# Negative Gearing on shares with a mortgage



## DaLong (3 April 2016)

Hi all,

i believe I am in the very common situation that I have redraw available in my PPOR mortgage and am looking to invest in shares.

Instead of funding my share purchases with cash, I can redraw money from my mortgage to invest. 
Two benefits arise from that:
1. The interest on the redrawn portion of the mortgage because tax deductible as it is used for income producing purposes.
2. The interest rate is lower than any margin loan available in Australia

There is an ATO tax ruling from 2000 (link below), outlining some of the requirements to do this correctly.
https://www.ato.gov.au/law/view/document?DocID=TXR/TR20002/NAT/ATO/00001

Despite the clear benefits, this doesn't seem to be talked about a lot. Am I missing something?
Can anyone share their experience with this?

Thanks in advance


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## JJZ (3 April 2016)

Hi DaLong, welcome to the forum 

Do you any experience trading shares?   I am also  newbie, if you are as well, I would have thought it would be safer to study, learn and make a start with a smaller account before literally betting the house .

JJZ


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## systematic (3 April 2016)

It's a very common strategy.  You've pretty much summed it up.  

The negative gearing only occurs if the income you receive from your investments (dividends) is less than the interest payable.  I realise that's a reasonable assumption, but keep it mind that just like an investment property, your money received (rent/dividends) count.

Obviously whether you should do it or whether it's a good thing to do is up to you to decide / get financial advice on.  But theres nothing uncommon about it.  There's plenty of articles about it, afr had one last year here


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## DaLong (3 April 2016)

JJZ said:


> Hi DaLong, welcome to the forum
> 
> Do you any experience trading shares?   I am also  newbie, if you are as well, I would have thought it would be safer to study, learn and make a start with a smaller account before literally betting the house .
> 
> JJZ




What i'm suggesting should be an alternative to investing cash you want to invest anyways.
The amount invested can be as little as you like. e.g. taking $10,000 out of the redraw and move it to your brokerage account. The outcome for your mortgage is the same (taking $10k out of the mortgage to buy shares and putting $10k savings into it; vs. using $10k savings to buy shares directly).
I have experience in investments due to my day job in asset management, but looking for some more information on structuring personal finances.


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## So_Cynical (3 April 2016)

Keep good records, handy if you can call the redraw something so that the interest stands out, i have a line of credit where each withdraw can be called something and the interest and fees are itemised.


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## Wysiwyg (3 April 2016)

Just wondering what the strategy would be? E.g.

Buy -
Only stocks in ASX100
Only stocks paying high dividend
Only stocks trending up

Sell -
Never
Profit target
An individual percentage loss
A portfolio percentage loss
Trend change
Company good/bad news 
Global good/bad news 

Gotta have a strategy that works or you'll get stung either way.


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## DaveDaGr8 (3 April 2016)

DaLong said:


> What i'm suggesting should be an alternative to investing cash you want to invest anyways.
> The amount invested can be as little as you like. e.g. taking $10,000 out of the redraw and move it to your brokerage account. The outcome for your mortgage is the same (taking $10k out of the mortgage to buy shares and putting $10k savings into it; vs. using $10k savings to buy shares directly).
> I have experience in investments due to my day job in asset management, but looking for some more information on structuring personal finances.




Split the loan and have an investment loan account and a personal loan account off your mortgage. Use them exclusively. Adjust the loan amounts via the bank if neccessary and never dip into the other account, not even for a day.

While technically you can run both in the same account it's not worth the risk.


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## priya0710 (22 September 2016)

Market fluctuations are very frequent and highly unpredictable. To control your loss try to keep yourself well updated with the movements in the market.


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## Knobby22 (23 September 2016)

I do it.
As mentioned earlier split the loan . 
My set up is. 
Dividends are put in offset account of house loan.
The share loan is interest only. You want to maximise this and pay off your house loan not your share loan.. Interest payments are made from housing loan offset account(where divs go).
Any drawdown, profits from shares should go into share loan offset account to ensure tax compliance.

I am doing well from this at present.Dividends pretty much pay the interest on the loan.


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## tech/a (23 September 2016)

Just like any other business that uses 
Home equity to secure working funds.

Great if you can turn a profit.


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## Neri123 (6 October 2016)

I don't know if it's profitable to work at hone?


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