Margin Lending with regards to taxation

[CJ]

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]

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]

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]

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]

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]

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]

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]

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]

.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]

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/M...ing-Ratio.aspx

I hope this helps.