Tax and shares

[Fab]

I am just wondering if someone could help me in answering the following issue that I am having:

At the moment the money that I have invested in the stockmarket is mainly money coming from my home loan.
I am thinking it might make financial sense to get a margin loan as I understand margin loan interest rate are tax deductible as opposed to my home loan money .
I am thinking to borrow about $50 000.Can anyone help me to find a good margin loan and answer my question.

 

[dutchie]

Fab

Go to:
http://www.infochoice.com.au/investment/marginlending/default.asp

There was also an article about margin loans in the last Weekend Australian (24/25 March).

Do your figures, don't overborrow and don't get margin called.

Pretty sure that interest is deductable if it is a direct expense that is incurred to make your income - other pssible deductions may include computer, office rent (even if at home - a proportion), data feed costs, electricity (proportion), software costs,subscriptions, internet costs (proportion), etc etc.

Cheers

Dutchie

 

[crackaton]

Fab

Go to:
http://www.infochoice.com.au/investment/marginlending/default.asp

There was also an article about margin loans in the last Weekend Australian (24/25 March).

Do your figures, don't overborrow and don't get margin called.

Pretty sure that interest is deductable if it is a direct expense that is incurred to make your income - other pssible deductions may include computer, office rent (even if at home - a proportion), data feed costs, electricity (proportion), software costs,subscriptions, internet costs (proportion), etc etc.

Cheers

Dutchie

Hi dutchie. I think these only apply if you trade for business. Not sure you can claim office expenses etc if the income derived is just capital gains.

 

[KaiserBun]

I am just wondering if someone could help me in answering the following issue that I am having:

At the moment the money that I have invested in the stockmarket is mainly money coming from my home loan.
I am thinking it might make financial sense to get a margin loan as I understand margin loan interest rate are tax deductible as opposed to my home loan money .
I am thinking to borrow about $50 000.Can anyone help me to find a good margin loan and answer my question.

Sorry for this stupid question:

Are you talking about using funds from a redraw facility/line of credit facility where your owner occupied home is the security for the loan?

If so:

Tax deductibility of interest on a loan is based on the principle of what the ato refers to as the 'use test' rather than what is the security for the loan (FC of T v Munro (1926) 38 CLR 153 or look at ATO ID 2001/79).

Thus, if you use the borrowed funds to buy an income producing asset (ala a share that is likely to pay a dividend during the year or a rental property) you can claim the interest on that portion of the loan even though the loan is secured on your owner occupied home.

Conversely, if you borrow funds from a loan secured by an investment property to purchase a new owner occupied home, you will not be able to claim a tax deduction as the loan was used to purchase something that they refer as 'private in nature' (section 8-1 of the ITAA 1997)

Note: if you are an individual investor, you are unable to claim interest on a loan that was used to purchase a share that it not likely to pay a dividend (like most of the uranium miners out there at the moment). However, the cost of the interest can be added to your cost base for CGT purposes.

Also another note: make sure you keep proper records if you have a mixed loan (private and income producing purpose loan). In an AAT case in 2004 called Domjan, the taxpayer had intertwined their loan account too much, that it was too difficult to apportion, as such no deduction was allowed.

hope this info helps. but check with an accountant or a tax advisor regarding setting up your loans etc for tax purposes.

 

[rozella]

G'day Fab,

There are a few opinions here that touch on home equity & margin loans:
Question on margin lending

 

[Duckman#72]

Are you talking about using funds from a redraw facility/line of credit facility where your owner occupied home is the security for the loan?

Be very careful when organising loans with banks for business or income producing purposes. A large portion of people giving advice from banks have very little understanding of tax (at best) and at worst are downright unethical and misleading.

The basic problem - security. The ATO couldn't give a rats arse what security you use to obtain finance. All the ATO want to know is - "What are the loan funds used for?". Yet certain banks continue to offer loans with investment properties as security on the basis the interest is tax deductible (regardless of the purpose of the loan).

The other problem are lines-of-credit. If you are making private withdrawals from a loan that "business" in nature you will see your 100% business loan become 100% private in a short space of time.

Don't take your banks word on what the ATO will allow.

Regards

Duckman