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  1. #11
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    Quote Originally Posted by shasta View Post
    CJ

    You'll find that Belg is right, you can't claim the interest expense, on just the basis that the dividend is taxable.

    By claiming such a deduction exposes your capital gains to tax.

    .
    And you call yourself an accountant shasta?????

    Cap gain is not taxable in NZ !!
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  2. #12
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    Quote Originally Posted by Mick100 View Post
    And you call yourself an accountant shasta?????

    Cap gain is not taxable in NZ !!
    OK, "taxable profits/assessed income" then, same thing as CGT in principle really if your deemed a trader!

    Being smug with the IRD won't help anyone though.
    Last edited by shasta; 26-08-2009 at 03:39 PM.

  3. #13
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    What are the interest rates charged on margin lending. Is it corrolated to other rates - ie on average about 2% hgher than fixed mortgages?
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  4. #14
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    I am thinking of creating a LAQC to hold a leveraged portfolio of listed property trusts and a exchange traded. However LPTs and ETFs are PIE investments that pay tax within the PIE.
    The money paid out from the PIE is excluded income. Does anyone know about the deductibility of interest against excluded income, can I do it or will the IRD be on my case.
    I am also having a long term time horizon for this portfolio (5 years+) with very little to no trading. Will I attract a capital gain tax liability by claiming interest? Does the fact that I have created my portfolio in a LAQC have a bearing on a capital gain tax liability?

  5. #15
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    Quote Originally Posted by buxlo12 View Post
    I am thinking of creating a LAQC to hold a leveraged portfolio of listed property trusts and a exchange traded. However LPTs and ETFs are PIE investments that pay tax within the PIE.
    The money paid out from the PIE is excluded income. Does anyone know about the deductibility of interest against excluded income, can I do it or will the IRD be on my case.
    I am also having a long term time horizon for this portfolio (5 years+) with very little to no trading. Will I attract a capital gain tax liability by claiming interest? Does the fact that I have created my portfolio in a LAQC have a bearing on a capital gain tax liability?
    Why do you think you need an LAQC, if your not going to be trading?

    LPT's & PIE's return dividends so where do you see you any losses coming from?

    The interest charged on margin lending a/c's + the loan fees are deductible*.

    I'm not up to speed on PIE tax arrangements, but if the tax paid income is excluded then you will need another source of income to claim any deductions*.

    NZ doesn't have a Capital Gains Tax, so if you are referring to any gains you made if your holding for 5 years odd, then you will be deemed an investor not a trader, so your gains wont be subject to any tax.

    Without knowing your situation, theres not much to gain by using a company at this stage.

    Why do you think an LAQC is the answer, in all my time as an Accountant the structure that is least effective are LAQC's, which are more widely used by property investors who utilise depreciation claims (& National may crack down on that).

    They can be used for share trading, but you really have to think it through before you start.

    I had a group company structure which ultimately screwed me, when the rules changed, & unwinding it has exposed me to more tax than i anticipated.

    Lastly, tax should be the very last thing you consider when investing, protecting capital should be your first priority

  6. #16
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    Quote Originally Posted by shasta View Post
    Why do you think you need an LAQC, if your not going to be trading?

    LPT's & PIE's return dividends so where do you see you any losses coming from?
    The loss will come from the fact that PIE income is tax paid excluded income. Therefore, it this was the only source of income, the full interest cost would generate a loss which would be offset against PAYE income.

    The interest charged on margin lending a/c's + the loan fees are deductible*.

    I'm not up to speed on PIE tax arrangements, but if the tax paid income is excluded then you will need another source of income to claim any deductions*.

    NZ doesn't have a Capital Gains Tax, so if you are referring to any gains you made if your holding for 5 years odd, then you will be deemed an investor not a trader, so your gains wont be subject to any tax.
    Shasta, you said above at post 13 that dividends are not enough to warrent claiming interest and be excluded from NZ 'CGT'. What you suggest here is different. I disagree with the statement in that post so have you changed your mind.

    Bluxo - my understand in that while PIE income is excluded it is still 'income' for tax purposes so would justify claiming the interest expense subject to Shastas response on my question above.

    However, I am note sure if there is any benefit in what you suggest:

    - Why go through the hassle of a LAQC. Why not do it in your own name?? The bank will probably ask for a personal guarantee anyway (wont they?) which gets rid of the only benefit of limited liability.
    - As you say, PIE income is excluded, though it has had tax withheld at 30%. As the company tax rate is 30%, you are in exactly the same position. The benefit of a PIE is where you are in the 38% bracket but the excluded income is taxed at the 30% rate therefore giving you a 8% margin by using a PIE.

    Bump for my previous question - do the margin lending rates correlate of home floating rates and if so, what is the approx margin. Maybe I should just give ASB a call - I assume they will give me the historical position as well?
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  7. #17
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    The difference from my earlier post, was by using margin lending, it attracts loan fees & interest, which if you have income related to the expenditure is claimable.

    From memory ASB Sec margin loan rates are around 9-10%

  8. #18
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    Thanks for the replies Shasta and CJ.

    Under normal circumstances setting up an LAQC to do my trading would be a waste of time and a unnecessary cost.
    However I am about to cross the time limit and be classed as in a defacto relationship. This is the reason for holding shares and future share trading in a company.
    Under relationship property all shares/property you owned before you were in a defacto relationship is still considered your property. For example if I sold some shares of Company A (that I bought before I was in a relationship) and then bought some other shares of Company B (I am now in a defacto relationship) the shares I own in company B would be considered relationship property. However if I own the shares in the LAQC before the 2 year time limit those share will not be considered as relationship property and any future share transactions by the LAQC will not change that.

    Margin rates do vary depending on the OCR and other factors. They are ushally higher than home loan interest rates.
    I think ASB are around 9%-10%
    Just like mortgages it pays to shop around. The one I was thinking of using was Leveraged Equities. Their rates are alot closer to home loan rates. Lower rates = Higher profits

  9. #19
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    Quote Originally Posted by buxlo12 View Post
    Thanks for the replies Shasta and CJ.

    Under normal circumstances setting up an LAQC to do my trading would be a waste of time and a unnecessary cost.
    However I am about to cross the time limit and be classed as in a defacto relationship. This is the reason for holding shares and future share trading in a company.
    Under relationship property all shares/property you owned before you were in a defacto relationship is still considered your property. For example if I sold some shares of Company A (that I bought before I was in a relationship) and then bought some other shares of Company B (I am now in a defacto relationship) the shares I own in company B would be considered relationship property. However if I own the shares in the LAQC before the 2 year time limit those share will not be considered as relationship property and any future share transactions by the LAQC will not change that.

    Margin rates do vary depending on the OCR and other factors. They are ushally higher than home loan interest rates.
    I think ASB are around 9%-10%
    Just like mortgages it pays to shop around. The one I was thinking of using was Leveraged Equities. Their rates are alot closer to home loan rates. Lower rates = Higher profits
    Current asb rate is 6.2 %

  10. #20
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    Quote Originally Posted by fish View Post
    Current asb rate is 6.2 %
    So about 50bp above floating. Does it stay at around that margin.

    Buxlo - Obvoiusly a loving relationship . Just make sure she doens't get involved in it or it will be tainted. I would have thought a trust was better but I assume you want to offset the losses (due to interest) against wages. How aobut setting up a trust as well and loaning the the start up funds for the LAQC from the company. That way the company has no assets should it become tainted.
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