Starting debt recycling --> sell existing holdings???

Hi guys!!!

So as not to make this too "advice" esque, we will deal with hypotheticals :

Say you have a home loan on your PPOR, and you want to refinance and then begin debt recycling (using AMPs "master limit" facility + line of credit etc) as detailed in this thread Strategy: Using AMP’s Master Facility to Debt Recycle

Say also, one had ~30k of index funds/ETFs purchased with cash a few months ago. Minimal capital gains to date.

Would it be best, hypothetically, to sell those holdings, and put the proceeds into the loan to pay down the principal and then reborrow using the line of credit to buy similar index funds in the future???

Advantages to selling current holdings that I can think of:
- selling the holdings provides additional funds to put into the loan to convert to deductible debt

Disadvantages
- have to pay brokerage to sell
- have to pay tiny amount of CGT tax
- possibility of being a 'wash sale' tax wise???? (unlikely because I would likely be buying different ETFs anyway)

Your thoughts would be most appreciated!

 

To advise someone to sell shares would be financial advice and need an AFSL.

From a tax perspective if you are borrowing to buy shares that are income producing the interest on a loan used to purchase them could be deductible.

If you do use the LOC to buy shares make sure you convert it to IO or PI once used up.

A wash sale is the ATO applying part IVA to deny a deduction if the dominant purpose is to get a tax advantage. if you are buying different shares you might have a reason other than tax for doing this.

Consider the ownership structure of the shares too.

You also haven't considered that the shares/the market could drop in value before you bought them back.

 

Thanks terry, that last point is certainly important and worth considering!

Totally understand re advice just hadnt seen this particular issue discussed in prior debt recycling threads

I guess it comes down to the pros/cons of investing in shares/ETFs using cash, while still having "bad debt" that the cash could otherwise be put against in offset etc, and if that changes when recycling

 

Yes, it is certainly worth considering.
For every $10,000 worth of shares owned that would mean an extra $400 per year in tax deductions.