Tax deduction if purchasing shares

[Syd Investor]

Hi there,

I currently have a LOC secured against a couple of investment loans and was thinking of using funds from this to purchase shares. Just wanted confirmation that these funds are tax deductible given they are being used for investment purposes?

Cheers

 

[The Y-man]

My understanding is that the shares must pay (or intend to pay) dividends. i.e. the test is not for "investment" but for an "income producing" thingy.



The Y-man

 

[Terry_w]

Hi there,

I currently have a LOC secured against a couple of investment loans and was thinking of using funds from this to purchase shares. Just wanted confirmation that these funds are tax deductible given they are being used for investment purposes?

Cheers

Nope, however the interest on the funds used to acquire the shares could be deductible.

 

[Paul@PFI]

Read http://www.ato.gov.au/Individuals/I...ividends/You-and-your-shares-2012-13/?page=12

This page addresses the deductibility of interest as raised by Terry. A "expectation" of dividend income is sufficient. For example buying shares in XYZ Ltd which has a history of never paying a dividend poses a concern. However if you buy shares such as Telstra, Bank etc which have a consistent record of paying income then all is OK.

This page also describes some other costs which may also be deductible.

This page also describes the "CGT income" issue that can occur with some managed funds ETFs and LICs. Some managers distribute cap gains as part of their income. Some even distibute 100% of their income in the form of capital gains - even tax deferred amounts. For income tax purposes this can be read as "income" which is sufficient for the income earning nexus for deductibility of interest.