Property and shares

Hi all.

I imagine many people starting out with property still manage to get a bit of a tax return. even with an income tax withholding variation. normal deductions may still see them get some cash back at tax time. this is where i am at the moment. My extra funds from the variation straight into paying off debt but we normally still get a couple of grand back at tax time and we normally spend that on ourselves.

Now recently i have started playing with shares. I have a LOC Half is drawn from a recent property purchase. I have now started the odd share purchase using this LOC also. So far im doing well. When i sell the shares i immediately repay the borrowed funds so there is no contamination off the LOC. OK

Now what will happen at tax time. I have managed to build up about $7,000 in profit over the last month so by the time this gets added to my wage along with property income and losses at tax time i may see my small refund dissapear.

I know some would say "who cares you have made the profit on the shares" This is true but all profit from the shares goes straight into a shares account that all funds from share sales or purchases and transacted from.
I may be running the risk of contaminating the LOC funds if i use it for personal non income items.

I was thinking of just removing the profit from share sales ASAP after repayment of the LOC funds used for the initial purchase.

So i guess what i am saying is how do i axcess the funds without LOC contamination. Im guessing many others with share and property portfolios would have come across this.

cheers.
 
So i guess what i am saying is how do i axcess the funds without LOC contamination. Im guessing many others with share and property portfolios would have come across this.
.

Not sure that I understand the question - you are not contaminating the funds by buying shares.... :confused:

Cheers,

The Y-man
 
Not sure that I understand the question - you are not contaminating the funds by buying shares.... :confused:

Cheers,

The Y-man

yeah i can confuse easily. I should explain the share transaction account better.

I have a savings account linked to a westpac broking account. When i buy shares funds are withdrawn from this account. When i sell funds are placed in the account.

To finance the purchases i transfer funds from the LOC into the account. This is where i would have to be careful. I assume that if i sold shares that i purchased via the LOC with the funds then deposited into the account. If i then spent some of those funds on non investment items. In that situation i would have contaminated the LOC.

What i am hoping to do is when i sell shares bought via the LOC. If i immediately repay the amount borrowed from the LOC to purchase that parcel of shares. Then i should be free to do what i want with the remaining funds. I hope that is acceptable.

The reason i ask is if i start making significant profit my current tax return will start to turn into a tax bill. So i just wanted to make sure i can still get to the profit and use it for non investment purposes.

I hope i havent confused people more:confused:
 
OK my understanding of it is as follows: for example

100k LOC 80k used for an investment property 20k used for shares if you make say 5k profit from your share activities and you want to keep that money only put the original 20k back into the loan.

but here is the kicker: any repayment back to that loan will be prorata between the 2 balances i.e.80% of your 20k repayment will be off the investment property debt and 20% will be off share debt unless you actually have a split loan specifying amounts.

I believe this is the principle used as part of debt recycling strategies.

If you keep the profit make sure you put some away for tax if you are expecting a bill!:D
 
To finance the purchases i transfer funds from the LOC into the account. This is where i would have to be careful. I assume that if i sold shares that i purchased via the LOC with the funds then deposited into the account. If i then spent some of those funds on non investment items. In that situation i would have contaminated the LOC.

What i am hoping to do is when i sell shares bought via the LOC. If i immediately repay the amount borrowed from the LOC to purchase that parcel of shares. Then i should be free to do what i want with the remaining funds. I hope that is acceptable.

To me that sounds ok, but you'd still want to run it by your accountant. You'd want to make sure you keep a good paper trail as well as it would be confusing after a while when you're constantly withdrawing then depositing funds from sales back into the LOC. You would need to make sure $ amounts match up etc.
 
I think you might be OK Devo, as it sounds alittle simmilar to what I was told.

For example:
If you have a LOC or have borrowed against your home loan and decide to use those funds for investing (share trading) you are able to claim a tax deduction on the interest incurred on the amount borrowed (as you already know). Lets say you now are able to pay down the borrowed funds with your own money (savings or money you earn't from trading), you would then be better off placing those funds into an offset account that reduces the interest payable on the borrowed amount and continue using the borrowed funds for investing. That way, you can continue to claim a tax deduction as you are still using borrowed funds and you are also reaping the benefit of having your own funds sit in an offset to reduce the interest on the LOC.
 
as i understand it! its all used to make you an income??? so at the end of the financial year, it should all ballance as such, with the end result from your proffit and loss statements, ;)
 
OK my understanding of it is as follows: for example

100k LOC 80k used for an investment property 20k used for shares if you make say 5k profit from your share activities and you want to keep that money only put the original 20k back into the loan.

but here is the kicker: any repayment back to that loan will be prorata between the 2 balances i.e.80% of your 20k repayment will be off the investment property debt and 20% will be off share debt unless you actually have a split loan specifying amounts.

I believe this is the principle used as part of debt recycling strategies.

If you keep the profit make sure you put some away for tax if you are expecting a bill!:D

Hi. I don't think it has to be proportioned by prorata. I think it is accepted that as long as you pay of the debt associated with the initial purchase. Then it's all good.

Example
A fully drawn loc 50% used on property a. 50% on property b.
10 years down the track you sell property a. You must then pay of that 50% used for that property for the remainder to stay fully deductible. I think this is right.

What happens with general paying down of the debt outside of selling I'm not so sure. In that case it might have to be proportioned. But the above example would be the same for share I would think. As long as you pay the debt on sale and keep records.
 
Hi, I have the same problem, well almost the same. I borrowed a high interest private loan, purpose was investment. But I had to use part of it for 'personal' purposes, I transferred 50 thousand into smsf. So I don't claim that as deductible.

The 10000 I used to buy shares made 3500 very quickly. Then I spent more & realised about 12000 profit.

I figured if I have to pay tax on that, then I should be able to claim the interest as deductible. What I've done is to apportion the interest on the number of days that the shares remain unsold.

Don't know yet if that's acceptable by my accountant. If not, I'll 'contribute' the profits to smsf thereby avoiding the tax. Then I don't claim any deductions.

It's hard enough to make some profit, harder still to keep it!

KY
 
I guess my concern although a very small one is I will be loosing my small tax return that we currently use for non investment stuff(we currently have a tax variation in place) as we start to achieve profits from shares. Profits are great or better but the profits go into an account that the loc funds also go into. So I must be carefull not to infect them by taking cash out. As long as I pay the loc back first with each share sale it should be ok.
 
Not saying a LOC can have an offset attached, sorry if I worded it like that. I was referring to having borrowed additional amount from the mortgage to be placed into a trading account and then pay back into the offset but continue claiming a deductible debt as intially used for trading.
 
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