Cash in an offset account, a work bonus or an inheritance can each start a debt recycling strategy without increasing what you owe. The order of steps matters. Money invested straight from savings creates no deductible debt, so the cash has to pass through the home loan first, and the loan has to be ready before it does.
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The lending steps are the same for every source of funds. What differs is the timing and the questions to settle first.
Offset cash is already reducing your home loan interest. Using it means giving up some of that saving and some of your buffer, so the amount to keep back is the first decision.
A bonus arrives after tax and often once a year. It suits a single tranche. Avoid building a plan that relies on future bonuses to meet repayments.
An inheritance is usually larger and can arrive as cash, shares or property. Whose name it sits in, and whether inherited assets are kept or sold, are questions for your accountant and adviser before the loan is touched.
Cash and equity are different starting points, and a debt recycling broker treats them differently.
Starting with cash is the lower-debt route, which is why savings and lump sums are a common first step.
These three movements look similar on a banking app and are treated very differently for tax. The Australian Taxation Office (ATO) looks at what borrowed money was used for.
| Movement | What Happens | Effect |
|---|---|---|
| Offset withdrawal | You take out your own money | Not a borrowing. Investing it directly creates no deductible debt |
| Loan repayment | The cash reduces the balance of a split | Interest falls. Nothing has been borrowed yet |
| Redraw | You borrow the repaid amount back | A new borrowing. Deductibility depends on what the redrawn funds buy |
The offset itself stays useful after you start. Our comparison of debt recycling and an offset account covers how the two work together.
Paying a lump sum into an unsplit loan and redrawing it later creates a mixed-purpose loan, where every future repayment has to be apportioned. The split comes first.
The new split is sized to the amount you plan to invest and is used for nothing else. The offset stays linked to the home split. This is the structure we arrange through our loan structure and splits service.
A clean trail has one direction: split, to investment account, to investment.
The ATO generally requires investment records to be kept for five years after the relevant return is processed. Loan and purchase records are worth holding for as long as you own the investment.
Invested money is harder to reach than offset money, and selling in a falling market to cover a bill is the outcome to avoid. Before deciding the amount, set aside:
You can redraw the full amount at once or in stages. Staging does not require repeated repayments: the split is paid down once, and you redraw from it in tranches as you invest. Interest is charged only on what has been redrawn. Whether to invest at once or over time is an investment question for your financial adviser.
These examples assume a 6% variable rate on every split and are illustrative only. They show interest for a full year and ignore principal repayments.
Loan of $500,000 with $80,000 in offset. The owners recycle $50,000 and keep $30,000 as a buffer.
| Before | After | |
|---|---|---|
| Home split | $500,000 | $450,000 |
| Investment split | $0 | $50,000 |
| Offset balance | $80,000 | $30,000 |
| Total debt | $500,000 | $500,000 |
| Annual interest | $25,200 | $28,200 |
| Interest on investment split | $0 | $3,000 |
Total interest rises by $3,000 because $50,000 no longer sits in offset. That $3,000 is the portion that may be deductible.
Loan of $600,000 with a $20,000 offset buffer that stays untouched. Annual interest before the bonus is $34,800.
Loan of $450,000, split into $300,000 and $150,000. The inheritance pays the $150,000 split down in full, and $50,000 is redrawn in each of three stages.
| Stage | Amount Redrawn | Annual Interest | On Investment Split |
|---|---|---|---|
| After paydown | $0 | $18,000 | $0 |
| Stage one | $50,000 | $21,000 | $3,000 |
| Stage two | $100,000 | $24,000 | $6,000 |
| Stage three | $150,000 | $27,000 | $9,000 |
Three flows change once the strategy starts, and a household budget should account for each.
Homeowners weighing this for the first time can see how it fits a household budget on our debt recycling for home owners page.
Savings, a bonus or an inheritance can start debt recycling without adding to your debt, provided the loan is split before the money moves and the cash goes in and out through the right account. Set your buffer first, confirm the tax position with your accountant and the investment plan with your adviser, and have the lending arranged so the trail is clean from the first dollar.
We confirm whether your loan can be split and redrawn as needed, and arrange the structure before any funds move. Our free calculator gives an estimate to take to your accountant and adviser.
Book a free call →Yes. The cash is paid into a separate loan split, then redrawn from that split to invest.
An offset withdrawal is your own money, not a borrowing. Interest is only deductible on borrowed funds used to buy income-producing investments.
Yes. Paying into an unsplit loan and redrawing later mixes private and investment debt in one account.
Enough to cover several months of expenses, known upcoming costs and a rise in repayments. The right figure depends on your household.
The loan can support either. The split is paid down once and redrawn in one amount or several. The investment timing is a question for your adviser.
Savings keep total debt unchanged. An equity release adds debt and requires a full credit assessment. Some households use both over time.
The ATO generally requires five years after your return is processed. Keep loan and purchase records for as long as you hold the investment.
Where your buffer ends and surplus begins.
Read more →GuideHow one wrong redraw mixes a loan.
Read more →GuideThe paper trail your accountant needs.
Read more →
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