearing Calculator
Test the geared position and its sensitivity to interest rates.
Open calculatorGeneral information, not tax or financial advice
This guide is general educational information about how an investment decision could be affected by Australia's negative gearing settings. It is not tax, financial or legal advice, does not account for your circumstances, and tax settings can change. How any rule applies to you depends on your individual situation — confirm your position with a registered tax agent or licensed financial adviser before acting.
Negative Gearing & Investor Strategy
Return to the hub to see how debt recycling fits the wider strategy.