I'm looking for some very general advice on investment loans (for shares) and tips for keeping them Tax Deductable and not contaminated.
Can dividends be reinvested or must they pay down the loan?
Must you pay down the loan on selling a parcel of shares (bought from the loan)?
Any tips?
That seems super risky, especially considering that the markets are at record highs so a big correction is a strong possibility. Also, have a read of this:
http://www.theage.com.au/comment/stoking-a-fire-with-gasolin…
The housing market is at extreme levels. If housing comes down, consumer spending will fall and the share market will fall too.
http://www.smh.com.au/cqstatic/12z7v7/Barclays2.JPG
https://1v1d1e1lmiki1lgcvx32p49h8fe-wpengine.netdna-ssl.com/…
With interest rates set to rise in USA, that will be passed onto Australian banks, and then onto regular Australians with mortgage debt.
My experience from an investment loan from a bank (not a margin loan).
Can dividends be reinvested or must they pay down the loan? Dividends can be reinvested (or take as cash and do what you want with).
Must you pay down the loan on selling a parcel of shares (bought from the loan)? No, you don't have to pay down the loan when sell a parcel of shares (but do have to keep making your regular monthly payments).
No, you don't have to pay down the loan when sell a parcel of shares (but do have to keep making your regular monthly payments).
Thanks but if this is correct….Then why not take out a 100k investment loan, then buy 100k of shares, then sell the very next day for about the same price. Now use that 100k-ish to pay off your regular home loan leaving a 100k deductible loan. I'm probably overlooking something obvious.
Home loan rate will be lower than personal loan rate so why would you want to put the funds in your home loan?
If you dispose of the shares, you also lose the right to claim a deduction on the interest incurred on the loan:
https://www.ato.gov.au/Individuals/Tax-return/2017/In-detail…
Interest
If you borrowed money to buy shares, you will be able to claim a deduction for the interest incurred on the loan, provided it is reasonable to expect that assessable dividends will be derived from your investment in the shares. Where the loan was also used for private purposes, you will be able to claim only interest incurred on that part of the loan used to acquire the shares.
Once you sell the shares, it needs to be put back into the loan account for it to continue to maintain its tax deductibility
Dividends can be used anyway u want.
Shares are just an asset class for investment. Think about if you were buying property instead - same thing applies. Eg. You take out some money from an existing loan as a deposit on an investment property. U can put the rent wherever you want but once you dispose of the asset, if u dont use the funds for any other investment purposes (eg. Put it into your home loan) then that portion is no longer tax deductible
Margin loan is best loan. Get 3 of them.
Margin loans are usually more expensive than home loans, 2x or higher.
An alternative is to buy a geared ETF. They will get their margin loan interest at a much lower rate, even lower than a home loan.
Thisis a nice intro to margin lending.
https://www.moneysmart.gov.au/investing/borrowing-to-invest/…