The Property Couch TPC Gold | ATO Crackdown: The Truth About Debt Recycling
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Nov 11, 2025 The discussion dives into the complexities of debt recycling, challenging common misconceptions about converting non-deductible debt into deductible debt. Tax expert Julia outlines the risks, explaining how dominant purpose tests can void tax benefits. Historical cases are examined, revealing the intricacies of deductible capitalized interest and the potential pitfalls of interest-on-interest schemes. The ATO's stance on these strategies and recent enforcement actions highlight the importance of caution in navigating debt recycling.
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Debt Recycling Misconception
- Debt recycling commonly marketed as converting non-deductible debt into deductible debt is misleading.
- Julia warns you cannot legitimately turn personal home debt into tax-deductible debt by recycling alone.
Early Investors Tried To Outsmart The ATO
- Bryce recalls early days when investors tried to 'outsmart' the tax department with clever structures.
- He notes Part 4A eventually became the ATO's weapon against those underground strategies.
Dominant Purpose Is Key
- The ATO applies 'dominant purpose' tests under Part 4A to void arrangements aimed mainly at tax benefits.
- If the main goal of the borrowing is increasing tax deductions, the ATO can disqualify the arrangement.