# Interest on margin cover deductible?



## Ol School Skata (12 February 2008)

I am not too sure about the location where this should be posted but as my question relates primarily to derivatives, I have chosen to post here.  Please forgive me if incorrect 

Is the interest cost of redrawing funds from a line of credit (secured against property) tax deductible if used for margins cover when writing put options?

Scenario: I am considering writing put options on against shares I would be happy to own as (a) a cashflow strategy and (b) a chance to buy below current market prices.

For example considering using $50K in redraw - interest rate of 8% pa.
Funds placed into cash management account for margin cover, account paying 5% interest pa.
Put options written against XYZ shares where total position is $50K. Premium received is $1000 net of brokerage.

This is repeated each month.

I guess other questions would be:
Is interest received from cash management account taxable? I guess so.
Is interest costs from LOC deductible on the full $50K

Hope you can provide some initial answers.

OSS


----------



## Ol School Skata (16 February 2008)

Anyone have any thoughts?

OSS


----------



## Mofra (16 February 2008)

OSS, if you are generating income on borrowings (ie the interest generated on margin cover), that interest payable on your borrowing is generally regarded as a deductable expense. If you are taxed on an accrual rather than a cash basis (a trader rather than an investor) these expenses should be included in your personal P&L.

As usual, consult your licensed tax professional etc. etc.


----------

