Your tax return just smashed you. Here’s why.

Every year at tax time, my inbox fills up.

Same message. Different names.

“I earn well. I paid a fortune. And I got nothing back.”

Here’s what is usually going on.

It is not your income. It is your debt.

Most high earners I meet have the wrong kind.

A big mortgage on the family home. Not one dollar of that interest is deductible.

Shares and savings sitting in their own name. Taxed at up to 47%.

Home equity doing nothing at all.

I call that a lazy balance sheet. Lots of assets. None of them working for you at tax time.

Good debt and bad debt

Bad debt is your home loan. You pay it with after tax dollars.

Good debt is a loan used to invest. The interest is tax deductible.

Same borrowing. Very different tax result.

Where debt recycling comes in

You use your home equity to invest in shares. The interest on that loan becomes tax deductible. The tax you save goes back into your home loan.

Over time, bad debt shrinks. Good debt grows. And your tax bill comes down with it.

Say you have $500,000 of deductible debt at 6.5%. At a 47% tax rate, that’s about $15,000 back a year. Before a single dollar of investment return.

The hard part

None of this fixes the return you just lodged. That one is done.

But it shapes the one you lodge next year. The time to set it up is now. Not next June.

Your accountant reports what happened. Your structure decides what happens next year.

Read more: tax structuring advice, or check yours with the free Lazy Balance Sheet Scorecard.