Debt Recycling, Negative Gearing and CGT
Debt Recycling in the Australian Property Market: Pros and Cons Debt recycling is a financial strategy that has gained traction among Australian property investors. It involves converting non-deductible debt, such as a home loan, into tax-deductible investment debt. This process can potentially accelerate wealth creation and provide tax benefits. However, like any financial strategy, it comes with its own set of advantages and disadvantages. How Debt Recycling Works Debt recycling typically involves using the equity in your home to invest in income-producing assets. Here’s a simplified breakdown of the process: 1. Pay Down Your Home Loan: Use your savings to reduce your non-deductible home loan. 2. Redraw or Reborrow: Borrow the same amount you paid off and invest it in income-producing assets like shares or investment properties. 3. Tax Deduction: The interest on the new loan is tax-deductible because it’s used for investment purposes. 4. Repeat: Continue this cycle to gradual...