Interest, deductions and profits ....

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)?

 

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

 

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.

 

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