Debt Recycling - VAS/VDHG/VHY or LICs

Discussion in 'Shares & Funds' started by Declan S, 26th Aug, 2020.

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  1. number 5

    number 5 Well-Known Member

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    I'm a finance broker. there is very limited options for LOCs. CBA will do them but are way above the HL rates out there. Some other lenders will let you open a LOC but only if you are an existing customer. All in all, you will have alot more trouble going down this route.

    As for splitting a loan. fairly straight forward - takes a few forms - and the bank might make you wait 2 weeks but in my experience this is by far the more effective way to do this.

    IMO there will be no such thing as a LOC within 1- years. they have been made largely superfluous with the introduction of offset accounts.
     
  2. km1974

    km1974 Well-Known Member

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    seems very interesting, i had never even thought that was possible.

    so in summary - you are still a long term investor, but with yearly cash-outs (and pay tax), and then the long term intent being two things: 1. always being able to claim interest on the investment amount as you are pulling out of your home loan and 2. having a minimal CGT obligation whenever you hit the end-game (if not mistaken).

    my only questions to that are :

    1. is that allowed - to claim tax deduction
    2. wouldn't it be better longer term to not cash out and leave the larger amount of money in there (as you are paying CGT every year - if that stays in there won't that help the fund grow proportionately - maybe a good calculator could tell)?
     
  3. inbaaa

    inbaaa Active Member

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    hi @km1974

    1. i would think the interest is tax deductible as the $ is still pulled from my (non tax deductible) owner occupied loan to invest in shares. The motive is still to recyle non-deductible loan to a deductible loan. happy to be corrected.

    2. This is the part I'd like to hear opinions on. By not cashing out, we are recycling non-tax deductible debt a lot slower. The source of funds to recycle debt would be from our savings plus dividends. By selling every year, we'd recycle non tax deductible debt faster as we are using capital growth (assuming market has performed well) plus dividends plus savings to re-invest again. Yea we lose a bit of capital everytime. However, we are able to claim more loan interest as a tax deduction. I am not saying this is the way. This option is worth considering and id love to hear from anyone who has/is done/doing it.
     
  4. Terry_w

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

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    It can be a good strategy to sell assets and realise cap gains as the gains can be huge compared to the positive income so it speeds up the process of elimination non deductible debt. But you will also be losing a certain percentage of your assets.
     
    inbaaa likes this.
  5. Eetswa

    Eetswa New Member

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    I'm digging up an old thread here, but @Terry_w can you point me to the thread you're referencing. I have been searching for it, unsuccessfully. Thanks!
     
  6. Terry_w

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

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    That might have been this one:

    The 2 broad methods of Debt Recycling The 2 broad methods of Debt Recycling
     
  7. Eetswa

    Eetswa New Member

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    Thanks @Terry_w, I've been reading through that thread and am working my way through the rest of your 411 tax tips.
     
  8. Terry_w

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

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    its up to 427 now, I did 10 more this morning!
     
    geoffw likes this.