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Margin Loan - Profit on Sale

Discussion in 'Shares' started by SSShares, 12th Jan, 2010.

  1. SSShares

    SSShares New Member

    Joined:
    4th Aug, 2009
    Posts:
    2
    Location:
    Newcastle NSW
    Hi,

    I'm hoping someone might help me.

    I have an ETrade margin loan that is starting to become positively geared. It's great that my share portfolio is increasing in value but not the investment strategy I was looking for as I'm the higher income earner and my wife is currently not working.

    My question is, if I sell a share that is held in my margin loan account for a profit, does the profit stay in the loan and pay down the debt, or can I transfer the profit out of the margin loan account and use to may down my PPOR loan?

    For example, say I have a $100,000 margin loan. I own CBA shares that cost $50,000 but has increased in value to $90,000. If I sell my CBA shares and achieve a $40,000 profit, can I transfer this money out of the margin loan, or does it stay within the loan and pay down the debt? I'm keen to maximise the margin loan debt.

    I hope I haven't confussed.

    Thanks,

    SSShares.
     
  2. Intellikev

    Intellikev Active Member

    Joined:
    16th Dec, 2009
    Posts:
    28
    Location:
    Brisbane Qld
    Hi SSShares, the object of the loan is to create wealth. In the example you stated the interest on the $100,000 is fully tax deductible. The growth on your portfolio is not taxable until you realise/sell the asset. If you selll a portion of your portfolio for $40,000 and you have held those shares for 12 months or more then you will have to declare $20,000 as assessable income and pay tax at your current tax rate. The net amount $40,000 minus tax payable can be utilised to reduce your loan or used for alternative purposes. Talk to your financial adviser and see what they suggest as you may be better off using the growth on your investments and purchasing more shares. This will subsequently increase your loan and also your interest on that loan.
    All this will depend on your cashflow position.