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Deductibility of paying thru an intermediate acct.

Discussion in 'Money Management' started by gav, 30th Jul, 2008.

  1. gav

    gav New Member

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    30th Jul, 2008
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    Location:
    Melbourne
    Hi, I am buying shares thru Commonwealth Securities. To get their cheapest brokerage cost ($19.95 / trade) you need to settle thru a Commonwealth account called a CDIA account (or a couple of other ways, but I am using a CDIA account which is basically just a standard transaction account). So if you buy $10,000 in shares, then you just make sure you have $10,019.95 in the account three days later and Commsec direct debit you. However, I don't have the cash, so I am borrowing the money to buy the shares using a LOC account. So I do my share trade, then transfer the trade value from my LOC account to my CDIA account and then later that night Commsec direct debit my CDIA account.

    My question to the forum is, does this transfer maintain the tax deductibitlity of the loan from my LOC?

    I know that if I wrote a cheque and sent it to commsec, or used bpay to pay from my LOC directly to Commsec then the interest in my LOC would be fully tax deductible. However, I am going thru an intermediary account. Does this intermediary account (the CDIA account) break the chain for tax deductibilty purposes and will the ATO therefore consider me to be paying cash to buy the shares rather than borrowing to buy the shares? I can pay by BPAY, but it costs $29.95 per trade for BPAY instead of $19.95. And does anyone know if there a ruling on this on the ATO website? I make sure my CDIA account is alway empty (except just after a trade), and that it isn't used for anthing else other than buying shares.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    So long as there is a clear paper trail showing where the money went, I don't think you'll have a problem.

    If you transferred the money from your LOC to the CDIA account and then out again to your personal bank account for personal use, then it's clear the LOC interest would not be deductible, but provided the money is only ever used for investment purposes - there should be no issue.

    Doubt you'll find a ruling on this.

    Perhaps one of our local accountants can add more?
     
  3. willy1111

    willy1111 Well-Known Member

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    I reckon you would be fine.

    The CDIA account is an interest bearing account anyway - thus if you've borrowed money from your LOC to invest in the CDIA interest bearing account, the interest would be tax deductable anyway - you should be covered either way.

    I do this too.
     
  4. Waimate01

    Waimate01 Well-Known Member

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    The only caveat I can think of is that all the accounts would need to be in the same name. If one was personal and another was a SMSF or company or a different person, then you might have a problem. Otherwise, I would think it should be quite ok.