Shares & Funds personal loan

Discussion in 'Accounting & Tax' started by Winadil, 19th May, 2020.

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  1. Winadil

    Winadil New Member

    Joined:
    1st Feb, 2020
    Posts:
    4
    Location:
    Toowoomba
    I am looking at investing in vanguard sometime in the near future(15-20k worth atm)
    I also have a personal loan (just over 14k) that I got a few years ago and while the repayments are nothing special think that I should pay it off and save myself about 3k in interest.
    While looking through the forums I came across debt recycling, which is something I never knew about.
    From my understanding, it would be better to pay off the personal loan then get another loan purely for buying into vanguard then I would be able to claim the interest from that loan as it is used for investment purposes, or am I reading about debt recycling all wrong?

    Cheers for any insight
     
  2. Terry_w

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

    Joined:
    9th Jun, 2006
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    30,819
    Location:
    Australia wide
    Debt recycling is the paying down of a non-deductible loan and reborrowing to invest in income producing assets so the interest becomes deductible.
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    15,098
    Location:
    Sydney
    I would be wary of using a new personal loan to invest. The high rate (9-12%) means the investment choice needs to "chase" a high return to just break even. Hence higher risk investments.
    that said I would be very wary about using any borrowed money at present. Or commencing investing in market conditions you arent prepared to lose capital in. If the shares you buy (or ETF in Vanguards case) dont pay income then the interest will only offset the profit on sale and isnt a general deduction.

    A tax deduction should be a minor element to your investment plans. A neg geared loss isnt an investment.