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Additional loan to purchase fully franked shares

Discussion in 'Accounting & Tax' started by Abooking, 4th Mar, 2016.

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  1. Abooking

    Abooking Well-Known Member

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    I took out an additional loan off the mortgage linked to my I.P- to buy fully franked domestic equities.

    I want to sell most of them and invest on nasdaq in technology shares. Ive made 30% return in 12 months on a big chunk of shares I purchased last yr and think that Im wasting time having my money on the ASX. I will obviously receive small tax breaks by having the fully franked shares paying dividends but Im better off changing my investment strategy; as I think that I can make substantial gains abroad. Also, Im a non resident of oz for tax purposes and thus I dont have to pay tax on any capital gains from the share market. The tax that I will save from making huge gains will far outweigh the tax benefits of having fully franked shares using money that I borrowed from my mortgage.

    Question: based on the fact that I borrowed money off the mortgage in the first place can I simply NOT claim the interest component on that borrowed money from the time that I sold the shares on the ASX. Please tell me there is no tax law stating that I have to legally pay back the funds to my mortgage .... Its the nanny state of australia and thus I thought I better ask.

    thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Youbwont be able to claim interesr on a loan used to buy shares after you no longer hold those shares
     
  3. Abooking

    Abooking Well-Known Member

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    thanks for your reply. Is there any tax law in oz that states that Im obliged to pay back the additional funds back to the mortgage. I hope not
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not you dont have to pay off the loan but just cannot claim the interest. If you subsequently buy more shares without paying off the original loan the interst on this woudlnt be deductible either.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    s8-1 of ITAA97 contains the nexus to income rule....Interest is necessarily incurred to buy income producing shares. However.....

    since the shares don't produce assessable income in Australia (dividends are only subject to withholding and are not assessable to a non-resident and the franking credit cant be claimed) the issue of deductibility only arises for your country of residence and not Australia. The interest is not deductible here in any event so its a mute point really.