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JC24(Newbie)Newbie
20 Apr 2025

Hi,


I understand that debt recycling is typically used to deduct tax from income generating assets such as shares. However, is it legal to debt recycle in order to pay your tax returns as a sole trader (ie does it fall under the umbrella of income- generation)?


The specific scenario is:

  • I have a mortgage of 1 million dollars in my primary residence
  • Can I pay down 100k of my mortgage and redraw that to pay a 70K tax bill? (and turn that originally non deductible debt into deductible debt)
  • If yes, then with the remaining 30K will I have to invest that or can I hold on to it until the next financial year to pay the tax with it then?

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YellowPotato(Taxicorn)Taxicorn
20 Apr 2025

You would need to make sure the interest charged are apportioned into the correct sections of the tax return. Some would be in your business and professional (sole trader); dividend deductions; and maybe some would not be deductible.

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Can I debt recycle to pay my tax returns as a sole trader? | ATO Community