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  1. #1
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    Default Margin Lending with regards to taxation

    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,
    Last edited by castelinop; 26-04-2011 at 09:23 PM.

  2. #2
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    Quote Originally Posted by castelinop View Post
    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)

  3. #3
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    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.

  4. #4
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    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.
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  5. #5
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    Quote Originally Posted by CJ View Post
    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.

  6. #6
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    Quote Originally Posted by castelinop View Post
    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

  7. #7
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    $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.
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  8. #8
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    Quote Originally Posted by CJ View Post
    $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.

  9. #9
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    Quote Originally Posted by castelinop View Post
    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.

  10. #10
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    Quote Originally Posted by belgarion View Post
    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.
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