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castelinop
26-04-2011, 09:16 PM
Hi ppl,

I was reading ASB's brochure on Margin Lending and one of the benefits of Margin Lending caught my interest -


Taxation
Depending on your individual circumstances, there may be potential tax benefits to gearing your investment portfolio. If the funds borrowed by margin loan are used to purchase an income producing investment, the interest paid on your margin loan may be tax deductible.

I don't really understand what they are trying to say there. Could someone give me an example. So say if you are a wage earner could you claim the interest expense against your wages/salary?

Thanks,

shasta
26-04-2011, 10:15 PM
Hi ppl,

I was reading ASB's brochure on Margin Lending and one of the benefits of Margin Lending caught my interest -



I don't really understand what they are trying to say there. Could someone give me an example. So say if you are a wage earner could you claim the interest expense against your wages/salary?

Thanks,

The two ways in which u can claim the interest paid as an expense as well as the loan fees (approx $250 a year for ASB margin lending a/c's), is to either trade with the intention of making a profit (buying/selling regularly), or from buying shares that pay a dividend, both these give rise to taxable income.

The larger banks with margin lending tend to only cover the bigger stocks, so do not offer leverage on spec mining stocks etc so you could use the a/c to merely buy more shares than your capital allows & not be able to deduct the interest

Ive used ASB margin lending for many years, as well as a long term a/c (non margin lending)

castelinop
26-04-2011, 10:50 PM
Thanx for the reply shasta. I would be buying shares that would pay dividends with the intention of holding them long term (3+ yrs). So this dividend steam would be my taxable income.

So as such how much interest would I be able to claim as expense, would this depend on how much dividend I receive?

Quite new to this aspect but very interested, if there are any further links that I could use to get some background info will be much appreciated.

CJ
27-04-2011, 06:06 AM
All the interest would be deductible in your situation. IF you interest was greater than your dividend income, you would have a loss which would be offset against you other income. Imputation credits will also reduce your tax liability.

Shasta - I think the $250 fee to ASB is only payable if your interest bill is below a certain amount.

castelinop
27-04-2011, 01:32 PM
All the interest would be deductible in your situation. IF you interest was greater than your dividend income, you would have a loss which would be offset against you other income. Imputation credits will also reduce your tax liability.

Shasta - I think the $250 fee to ASB is only payable if your interest bill is below a certain amount.

Thnx for clarifying CJ. I read that if your interest charge is more then $400 for the previous year you will not incur the $250 fee.

shasta
27-04-2011, 01:55 PM
Thnx for clarifying CJ. I read that if your interest charge is more then $400 for the previous year you will not incur the $250 fee.

Just trying to remember, when i was highly leveraged i didnt pay the fee, when i wasnt using much margin i did, still cheap to access more capital & well worth it

CJ
27-04-2011, 02:07 PM
$400 in interest is less than $7k of borrowing at 6.5%. That is not a large amount of leverage to be using in a rising market. Does mean you need to be paying fees in a falling market if you have sold down and holding cash.

I beleive they test it 6 monthly so you need $200 of interest per 6months.

Paying $400 to save $250 doesn't sound smart unless you make the extra money borrowed work for you.

castelinop
29-04-2011, 03:57 PM
$400 in interest is less than $7k of borrowing at 6.5%. That is not a large amount of leverage to be using in a rising market. Does mean you need to be paying fees in a falling market if you have sold down and holding cash.

I beleive they test it 6 monthly so you need $200 of interest per 6months.

Paying $400 to save $250 doesn't sound smart unless you make the extra money borrowed work for you.

Agreed with what you have to say CJ. I do know that using borrowed money I have to be smart and do my research well. I do have a decent enough job that can cover my interest expenses regularly.

fungus pudding
29-04-2011, 04:02 PM
Agreed with what you have to say CJ. I do know that using borrowed money I have to be smart and do my research well. I do have a decent enough job that can cover my interest expenses regularly.

I know nothing about shares, but surely you should be just as careful even if you are not using someone else's money, which means you are borrowing it from yourself.

CJ
30-04-2011, 09:48 AM
Do the maths here folks - margin lending can be very, very sensible in a rising market.Agree. I have gone down this track.

I have previously been a buy and forget investor but with a margin loan, I will be looking to reduce my holdings when I think the market turns. I haven't figured out what my system is yet so hopefully I figure it out before the next bear market.

Blendy
17-08-2011, 04:53 PM
i've been looking into margin lending from ASB and this thread has been helpful.

So the way I see it, I can borrow a certain amount based on shares already in my portfolio, and can buy more shares with this borrowed money.
Then I'm charged interest monthly (can't find the interest rate online, but I assume it's not outrageous) on what I've borrowed.
I'm also charged $250 per year for the service.

So all I have to do then is to make the borrowed money work for me to cover the interest and the fee, and I keep whatever extra profit I'll hopefully make?

Is there anything else I need to know?

BIRMANBOY
18-08-2011, 09:37 AM
Ok so 3 months later and I'm in interested in how its going and if you have discovered any pitfalls. thanks.
Agreed with what you have to say CJ. I do know that using borrowed money I have to be smart and do my research well. I do have a decent enough job that can cover my interest expenses regularly.

CJ
18-08-2011, 05:13 PM
Then I'm charged interest monthly (can't find the interest rate online, but I assume it's not outrageous) on what I've borrowed.
I'm also charged $250 per year for the service.Interest rate is about 0.25% above home floating I think - you need to call to get it. The $250 gets waived if you borrow enough (ie. interest over $400 I think)

lou
18-08-2011, 08:25 PM
Current interest rate is 6.2%. So thats .45% above the floating rate.

CJ
19-08-2011, 08:37 PM
Current interest rate is 6.2%. So thats .45% above the floating rate.Just checked and you are correct (it must be on average .5% above).

Given you can get discounts for a home loan (I currently have a 5.5% floating) the margin is higher still.

Stylerz
16-10-2011, 09:31 AM
Would this margin lending be suitable for stocks that operate as a PIE. Such as ARG, KIP, GMT.

All good dividend earners, and you could claim the interst back against them, effectively giving you a very low interest rate. Or am i missing something?

Also is still possible to keep stocks in a DRP once you are using margin lending?

lou
16-10-2011, 11:18 AM
Would this margin lending be suitable for stocks that operate as a PIE. Such as ARG, KIP, GMT.

All good dividend earners, and you could claim the interst back against them, effectively giving you a very low interest rate. Or am i missing something?

Also is still possible to keep stocks in a DRP once you are using margin lending?

No your not missing anything.
Don't know about the DRP.
The margin rate is floating so will likely increase in the future.

docta
17-10-2011, 04:39 PM
I use ASB margin lending and invest in the listed property sector. No issues with claiming interest.

New shares/units issued under the DRPs are added to my nominee holding each quarter.

Stylerz
17-10-2011, 05:13 PM
Thanks for your replies, have been thinking about this for awhile.

I like the idea of keeping at least a percentage of the shares in the DRP.

Stylerz
26-12-2011, 12:04 PM
Going to have a go at this, in the upcoming year.

I have currently 70K worth of shares in the listed property sector, and looking to leverage it to 100K
A salary of 60K per year, and a part time business generating 10K per year.
Fixed interst of about 2K per year
Have a basic understanding how the tax situation will work but need a little more info.
So at the end of the financial year, do i collectively take my combined income salary, business, and fixed interest, and subtract the margin lending interest off this total, and calculate how much tax i can claim back off that total.
Then with the tax refund i can buy more shares and look to possibly leverage a agin in the following year.

Or do i need to include the PIE dividends, i have received over the year in this total to. My understanding is i dont have to include PIE dividends in my tax return as they have been taxed at source.

Can someone pleas put me on the right track if i have wrong.

CJ
26-12-2011, 02:31 PM
Have a basic understanding how the tax situation will work but need a little more info.
So at the end of the financial year, do i collectively take my combined income salary, business, and fixed interest, and subtract the margin lending interest off this total, and calculate how much tax i can claim back off that total.Sounds about right


Or do i need to include the PIE dividends, i have received over the year in this total to. My understanding is i dont have to include PIE dividends in my tax return as they have been taxed at source.PIE are tax paid so no need to include them provided you gave them the correct tax rate.

lou
28-12-2011, 09:14 PM
You don't have to return the dividends, if they are a PIE they are exempt income.

If you had less income and a lower PIR rate you cold return the dividends and claim the excess imputation credits

Stylerz
29-12-2011, 12:07 PM
Thanks for your advice so far.

So there is no problem claiming the tax back on any interest incurred if i use margin lending to purchase additional shares that are PIE.
Seems to good to be true, that i can claim interest back, but not have to delare the dividends.

Have a great New Year everyone!

Aaron
29-12-2011, 02:06 PM
Thanks for your advice so far.

So there is no problem claiming the tax back on any interest incurred if i use margin lending to purchase additional shares that are PIE.
Seems to good to be true, that i can claim interest back, but not have to delare the dividends.

Have a great New Year everyone!

Assuming you are investing as a NZ resident individual or trustee(rather than a company) my understanding is that PIE income is "excluded income" rather than "exempt income" and that the interest on your margin loan would be deductible. Also the fully imputed portion of the distribution would not need to be included in your individual return as your income will be over 48k. If your income dropped below $48k it can be beneficial to include the imputed distribution.
With margin lending ASB Securities takes (custodial) ownership of the shares on your behalf, DRPlans will accumulate as normal though and I guess once/if you cease margin lending the shares/units can revert to your own name.
As most property trusts are leveraged 30-40% already a big increase in interest rates could see their profitability fall and share prices decrease just as you start paying more in interest. Personally I don't foresee big interest rate increases in the near future if the western world is following japan's example but what do i know. Also with regard to shopping malls the internet has wiped out music shops and is working on bookstores, does anyone think this change will eventually affect commercial property?

percy
29-12-2011, 08:32 PM
As most property trusts are leveraged 30-40% already a big increase in interest rates could see their profitability fall and share prices decrease just as you start paying more in interest. Personally I don't foresee big interest rate increases in the near future if the western world is following japan's example but what do i know. Also with regard to shopping malls the internet has wiped out music shops and is working on bookstores, does anyone think this change will eventually affect commercial property?

Must do.NZ on line sales are approx 4.5 billion dollars per annum.Approx $900 mil is clothing.Postie Plus with 101 stores do $115 mil ,so on line clothing sales are equal to 782 Postie Plus stores.As people realise they can buy better on line,I see on line sales growing.You do not need Mall overheads to be successful on line.So retail will change.Margins will suffer,therefore rents will lower and market cap of malls will possibly stagnate.
Most retailers are working on their on line platforms,rather than looking at openning more stores.

percy
30-12-2011, 07:05 AM
In an article in www.theage.com.au this morning headed "Online Christmas shopping rockets in US" they state retail stores were up 3.3% while internet sales were up 15%.

Aaron
30-12-2011, 08:04 AM
I guess it will be a gradual change and office towers and industrial sites won't be replaced by the internet as industry/manufacturing needs workshops and warehouses and I can't imagine bankers, lawyers and accountants not having/renting the tallest building they can afford to put naming rights on in the city centre.
I'm not selling any of my property trusts/companies just yet.

fungus pudding
30-12-2011, 08:13 AM
Also with regard to shopping malls the internet has wiped out music shops and is working on bookstores, does anyone think this change will eventually affect commercial property?

Not really. Internet spending will become additional to normal store spending, although certain things will sell better online. As we have become more and more affluent over the last few decades, retail has expanded tremendously. Half the junk in the avarage house didn't even exist fifty years ago, and those things that did certainly didn't get replaced as frequently. There will be heaps more products available in the next few years - stuff not yet even imaginable. NZ still has a low percentage of dine out meals - that alone will more than double, soaking up a fair amount of mall and main st. space just as one example. So no need to worry, although construction of new malls must at some stage slow down. But as long as they are making women, shops will be needed.

macduffy
30-12-2011, 03:56 PM
.Margins will suffer,therefore rents will lower and market cap of malls will possibly stagnate.


I'm with percy on this one.

Mall and other retail landlords will find it harder to increase rents while warehouses/distribution centres will be in demand. Courier firms will thrive.

I can't see that internet spending will add to the total spend - people have become more cautious in their buying as economies tighten around the world.

Vaygor1
14-01-2013, 01:22 AM
If you borrow money and buy shares with it then the interest off the borrowings is deductible off the dividend income you received from those shares bought.

It follows that you could not have bought them without the loan so the interest is a direct expense incurred as a result of owning the shares that provide the income stream.

ASB Sec's interest rate is a fixed level above the OCR (Official Cash Rate) as far as I'm aware.
Other rates/Fees are here:
https://www.asbsecurities.co.nz/section253.asp

A list of shares you can margin lend against (and their ratios) for ASB is here:
https://www.asbsecurities.co.nz/section55.asp

A list of shares you can margin lend against (and their ratios) for Forsyth Barr (through their vehicle 'Leveraged Equities Finance Limited') is here:
http://www.leveragedequities.co.nz/Margin-Lending-Ratio.aspx

I hope this helps.

fish
16-01-2013, 10:05 PM
If you borrow money and buy shares with it then the interest off the borrowings is deductible off the dividend income you received from those shares bought.

It follows that you could not have bought them without the loan so the interest is a direct expense incurred as a result of owning the shares that provide the income stream.

ASB Sec's interest rate is a fixed level above the OCR (Official Cash Rate) as far as I'm aware.
Other rates/Fees are here:
https://www.asbsecurities.co.nz/section253.asp

A list of shares you can margin lend against (and their ratios) for ASB is here:
https://www.asbsecurities.co.nz/section55.asp

A list of shares you can margin lend against (and their ratios) for Forsyth Barr (through their vehicle 'Leveraged Equities Finance Limited') is here:
http://www.leveragedequities.co.nz/Margin-Lending-Ratio.aspx

I hope this helps.

Ihave borrowed to buy shares -unfortunately a lot was for nzog just before the crash-using asb margin lending-they advised me to diversify more-which i did but not fast enough-so either had to sell at a big loss or mortgage my house-so mortgaged the house.Am now regaining ground as asb rate for me is 6% and average gross retuns via dividends are over 10%
.If i was starting again i would use asb-act promply on their advice and only buy shares which have low risk and high dividends-chorus is an obvious one that is low risk-also cen and tel

fish
16-01-2013, 10:07 PM
Ihave borrowed to buy shares -unfortunately a lot was for nzog just before the crash-using asb margin lending-they advised me to diversify more-which i did but not fast enough-so either had to sell at a big loss or mortgage my house-so mortgaged the house.Am now regaining ground as asb rate for me is 6% and average gross retuns via dividends are over 10%
.If i was starting again i would use asb-act promply on their advice and only buy shares which have low risk and high dividends-chorus is an obvious one that is low risk-also cen and tel
the mortgage is now tax deductible as taken out and used for the sole purpose of buying shares to return a profit.

Vaygor1
17-01-2013, 04:05 AM
Ihave borrowed to buy shares -unfortunately a lot was for nzog just before the crash-using asb margin lending-they advised me to diversify more-which i did but not fast enough-so either had to sell at a big loss or mortgage my house-so mortgaged the house.Am now regaining ground as asb rate for me is 6% and average gross retuns via dividends are over 10%
.If i was starting again i would use asb-act promply on their advice and only buy shares which have low risk and high dividends-chorus is an obvious one that is low risk-also cen and tel

the mortgage is now tax deductible as taken out and used for the sole purpose of buying shares to return a profit.

Makes sense to me Fish. You have incurred an interest-bearing debt in order to buy (or in your case, retain) your current shareholding. The dividend stream would not be possible if it weren't for the loan therefore the interest should be tax deductible off the resulting income (i.e. dividends).

Sorry to hear your story re NZOG. Margin Lending can be cruel if you either run too close to the limit or the share-price plummets. I have been lucky I suppose and I rarely exceed 30% of my margin lending limit at any time. I trust NZOG will come back for you so you can break even on all of this. Good Luck!