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Your Questions Answered - Debt....The Good vs Bad

What is 'good debt'? What is 'non-deductible' vs 'deductible' debt?


That’s an easy one there is no good debt…. no seriously, when has any type of debt sat comfortable with you? In fact, at Heart nearly all of our clients list debt as the number one fundamental need they need to have under control before they will consider addressing their unmet desires and outcomes.


However, from a tax perspective yes there are two types of debt. The worst of the bad is non-deductible debt. Your home loan is the non-deductible most of us have. This is debt that you pay down and receive nothing back in terms of tax deductions.


Non-Deductible debt – think Investment debt here. Debt used to purchase an income producing assets, for example an investment property that is rented out. The Australian government allows this interest on borrowings to be of set against taxable income, the result is reducing taxable income. Of course you must be paying tax to incur any of these deductions. Whilst this may seem obvious I do see people with deductible debt held in the non-working spouses name. No tax paid no tax reduced….


So whilst there are many advantages of ‘good debt’ you should first factor in the costs and worst case scenarios as the debt only works at tax time if you can afford the payments and can hold through the investment cycle or timeframe you mapped out to reap the rewards of the risk you have taken.


In preparing in this article we have not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.



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Stu Varidel AR 324007 and Your Choice Financial Planning Pty Ltd ABN 80124246877 trading as Heart Financial Advisers CAR 323623 are authorised representatives of Sentry Financial Services Pty Ltd ABN 30 113 531 034 & AFSL 286786.

Warning The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Heart Financial Advisers and Heart Mortgage Services nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.

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