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Interest, deductions and profits ....

Discussion in 'Accounting, Tax & Legal' started by broadscott, 8th Mar, 2010.

  1. broadscott

    broadscott Active Member

    Joined:
    15th Oct, 2008
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    Location:
    Melbourne
    Hi, I am looking at getting a margin loan to start a regular share/fund purchase plan and have a question. If I take out the loan in my name (for deduction of interest purposes), can I then purchase the shares/plans in my wifes name (for payment of dividend and capital gain purposes)?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Location:
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    You can do what you like ... but if the loan is used to purchase an investment in your wife's name (even if the loan is in your name), then only she will get to claim the interest on that loan as a deduction - sorry!

    The rule is that the purpose of the borrowed money determines the deductibility of it.
     
  3. Superman

    Superman Well-Known Member

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    6th Nov, 2007
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    Location:
    Gold Coast, QLD
    The answer is no. You can't have it both ways.

    By not having the shares (and expected dividends + franking credits) in your name there is no connection or 'nexus' between the income and the expense (i.e. the interest on the margin loan).

    If you are using this strategy I would think you would have mainly growth stocks in your portfolio - so wouldn't this mean fewer dividends? If the dividends are fully franked and your taxable income (after the interest deductions on the margin loan) is less than $80k you should still be better off for doing it all in your name.

    Are you using a financial planner or doing it all yourself?


    Good luck either way.

    SM
     
  4. broadscott

    broadscott Active Member

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    15th Oct, 2008
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    Location:
    Melbourne
    Unfortunately (or fortunately) my income is greater than $80K ... so does this mean it will be better off to have loan and investment in my wife's name? Why $80K?

    Doing it myself so far, but looking to go to planner once I have figured out how I want to tackle it.
     
  5. GregR

    GregR Reid Consultants

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    13th Jul, 2009
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    Location:
    Berwick Vic
    Broadscott,
    You can take out a loan in your name and if the funds are used to purchase a share portfolio in your wife's name, she can claim the interest costs against her dividend and other income. It is the use of funds that is the key determinant, effectively treating you simply passing on the loan to your wife for the purchase of the shares. You cannot claim the interest expense.

    Superman will be referring to the $80k as the tax break point moving from a marginal tax rate (MTR) of 30% to 38%. As fully franked dividends are taxed at company rates of 30%, that is the franking credit received. If your MTR is > 30%, then you pay the additional tax above the 30% credit.
    Greg