DSSP and negative gearing

This has been discussed a couple of times but I couldn't find any definitive answer anywhere, so starting this thread to get people view on this one.

I am planning to purchase AFI share via NAB Equity builder, and turn ON the DSSP.
If I do so, could I still claim negative gearing on the interest charged even if I am not receiving any immediate dividend income but anticipating long term capital gain which is considered as "investment income" as per ATO?

 

@Terry_w any idea on this one?

 

What is dssp?

If bonus share scheme interest would not be deductible

 

Yep, it's a bonus share scheme.

 

My understanding is that it is not income (hence the "substitution" bit), so you cannot use DSSP and claim the interest as it is not an income producing asset.

I am planning on using it as a vehicle for my kids to invest, and avoid the punitive tax.

Also could be good for the higher income earner to build some wealth (when there is no bad debt to get rid of)

Cheers,
Inertia.

 

Best tax loophole ever if it was allowed...100% tax deduction on zero income earned lol.

 

Why not? Invest in VAE or VGS with close to zero dividend income and claim 100% tax deductions on interest

 

Ok Great thanks Terry

 

That’s of course doable if one wants to go that way.

 

What would happen in this scenario: AFI pays two dividends a year. For first dividends you recieve as cash, for second you turn on DSSP. Repeat for subsequent years?

 

I am not sure what you are attempting to achieve.

However, here is the link to AFI's dividend history

AFIC | Dividend history

and the link to its DRP/DSSP share price history

AFIC | Security history

Fire up a spreadsheet and plonk in some numbers is the best I can suggest. If you are looking at gearing, based on comments elsewhere in this forum, any interest on the loan would only be able to be off-set against the income for the first dividend and not for the the DSSP. You would need to check with a tax advisor.

 

I thought it was the purpose not the fact of income production that was the criterion for deductibility. That's why money borrowed for failed business ventures is still deductible. In the present case you could argue your purpose was to produce income in the future by ultimately changing your DSSP election.

 

Its never been the purpose. Its the use.

Interest on a loan related to a failed business might still be deductible, in some cases, where the business was income producing. There is still the connection between income and expense as required under s8-1