Find the pre-tax return your investments need to earn just to cover the after-tax cost of the investment loan. Anything above that line is your margin.
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Estimates only, on the assumptions shown. Nothing you enter is stored or sent. Not a quote, and not financial or tax advice.
Home › Calculators › Debt Recycling Hurdle Rate Calculator
The calculator starts with the after-tax cost of the investment loan: the interest rate multiplied by one minus your marginal tax rate. At an illustrative 6.0% rate and a 32% marginal rate (30% plus the 2% Medicare levy), that is 4.08%.
It then finds the pre-tax return the investment must earn to match that cost once its own tax comes out. Returns arrive two ways, as income each year and as growth when you sell, so each part is weighted by the tax you expect to pay on it.
Break-even return = loan rate × (1 − tax rate) ÷ [income share × (1 − tax rate) + growth share × (1 − tax on growth)]
The margin is your expected return minus that break-even. The dollar figure shows what the margin is worth after tax each year on the amount recycled.
If income and growth are taxed at the same rate as your deduction, the tax cancels out and the break-even equals the loan rate. A 6% loan needs a 6% pre-tax return, whatever your bracket.
Some break-even calculators stop at the after-tax loan cost and compare it with a pre-tax return. That understates the bar, because the investment's income is taxed too. The deduction lowers your cost; it lowers the hurdle only when part of the return is taxed more lightly than the deduction saves.
That is the job of the tax on growth input. If you expect growth to be taxed at a lower effective rate when sold, the break-even falls below the loan rate. Your registered tax agent confirms what rate to use, and our guide to capital gains tax and debt recycling covers the general rules.
Results are estimates on the figures you enter, not a forecast. Your financial adviser sets return assumptions and recommends investments.
A thin or negative margin is the signal. If your expected return sits at or just above the break-even, you carry leverage and market risk for little expected reward, and paying down the home loan may serve you better.
Test a range rather than one number. Cut the expected return by two points and lift the loan rate by one. If the margin turns negative, the strategy depends on things going right.
Other warning signs, such as a short horizon or unstable income, are set out in when not to debt recycle.
Alex can check your loan, your equity and your borrowing capacity, and tell you what the lending side would look like.
Request a call with Alex →It is the return your investments need to earn just to cover the cost of the investment loan after tax. Below it, the strategy loses money on average. Above it, the gap is the reward for taking on leverage and market risk. The calculator shows it as a pre-tax return so you can compare it directly with the return assumptions your financial adviser uses.
It lowers the after-tax cost of the loan, but if income and growth are taxed at the same rate, the pre-tax break-even still equals the loan rate. A higher bracket mainly increases the dollar value of the deduction. The break-even falls below the loan rate only when part of the return is expected to be taxed more lightly, which your registered tax agent can confirm.
For most people, yes. The levy is 2% of taxable income, so a deduction that reduces taxable income usually reduces the levy too. That is why the calculator turns it on by default. If you are exempt or on a reduced levy, switch it off and use your marginal rate alone. Your registered tax agent can confirm your position.
No. Clearing the break-even only means the investment covers the loan. A margin of one or two points can disappear with a rate rise, fees or a weak few years. Most people want a margin wide enough to cover those risks, and a time frame long enough for the average return to show up.
Work the break-even by hand and record the assumptions you used.
Read more → GUIDEThe hurdle rate explained with a worked example and the risks that move it.
Read more → CALCULATORSee the year-one cash flow on savings or a windfall you recycle.
Read more →
1. Arranged a loan when our small business situation made it difficult to qualify.
2. Met requirements to have funding available by a specified date.
3. Understood my needs to setup debt recycling to allow tax structuring.
4. Communicated well throughout.
I would use their services again.
Alex, Jess and the Kingfisher team were second to none and their process from start to finish was faultless. As a self-employed business owner, it can be difficult to obtain finance at the best of times. The Kingfisher team made this an easy and efficient proposition and their continued transparent and efficient communication ensured we were kept up to date at all times. Highly recommend them for your finance needs!
Alex and Jess dealt with our investment loan and provided a top tier service. They kept us up to date and communicated every step of the process making it a seamless and smooth experience! Awesome work team we will definitely be back for future loans!
Jess from Kingfisher was outstanding. I couldn't fault her communication, expertise or dedication to finding the best loan for our situation. The entire process was seamless from start to finish. We'll definitely be using Kingfisher again in the future. A top-tier organisation.
