Interest Deductibility Question

[Rino]

I have a $200k margin loan. I want to get rid of the margin loan and fund my share portfolio using a LOC on my PPOR.

If I draw down $200k from my LOC and use it to pay off the margin loan, is the interest on the LOC deductible? Or do I need to sell everything in the margin loan, then re-buy it using the LOC funds?

 

[Bushy]

Rino,
I'm no accountant, but it sounds like you are only transfering debt, shouldn't be a problem. Only drawback is if your LOC is mixed up with personal ( non deductable ) amounts , you would then need to separate the deductable from the non-deductable interest as you couldn't claim the lot. Best check with your accountant though, I cant give advice.
Regards Bushy

 

[s_t]

Nice idea in that it removes the issue or margin calls when the market falls. I wish shares were like property in that the loan doesn't get called in due to a fall in value.

 

[MattR]

Rino,
I'm no accountant, but it sounds like you are only transfering debt, shouldn't be a problem. Only drawback is if your LOC is mixed up with personal ( non deductable ) amounts , you would then need to separate the deductable from the non-deductable interest as you couldn't claim the lot. Best check with your accountant though, I cant give advice.
Regards Bushy

This is a very good point.

An easy way around the problem is to use a sub account that many of the major bunks offer. Nothing but Share stuff goes into this sub account.

 

[Rixter]

I would be running your situation past your tax professional.

The ATO may classify it as a repayment of loan principal thus not tax deductible, instead of a loan for income producing purposes.

Best clarify it professionally or direct with the ATO.

Better to be sure than sorry.

Hope this helps.

 

[Rino]

Yes, the LOC is used strictly for investing only. Come on! This is an investment forum. Who buys toys on credit?

Wouldn't be too big a deal buying and selling everything. But I figured I'd save myself some money in commission.

I see it as re-financing / re-structuring of investment loans. But will seek further advice.

Thanks guys.