# Correct account structure for internet trading



## sly (17 November 2008)

First of all. Thankyou to all who answered my other thread. I have another question.
I have joined the westpac online trading site and currently have my general savings account attached to it. This account is for day to day spending and all my income goes into it.

Now i was planning to  transfer funds from my LOC into this account for any purchases but i think this may confuse things tax wise.

Just say this account already has $10,000 in it for day to day expenses and i transfer another $10,000 into it from my LOC to purchase shares costing a total of $10,000. Is this legal tax wise or is the fact that the account is also used for non investment purposes. I will no longer be able to claim all the LOC funds spent on shares at tax time due to the mixing of accounts.

I am actually in the process of opening another count only to be used for investing. This will have money put into it for trading from either the LOC or any cash i have spare. All proceeds will go into it also from share sales or dividends. Is this the best way to go.

Also one more thing.Say you put $10,000 into this account from the LOC and spend it all on shares. I assume at this stage all interest cost on the LOC would be deductible. Now what if i sold the shares and the profits went back into the account. Are the interest payments still deductible even though the shares are sold and the proceeds are sitting in the account not the LOC. If that is still ok because any proceeds will be reinvested then that is good. But what if you used the proceeds from the sale of the shares on non investment related items. Will this render the  tax deductible interest payments void???

Hope that makes sense guys

Cheers.


----------



## skc (17 November 2008)

sly said:


> Now i was planning to  transfer funds from my LOC into this account for any purchases but i think this may confuse things tax wise.




There is no confusion from the tax point of view just because you use the same account. There may be confusion, however, for your own record keeping purpose.



sly said:


> Also one more thing.Say you put $10,000 into this account from the LOC and spend it all on shares. I assume at this stage all interest cost on the LOC would be deductible. Now what if i sold the shares and the profits went back into the account. Are the interest payments still deductible even though the shares are sold and the proceeds are sitting in the account not the LOC. If that is still ok because any proceeds will be reinvested then that is good.




Yes. This is the same as if you borrowed from your LOC (say at 9%) and invest in your saving account interest rate (at 0.1%). Wouldn't make finanical sense, but the LOC borrowing cost is still deductible.



sly said:


> But what if you used the proceeds from the sale of the shares on non investment related items. Will this render the  tax deductible interest payments void???




You've answered it yourself. Can't claim tax deduction on non-investments. However, as long as your account balance is > your LOC drawdown, you can still claim the tax deduction (because you have only spent your own money).

As a suggestion to keep things clean and save yourself some grey hairs come tax time. You can consider purchasing shares before drawing down on your LOC. Given that shares have T+3 settlement and hopefully your LOC will take less than 3 days to transfer across. Same when you sell your investments - repay your LOC asap unless you really have any valid reason to keep it in your saving account (tax deductability is not one of them).

BTW, if you must park money (either your own day-to-day expense or other funds) with Westpac, consider their eSaver (I think) product which pays higher interest rate than the average saving account. Transfer between eSaver and linked saving account is instant online.


----------



## sly (22 November 2008)

Ok thanks for the response. 

I have now set up a westpac e saver account that will be used for all my share trading.The cash for purchases will either come from my own day to day savings account or if i wish to borrow funds, i will transfer the funds from my LOC. This seems to be a good way for me to keep everything seperated.
Now some more questions.

Lets assume i borrow $20,000 from my LOC to buy shares. At this stage the interest payable is tax deductible because all the funds were used to buy shares.

Scenario 1#

I sell the shares for $40,000.
(A)I assume at this stage i could leave all the funds in my share trading account but this would be stupid as the LOC interest would be higher than that paid by the account.

(B)If i repay the LOC the $20,000 i used initially, would i now be free to use the remaining $20,000 for personal purchases( Minus any capital gains tax of coarse)?

(C) i would most likely park all the funds into my LOC to reduce interest payments but this would mean i would be unable to use any of the funds for non investment as they are now back in my investment LOC.


Scenario 2#

I sell for a loss $10,000

I assume at this stage i could either leave in the share trading account or put back into my LOC. 

My question is i would now be $10,000 in the red. Will i still be able to claim the LOC interest payments on this lost $10,000 even if i no longer have the shares. I would assume yes as even if it was a terrible investment. It is still a cost from investing and therefore still deductible.

Does this sound right ?


----------



## drsmith (23 November 2008)

For settlement purposes you should be able to link a bank account (whether it be savings or LOC) directly to your Westpac broking account thus negating the need to manually transfer funds to or from the broking account.

For specific tax enquiries it would be more appropriate to seek answers from a qualified tax accountant or the ATO directly either by telephone or via their website at http://www.ato.gov.au/


----------



## prawn_86 (23 November 2008)

drsmith said:


> For specific tax enquiries it would be more appropriate to seek answers from a qualified tax accountant or the ATO directly either by telephone or via their website at http://www.ato.gov.au/




Putting my mod hat on i want to reiterate the point above.

Any tax information here should only be considered as 'general' and you most definitely need to contact the ATO or a licenced tax professional for complex issue such as this.


----------



## sly (23 November 2008)

Understand guys. I have contacted the ATO several times generaly for property investment purposes and i usually get a idiot who passes me on to a bigger idiot. I find the best option is to get as much info of people who actually are doing it and then go to the ATO with specific questions about my situation.Even my local tax accountant is the same. I go to him with my account structuring ideas and you can tell he has no idea and just goes along with what i say. Thats the problen with living in a country town.Its very hard to get information.


----------



## drsmith (23 November 2008)

I note that from your other thread you have borrowed to purchase an investment property and have a $100000 credit facility secured against your home for which you were considering using as a deposit for a second investment property.

With regard to your investment strategy above, how higher priority is income tax minimisation ?


----------



## Whiskers (24 November 2008)

sly said:


> Understand guys. I have contacted the ATO several times generaly for property investment purposes and i usually get a idiot who passes me on to a bigger idiot. I find the best option is to get as much info of people who actually are doing it and then go to the ATO with specific questions about my situation.Even my local tax accountant is the same. I go to him with my account structuring ideas and you can tell he has no idea and just goes along with what i say. Thats the problen with living in a country town.Its very hard to get information.




I agree it's useful to talk about ideas with those who have experience, but since you seem to be dealing with significant sums of money, you probably ought to think about using an accountant specialising in property/shares as opposed to just a 'tax accountant'.

A leading accountant usually puts complex legal issues by their lawyer before acting on it and you would be in a better position to defend your tax claims and or any actions brought by the ATO. 

When you put 'specific' questions to the ATO are you relying on verbal advice from these 'idiots' or are you getting a Private Tax Ruling? http://www.ato.gov.au/taxprofessionals/content.asp?doc=/Content/34047.htm&page=11

Probably the most important issue when dealing with a number of different investments and bank accounts is to keep good business records. As mentioned earlier, using one bank account for different purposes in itself doesn't determine the tax criteria, but if you don't have good records to show the flow of funds it can be problematic in an audit.


----------

