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Treatment of Profits in Margin Loan

Discussion in 'Managed Funds & Index Funds' started by Rickson, 29th Dec, 2005.

  1. Rickson

    Rickson Well-Known Member

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    When you sell a parcel of shares for a profit, in my case in a Margin Loan account, can the profit be transferred to a home loan to reduce the debt on the PPOR?
     
  2. artgul

    artgul Well-Known Member

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    Hi Rickson,

    My understanding is that you can do with the profit of your investement whatever you want (after all due taxes are paid). The type or source of the investment should be irrelevant (as long as it's legal).
     
  3. Rickson

    Rickson Well-Known Member

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    artgul

    Thank you. Of course. I've been really dumb but the penny has just dropped. I've been following the Jan Somers advice, but with shares not property - "Just get used to bigger numbers". This is not a literal quote but it is how I remembered her advice.

    This year, trading profits throught the Margin Loan will allow me to make a deposit back into the PPOR and pay off the balance.

    Then I can borrow against the PPOR again, to put back in the Margin Loan.

    Seeing my banker next week - I'm sure I can do it, even if I need a relatively small Personal Loan for the difference.
     
  4. Simon

    Simon Well-Known Member

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    If you have borrowed to buy the shares I think the borrowed portion needs to be paid back. The profit then can be used as you wish. However if all paid into your margin loan then the profit cannot be drawn for the PPOR. Treated as new borrowings just like a LOC.

    If you don't pay back the borrowing then a portion of your margin line will be for your PPOR and non deductible.

    Makes sense?
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    As Simon mentioned - if your margin loan is in your own name, and you draw money out of the loan (LOC) to pay personal expenses, you will be "contaminating" your LOC ... don't do it !!

    If you can, arrange for your distributions to be paid to your own bank account directly, rather than into your margin loan account. Watch out though, your LVR will jump with each distribution - make sure you have plenty of buffer to ensure you don't face a margin call.

    There are some fund managers who won't pay distributions directly to your accounts, rather, insist on distributing to your margin loan account instead. Bit of a pain, but not so bad if your margin loan is in trust, and all redraws from the margin loan LOC are for "business" use anyway - more of a pain if margin loan is in personal name.
     
  6. Rick

    Rick Well-Known Member

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    I don't know if this is relevant to your situation Rickson but don't forget to allow for your tax obligations.

    If you tie everything up too tightly and you get hit with a big tax bill from your trading profits you may have to use borrowed funds to pay the tax :eek:
     
  7. Nigel Ward

    Nigel Ward Team InvestEd

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    Sage advice Rick!
     
  8. Rickson

    Rickson Well-Known Member

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    Thank you for everyone's responses to this thread but I have ended up confused.

    I understand the comments, from Somersoft, about drawing from Lines of Credit being new borrowings and they would not be deductible if used for private purposes.

    However, let's say trading profits are 100K. I want to access these for private purposes - paying off a PPOR. I am paying tax as required on the overall structure (negative geared IPs increase efficiency).

    Do I need to pay off a margin loan each year and start with a new one?
    Or because I use eTAX and not an accountant (to date this has been pretty simple and I understand the deductions allowed from IPs) - do I only need to know the information provided through eTAX. I have not seen any of this discussion about lines of credit in eTAX - or am I mistaken?

    Thanks again if anyone can shed any more light on this situation. Maybe just time for a good accountant, but I have liked knowing and understanding what I claim.