I am looking to redraw on my home loan to purchase shares. This would result in interest being deductible for tax as it is used to generate dividend income. Can I use an existing brokerage account (with shareholdings) to purchase the shares or would I need to set up a new brokerage account to keep my investments separate? I think the key to deductibility is the use of the funds, so if I can show the funds leaving my loan account, transferred to my brokerage account then used to buy shares, this should be ok?
Depends. Are ALL the share likely to pay dividends ? If they arent then that portion is non-deductible. Its very easy to create a blended loan mess with shares and then be unable to determine how much is truly deductible. Two years later ATO are confused as you and just deny the claim. The existing brokerage account will possibly be OK. Just ensure ALL the borrowed $$ is used. If the broker trading account doesnt pay interest you could end up with a blended loan if the funds arent fully invested.
see Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account Tax Tip 67: Using Redraw Facilities on loans and Tax Issues Tax Tip 67: Using Redraw Facilities on loans and Tax Issues get some proper tax advice. At the very least make sure there are no detours and no mixing and no funds in that brokerage account.
Thanks for the responses. All the shares in planning to buy will pay a dividend. My concern was whether having existing shares in my account and then buying more shares using redraw monies was considered mixing of funds. The cash balance of the brokerage account is 0 and any money I transfer in from the redraw will be used to buy the shares. What happens if I sell some of the shares in the future? Both my existing and new shares?
Tip - When selling shares repay the loan using the following rule. Repay the loan on the day sales settle for the LESSER of the proceeds on sale or cost of the shares eg You buy shares for $8k. You sell them for $3K. Only repay $3K.sold. eg2 You buy shares for $8K. You sell them for $9K. Repay only $8K when sold.
What happens if I pay off the loan using cash, then sell the shares in the future and put funds in an offset account. If I do a redraw again to buy another parcel of shares down the track, would this be deductible again?
