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Newsletter Subscriptions - Tax Deductable?

Discussion in 'Accounting, Tax & Legal' started by Propagate, 21st Sep, 2016.

  1. Propagate

    Propagate Member

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    Hi all,

    Thinking about a sub to Intelligent Investor.

    Was wondering if subs are tax deductible, (generally or only if you buy something from the recommendations, or not at all?)

    Coming from a long term hold investment stance rather than as a "trader".

    Cheers.
     
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  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    My understanding is that if you earn income from investments then subscriptions to research materials should be tax deductible.
     
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  3. Propagate

    Propagate Member

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    Thanks Simon, I thought that too but then found an ATO blurb last night which says it would be if the subs were purchased AFTER the shares and the purpose of the subscription was to aid in monitoring the actual share you already have.

    It said that if the subs were purchased first then shares bought based on recommendations then it would be capital in nature and added/apportioned to the shares cost base.

    I was contemplating a sub to Intelligent Investor, if it was tax deductible it would be a lot more palatable. I guess I could use the 15 day free trial, buy shares from the first recommendation in the trial then subscribe to "monitor" those shares, making it tax deductible?

    I'll see if I can find the link I found last night.
     
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  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yes, that would be correct ... I guess I wasn't as clear as I could have been (posted last night while at a meetup!) ... you have to already be earning income from your investments for it to be deductible.

    I'm not sure I'd be buying a subscription just so you can act on their recommendations though, although if it's your first purchase and you just want to get a feel for investing in shares, you could. Gotta start somewhere I guess.
     
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  5. Propagate

    Propagate Member

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    I've dipped in and out of shares for years, haven't got a great mind for tracking and research, I get all excitied with it then very easily distracted and bored - hence why my current share portfolio is down 98% (seriously). Luckily I wasn't playing with too much money.

    My new business is starting to go well and cash-flow is emerging, We have a some IP's, not enough to make us Brazillionaires and with the new biz and our ages now on the far side of 40 my risk tolerance is dropping.

    There'll be no more IP's for a while as the business is young and we still have a sizeable PPOR mortgage with offset account, so each time I look at shares again I get back to the point that they would need to perform very well just to slightly outperform simply putting the same amount of money in the offset account, (which is also essential zero risk).

    I do feel though, that we need a little more diversity outside of property and Super.

    My thoughts at the moment are to put $1000 per month into solid shares paying dividend and re-invest the dividends. That would give us a 12 share portfolio in the first year then either keep buying more of the same in that portfolio during dips/troughs or keep buying into more companies. 15-20 year outlook would mean a portfolio purchase base of $180-$240k plus the re-invested dividends and any gains. Not Warren Buffet money but if I start putting the $1000 a month away now before we get used to it then it may be a little extra income in retirement that we wouldn't otherwise have.

    The Intelligent Investor newsletter appeals as they "appear" to have a good track record in their income picks. The plan would be that this would be along term hold and keep adding to it monthly so that when we retire there'd be another income stream from dividends.

    If I'm correct in thinking, I could pay the $1000 into a loan split first then buy the shares from the loan and then also be able to clain a deduction for the interest whilst also having the "cash" sat in the offset to pay the split back at any time, (effectively like a margin loan to myself?).

    Anyway that's just this morning coffee ramblings whilst I wait for my drawings to print!
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Hey - if you already own shares, I'd have no problems deducting the cost of your subscription - you don't have to tie it to a specific purchase.

    This is exactly the problem that a lot of people I know face - if you are looking for low risk returns, a guaranteed X% return from saving on loan interest is pretty hard to walk past - especially if the sharemarket is trending sideways and not really posting any significant gains. There's an awful lot of risk that goes along with trying to only slightly outperform the returns you get from parking money in your offset account!

    That being said - I don't see anything wrong with building a portfolio of stocks or ETFs/LICs over time as well - especially if you've got regular cash coming in that you can afford to put aside.
     
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  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yes, just be very careful not to contaminate the loans - make sure you keep personal borrowings completely separate from investment borrowings. You might want to double check with your accountant before you start to make sure you don't get it wrong.

    How is your loan structured? Do you already have a split loan set up?
     
  8. Propagate

    Propagate Member

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    We're with Macquarie, the're great for splits, all I have to do is call them up and tell them how many more splits to make the excess re-draws into. By the end of the next day the new splits are there ready and waiting, each with their own new account numbers. Been great for paying down PPOR then splitting off for deposits etc whilst keeping everything totally clean and separate.

    Also very easy to change the limits, so I can start with say a fresh $5k split then if we need more we can adjust the limit on the new split by reducing the limit on an unused one, or pay some off the main PPOR split and use the surplus to re-adjust the limits on the other splits.

    What I was unsure about was the fact the drawn down money has to go from the loan to the cash account with the broker then purchase the shares. You can;t "buy" the share straight from the loan account, which to me based on similar scenarios with property, breaks the chain of deductible?

    Unrelated topic, did you get my PM yesterday? Any chance of changing my username to the same as that I use on PChat & BChat?

    Cheers.
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Ahh yes - that may be a problem. My (non-professional) opinion is that so long as you have a clear paper trail showing where the funds originated from, you should be fine. Best to double check with your advisor.

    @NickM ... @Terryw do you have any comment to make here on how to keep deductibility when you have to transfer funds out of the loan account before you can make the investment?

    Yes, that should be fine - was out at the PropertyChat meetup at Wenty's last night (got home after 1am!), so I'm still catching up on stuff. Will take care of it today.
     
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  10. Terryw

    Terryw Well-Known Member

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    How you would do it is
    1. split the loan first
    2. pay down the loan to nil (or very close so as not to close it)
    3. pay the expense directly from the loan account.
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    @Terryw the problem isn't the loan itself - it's that they can't take the money straight from the loan account and use it to buy shares ... needs to be transferred from the loan account into a normal bank account first and then used to purchase the shares.

    Will that cause a problem from a tax perspective?
     
  12. Terryw

    Terryw Well-Known Member

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    Yes, a potential issue.

    This is something I have cover in the property chat tax tips:

    See
    Tax Tip 1: Parking borrowed money in an offset account https://propertychat.com.au/communi...ing-borrowed-money-in-an-offset-account.1313/

    But I believe payments can be made directly from the loan with Macquarie.
     
  13. Propagate

    Propagate Member

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    Yes Macquarie can make payments direct from loan splits, that;s not the issue. The issue is you can;t buy a share direct from an outside account, (loan or otherwise).

    In our case, we use NAB trade.

    The NAB trade account is effectively two accounts, a cash transaction account and the share portfolio/broker account. You can't have the share account without the associated cash account.

    You can only purchase a share using cash from the connected NAB account, so in order to do that you fist need to send money from the Macquary loan to the NAB cash account, then purchase the share using the NAB cash account via the NAB broker.

    We used to have a COMSEC account which worked exactly the same way, (I'm guessing this is how most trading accounts work? i.e. the broker/portfolio side of things is attached to a cash account for trades, which effectively means any money going from a loan to the cash account first instantly loses any potential deductibility?

    There must be way as I've read many times about using borrowed money to fund shares so that the interest on the loan can also be a tax deduction.
     
  14. Terryw

    Terryw Well-Known Member

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    Can't you just transfer money from the loan account to the cash account and then buy the shares. Just make sure the cash account has little or no cash in it.
     
  15. Propagate

    Propagate Member

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    Isn't that the same then as when an IP loan has to be disbursed into a cash account before it can be used as a deposit, (rendering it no longer borrowed funds?).

    I.e. once the loan money is transferred into the cash account, then the shares purchased the shares have no longer been bought with borrowed money.
     
  16. Terryw

    Terryw Well-Known Member

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    For property the funds can be used directly from the LOC.