Debt Recycling in Shares in Partners Name

Discussion in 'Investment Strategy' started by Goosehead, 28th Feb, 2020.

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  1. Goosehead

    Goosehead Well-Known Member

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    With a low interest rate environment of around 3%, and ETF's returning 4% dividends. Is it better to invest in the low/zero income earners name to take advantage of full franking credit refund? Or in the higher income earner (above 30% tax bracket) considering it will be a positive geared investment while interest rates are low?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If thinking tax, the lower income earner would pay less tax.
    But don't forget other things to consider such as control, asset protection, and estate planning
     
  3. Goosehead

    Goosehead Well-Known Member

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    Yeah I'm working theoretically for cash flow purposes only. Not protection, control, planning however point taken.
     
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  4. Trainee

    Trainee Well-Known Member

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    Is it as simple as (gross div - interest) x difference in tax rate?
     
  5. Improve

    Improve Member

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    I too have been thinking about the whole debt recycling.
    I'm in a similar scenario for our tax brackets and looks like having the share portfolio under the lowest income earners name would be most effective.

    Our ppor is a joint loan, so the split loan will also be jointly owned.

    I'm wondering if that means only 50% of the interest paid could be claimed as a duduction or can 100% of the interest could still be claimed even though there are two names on the joint split loan?
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I have a tax tip on this.generally deductible in full to the spouse that owns the shares. Confirm with your tax advisor
     
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  7. Goosehead

    Goosehead Well-Known Member

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    My loan will be 100% in my name but will potentially have the shares in my partners. Partner is starting to look for work though however will more than likely earn less than me.
     
  8. Goosehead

    Goosehead Well-Known Member

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    Kind of, unemployed person will get a full franking credit refund, while the employed pers in the 32% bracket may get a little refund or have to pay tax. For example 100% ff dividend is 30% so tax before borrowing costs will be an extra 2%. With costs may end up with a refund that means effective tax rate of 10%. If that makes sense.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You should seek legal and tax advice about borrowing and onlending to the partner on a complying loan agreement, otherwise interest won't be deductible to either of you.
     
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  10. Goosehead

    Goosehead Well-Known Member

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    Would that be the same for a trust? If a family trust was set up and money on lent to the trust?
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I have a specific tax tip on this. Debt recycle with trusts
     
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