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Using LOC to pay down Margin Loan

Discussion in 'Investing Strategies' started by lorrimer, 18th Jan, 2009.

  1. lorrimer

    lorrimer Well-Known Member

    Joined:
    4th Jun, 2006
    Posts:
    193
    Location:
    Brisbane, Queensland
    Any pitfalls to be wary of, other than the fact that I wouldn't be able to capitalise the interest as I currently am with the margin loan?
    Would the interest on the LOC still be tax deductible?
    It would certainly make sense from an interest rate point of view!
    Thanks
     
  2. MrDarcy

    MrDarcy Well-Known Member

    Joined:
    13th Sep, 2005
    Posts:
    283
    Location:
    Sydney
    I posed this question and another to my accountant. I was confortable with both before, even more so after. Here are the questions and responses:

    4. I have been redrawing from bank loans to pay margin loans (to prevent margin calls) and am treating such as a type of refinance. That is, moving in bits the loan from the margin lender to bank loan. Any problems? Also, for one margin lender I have been redrawing from bank loans and putting in a cash account with the margin lender to prevent calls for as long as it is required. Again and problems here with claiming the bank loan interest?



    I don’t see any problems with this.



    5. Next year I will be in the position (as are many others) where I will have sold funds but the proceeds will not clear the original loan. In general I know the remaining loan may no longer have deductible interest, but I have read that where a loan funds many investments it can effectively be treated as a rolling overdraft and so remaining a valid expense. Can you advise further on this?



    This is fine. You are still entitled to claim a deduction for the interest since the expense originally arose from an income producing activity.