With negative gearing on established residential property being wound back, what else builds wealth tax-effectively? This is the question that equity-rich owners in Boroondara suburbs like Hawthorn, Kew and Camberwell, and across Melbourne more broadly, are asking since the 2026–27 Federal Budget.
For many high-income professionals, the answer is not simply another investment property. It could be a disciplined strategy called debt recycling, also known as debt repurposing, and it starts with the equity in your home.
This article is general information only and does not constitute financial, legal or tax advice. It also describes a leveraged investment strategy that will not suit every investor. We recommend seeking advice from a qualified financial planner, accountant and solicitor before making any decisions.
Where the Budget's changes might create an opening
From 1 July 2027, negative gearing on established residential property purchased after 12 May 2026 will no longer offset wages and other income. That change is specific to established residential property. Borrowing to invest in shares and managed funds keeps its existing deductibility treatment. For Melbourne professionals with home equity and surplus cash flow, debt recycling could now be more strategic.
What is debt recycling?
Debt recycling or debt repurposing is a strategy that progressively converts non-deductible home loan debt into deductible investment debt over time, using the equity in your home to invest in income-producing assets while accelerating the repayment of your mortgage.
In plain English, you use equity in your home to invest by borrowing a separate investment amount, which is used to buy income-producing assets such as shares or managed funds. The income from those investments – dividends and distributions – is used to make additional repayments on your non-deductible home loan. As the home loan reduces, you reborrow that same amount into the deductible investment split and invest again. Over time, the non-deductible debt shrinks and the deductible investment debt grows in its place.
The tax benefit comes from the interest on the investment split, which is deductible against your income. The home loan interest, which is not deductible, is being paid down faster than it would be otherwise.
This strategy requires discipline, which can be what trips people up. You have to keep the deductible and non-deductible debt completely separated at all times. Mixing the two creates a headache with the Australian Taxation Office (ATO) that can unravel the entire strategy. Clean splits, clearly documented, are critical. Your loan structure needs to draw a clear line between the two from day one and maintain that line every time funds move.
The facility that makes it work: A master limit
Debt recycling is only as good as the loan structure behind it. A standard split home loan can technically support the strategy, but it can also create friction every time the borrower needs to rebalance, with new applications, potential revaluations, delays and costs that compound.
A specific type of facility, commonly referred to as a master limit or portfolio line of credit, is built for exactly this purpose. Rather than a single loan with fixed splits, this structure establishes a single approved lending limit – typically up to 80% loan-to-value ratio (LVR), depending on the lender – that sits over multiple sub-account splits, where the borrower controls the mix.
The practical advantages of this structure for debt recycling are significant. Splits can be opened, switched, rebalanced and repurposed as the strategy evolves, generally without a full reapplication or property revaluation, provided the sub-accounts always total the approved limit. That is helpful because debt recycling is not a set-and-forget transaction. It is repeated, incremental restructuring, potentially every year, as the home loan shrinks and the investment split grows.
Facilities of this kind are usually established over a multi-year term, often five or ten years, with minimal cost to restructure sub-accounts along the way. For a strategy that plays out over years rather than months, that flexibility is what makes the strategy executable in practice. Without it, the administrative burden of rebalancing every cycle tends to either slow the strategy down or introduce the kind of structural mixing that creates ATO risk.
However, it’s also important to note that facilities of this kind have moved in and out of the market over time, and not every lender offers them. Knowing which lenders currently have an active and well-priced offering – and which structure suits your specific income, equity and investment profile – is where a brokerage like AXTON Finance, with experience in equity release and restructuring, adds value.
What to consider before proceeding
Debt recycling is not right for everyone. It typically suits owners with surplus cash flow, a long investment horizon and the risk tolerance to hold income-producing assets through market volatility without needing to sell. Investment markets move in both directions, and gearing amplifies both.
This is also not a strategy to run on lending advice alone. It works when your borrowing structure, your investment approach and your tax position are coordinated from the outset. That’s why we suggest working with three professional disciplines in coordination:
- The lending structure, which is our role at AXTON Finance
- The investment strategy, which requires a licensed financial planner
- The tax position, which requires a qualified accountant.
A well-structured investment loan with the wrong investment strategy, or a sound investment strategy sitting inside the wrong loan structure, produces a poor result at best and an ATO problem at worst.
Is this the right time to start debt recycling?
The Budget has narrowed the field of tax-effective property investment strategies for established residential buyers. But it has not narrowed the field for borrowers who use home equity to invest in income-producing assets. For equity-rich Melbourne professionals who have been running all their wealth-building strategy through property, there are other options available.
At AXTON Finance, we work alongside our clients' financial planners and accountants to ensure the lending side of a debt repurposing strategy is structured correctly from the outset and can flex as the strategy evolves. We have access to a panel of more than 30 lenders and experience in the equity release and refinancing structures that underpin this kind of approach. For clients with more complex or high-value positions, our private banking relationships may also be relevant.
If you would like to understand your current equity position and whether your existing loan structure supports a strategy like this, our borrowing capacity calculator is a useful starting point.
This article is general information only and does not constitute financial or tax advice. We recommend seeking advice from a qualified accountant and financial planner before making any decisions.
Ready to review your equity position and loan structure? Speak to the team at AXTON Finance to get the lending side right. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch.
