Tax deduction for Interest expenses on Resident Home Loan used for another investment

[extremeinvestor]

Hi there. I have a question relating to Tax deduction for Interest expenses on Resident Home Loan used for buying shares.

I just bought a resident house (for living) and borrowed a first home loan of $300,000. However, I still own shares of $100,000 (market value). I understand that there is no tax deduction for the home loan interest because it is resident home loan.

Theoriely, if I sell shares, the pay off my home loan $100,000, then redraw (or refinance) $100,000 under equity loan to buy shares back. I can have tax deduction on interest relating to loan of $100,000 (shares) because it is interest expenses for share investment.

However, I do not want to sell shares+managed fund because it will incur capital gain as well as it is not right time to sell. My question: in this case, can I consider the equity for share investment sourcing from the home loan and get tax deduction on the market value of shares at the time the loan begins?

Also, can I conduct sell/buy shares on the book only, not physically?

How to avoid captial gain from sell shares, then buy back?

Do you have any ideas or suggestions?

Thanks

 

[extremeinvestor]

An investment ideas - Combined Equity+Margin loan

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[kris]

I think your out of luck.

When it comes to interest deductibility the intention of the loan becomes very important and the intention is to buy your primary place of residence.

You could sell the shares (paying 100k off the loan) and take out a new 100k loan to buy them back again, though there is no way to get out of that without facing CGT consequences. Even selling them to your partner or family and buying them back (at cost) would be a no no because of the market value substitution rule.

 

[Simon]

Hi there. I have a question relating to Tax deduction for Interest expenses on Resident Home Loan used for buying shares.

I just bought a resident house (for living) and borrowed a first home loan of $300,000. However, I still own shares of $100,000 (market value). I understand that there is no tax deduction for the home loan interest because it is resident home loan.

Theoriely, if I sell shares, the pay off my home loan $100,000, then redraw (or refinance) $100,000 under equity loan to buy shares back. I can have tax deduction on interest relating to loan of $100,000 (shares) because it is interest expenses for share investment.

However, I do not want to sell shares+managed fund because it will incur capital gain as well as it is not right time to sell. My question: in this case, can I consider the equity for share investment sourcing from the home loan and get tax deduction on the market value of shares at the time the loan begins?

Also, can I conduct sell/buy shares on the book only, not physically?

How to avoid captial gain from sell shares, then buy back?

Do you have any ideas or suggestions?

Thanks

None of those things are possible. You can only buy shares using borrowed funds to realise deductible interest - the transaxction must take place.

I suggest you do a search on debt recycling both here and at www.invested.com.au to find some discussion on this topic. The latter site is prob best.

 

[extremeinvestor]

Share+Managed Funds Mortgage

Thanks for your contributions. This morning I come with this idea:

I will apply for margin loan. Deposit shares+managed funds of $100,000 to margin loan and take $70,000 (70%) in cash. I use this cash to pay a proportion of the home loan and convert this proportion into home equity loan. Then, I withdraw money from home equity loan to invest into shares and managed funds. So, I can claim tax deduction on this home equity loan in relation to shares+managed fund investments.

Do you find any thing wrong with this strategy?

 

[Simon]

Thanks for your contributions. This morning I come with this idea:

I will apply for margin loan. Deposit shares+managed funds of $100,000 to margin loan and take $70,000 (70%) in cash. I use this cash to pay a proportion of the home loan and convert this proportion into home equity loan. Then, I withdraw money from home equity loan to invest into shares and managed funds. So, I can claim tax deduction on this home equity loan in relation to shares+managed fund investments.

Do you find any thing wrong with this strategy?

Not sure exactly what you have planned but please be careful.

This topic is done in detail at invested and I strongly suggest you read up there first.

I will even go as far as to suggest you consider becoming a client of Navra Financial Services and let them arrange your financial strategy to achieve this and more.

Cheers,

 

[bort]

Thanks for your contributions. This morning I come with this idea:

I will apply for margin loan. Deposit shares+managed funds of $100,000 to margin loan and take $70,000 (70%) in cash. I use this cash to pay a proportion of the home loan and convert this proportion into home equity loan. Then, I withdraw money from home equity loan to invest into shares and managed funds. So, I can claim tax deduction on this home equity loan in relation to shares+managed fund investments.

Do you find any thing wrong with this strategy?

your margin loan interest would not be deductible as the funds are being used to pay off personal debt