Quick advice from an accountant or financial advisor??

[donkey]

After finding out recently that if I borrow money to buy income producing shares, I can claim the interest as a tax deduction? and thus now think that I want to apply for a top up loan on my IP to thus reduce my tax bill.

If you?re an accountant would you kindly look at my situation below and give your humble opinion as to whether you think it?s a good idea or not?.

I just did the tax return and my taxable income was $27k and my tax bill was $1700.

If I owe $190k on the IP and the repayment is $920 int only per month; and if I apply for $30k extra loan to buy shares? how much will this reduce my tax bill? I think that the extra 30k loan will equate to an increase of $145 per month extra loan repayment

I currently get $480 pw on the rent on the IP.

I live overseas at the moment and don?t work- living off the interest on my savings in an online saver account (near $500k). This extra loan payment of around $145 per month will thus reduce my monthly income over here. But maybe its going to reduce my tax bill from $1700 a year to nothing perhaps? Does this obviously also depend on how much income I derive from dividends?

Thus, Im paying the extra $145 per month to pay off the shares which are producing me income, giving me a tax benefit and potentially increasing in capital value. As an accountant do you think it?s a good idea for me to borrow the $30k to do this?

I don?t want to pay the ATO any tax if I don?t have to legally but clueless about how to do this? ie I don?t want my disposable income to reduce too much whilst Im sitting on the beach overseas here living off the monthly interest from the online saver account.

I really appreciate your opinion if your able to give one!

 

[HD_ACE]

Im not an accountantant or anything but

It will depend on how much income you recieve from the shares to how it will affect your tax return. At the end of the day you will have to be making a loss from them to reduce your tax bill

But your going about it all wrong. Think of it this way...

If your paying tax then you are making money.
If your not paying tax then your either not making money or loosing money.

Getting alot of tax back is only offsetting the majority that you have lost. This is not such a bad thing if the asset is growing in capital at a rate more than your loosing each year to make it worth while.

If you want zero tax just donate money to charity and claim it to reduce your tax to zero.

Cheers

 

[tobe]

what he said. ^^^^^^^^^

If you cant get your head around finding an investment first and then looking at your tax position let me know, I have a great tax scheme where you can give me a dollar and get 30 cents back on your tax.

 

[Terry_w]

After finding out recently that if I borrow money to buy income producing shares, I can claim the interest as a tax deduction? and thus now think that I want to apply for a top up loan on my IP to thus reduce my tax bill.

If you?re an accountant would you kindly look at my situation below and give your humble opinion as to whether you think it?s a good idea or not?.

I just did the tax return and my taxable income was $27k and my tax bill was $1700.

If I owe $190k on the IP and the repayment is $920 int only per month; and if I apply for $30k extra loan to buy shares? how much will this reduce my tax bill? I think that the extra 30k loan will equate to an increase of $145 per month extra loan repayment

I currently get $480 pw on the rent on the IP.

I live overseas at the moment and don?t work- living off the interest on my savings in an online saver account (near $500k). This extra loan payment of around $145 per month will thus reduce my monthly income over here. But maybe its going to reduce my tax bill from $1700 a year to nothing perhaps? Does this obviously also depend on how much income I derive from dividends?

Thus, Im paying the extra $145 per month to pay off the shares which are producing me income, giving me a tax benefit and potentially increasing in capital value. As an accountant do you think it?s a good idea for me to borrow the $30k to do this?

I don?t want to pay the ATO any tax if I don?t have to legally but clueless about how to do this? ie I don?t want my disposable income to reduce too much whilst Im sitting on the beach overseas here living off the monthly interest from the online saver account.

I really appreciate your opinion if your able to give one!

Your question is misguided.

An accountant cannot tell you if it is a good idea to buy shares as this is financial advice (unless they are also fin planners).

Leave this aside - ie whether shares are a good investment or not - you will be able to claim any interest on borrowed money for the share purchase.
$30,000 x 5% = $1500. This would be the extra deduction.

But don't forget you will probably be getting dividends which will be income. But there may be franking credits as well.

So it all depends on how much income you will get, the franking credits and your tax situation. Being overseas you may be a non resident for tax.

 

[Paul@PFI]

Have to agree with other replies. Just because you can deduct interest doesnt mean you are "making $". Logically if your loan costs 5% then you need to target a return which is well above 5% just to break even. Otherwise its an exercise in futility. Losing money to save tax is just dumb. Doing nothing is safer.

That said...Are you buying the shares to hold and appreciate in value or to derive income ?? Thats important. Tax deductions for interest on loans are available PROVIDED that the shares intend to generate assessable income. That doesnt mean a capital gain !!
Example:
You have two choices. Telstra shares which pay 14.5cents per share twice a year. Yield (say) is 6%. Option B is buy shares in VirTas Airlines which hasnt made a profit or ever paid a dividend. There shares are at an all time low of 3cents.

VirTas loan interest is non-deductible. Its a capital cost of acquiring a CGT asset. The interest can reduce a future cap gain. But not offset v's ordinary income. However the TLS interest is deductible.

Also what is your plan is the shares lose value ? Your original capital could be eroded and if you retain the shares the only way to recover is to hold them. they could fall further....Its not an investment strategy to hold shares and lose more $ really. especially using borrowed $ on your home.

What happens if the hsares make you a good income AND a capital gain...Happy to pay tax at your marginal tax rate ? It might be contrary to your original question. That is after all an investment objective.

Have you considered an ETF that offers hi yield ASX 30 shares ?? Or some other choices ?? Lots of products. This may spread your individual share risk and also deliver hi yield returns. This is the role of a financial adviser....Happy to talk.

 

[Paul@PFI]

Your question is misguided.

So it all depends on how much income you will get, the franking credits and your tax situation. Being overseas you may be a non resident for tax.

Ahh Terry raises a great issue.

Non-residents dont pay any $AUS tax on ff divs. Only a 10% withholding on unfranked divs. Also non-residents dont pay ANY CGT on share profits unless you are Rupert Murdoch etc. (You need to own 10% + of the listed company)

BUT this may mean no taxable income too. Hence no deductions AT ALL...

If you are non-resident and planning to return have you considered a super contribution that is tax deductible ?? That can eliminate your taxable income.

 

[Rob G.]

I live overseas at the moment

Just determine if you are a resident for tax purposes.

All posting is futile until you know this.

 

[donkey]

yes, im a resident of oz for tax purposes. I will never lose or change this status as my tax bill goes up big time if I become a non resident.

thanks for all the opinions.