Shares & Funds Tax deductability after selling half shares

Let's say I use a borrowing to fund the purchase of 100 shares, and begin claiming tax deductions on 100% of the interest associated with that borrowing.

What happens if I sell 50 shares? How much of the interest is now tax-deductible? 50%? 0%?

I'm aware that if I sell ALL of my shares in a given company, the borrowing (even in a mixed purpose loan) is no longer regarded as being applied to that use (TR 2000/2 paragraph 45) but what about the case where only SOME of the shares are sold?

 

50%

you can no longer claim interest on shares you don't own. Only the loan that relates to the purchase of the remaining shares would be deductible
Tax Tip 272: Borrowing to buy shares and then selling those shares and deductibility of interest Tax Tip 272: Borrowing to buy shares and then selling those shares and deductibility of interest

Tax Tip 293: Deductibility of Interest Where Shares Sold and Borrowed Money Reused Tax Tip 293: Deductibility of Interest Where Shares Sold and Borrowed Money Reused

 

The reason why its 50% is the deductible nexus to production of income is now just 50%. If you sold 99% of the shares the deduction would be reduced to 1% and so on.

s8.1 'necessary incurred in producing assessable income.'
If you cease to own them the borrowing no longer produces income for that portion of the original cost. The loan is no longer connected with the shares and there cant be further production of income.

There is a warning in this. You only pay down the loan for the proportion of COST OR proceeds on sale whichever is the LOWEST). Let me explain

Buy 100 shares x $100 and borrow $10,000
A. Shares rise to $200 and you sell half. Dont repay the proceeds or all the loan is then non-deductible. Only repay 50% x of the original loan.
B Shares fall to $50 and you sell half. In this case you can merely repay the sale proceeds (ie $2500) so that $7500 remains the deductible loan despite only holding 50% x $10,000 or $5000 of "cost".

 

Thanks @Terry_w

@Paul@PAS great info, didn't know I only had to repay the proceeds for sales executed lower than cost... I've repaid the cost a few times as I didn't want to leave a portion of the loan outstanding but unrelated to an investment.

 

Repay proceeds IF it is less than cost. In theory you can buy $100K of shares. Sell the lot for $80K and the $20K loan remains deductible despite no shares. It can attract ATO curiosity but is fine if you can demonstrate that loss event

But losing $$$ isnt a tax strategy. Same applies to property or other income producing CGT assets. But at the time of sale it must be 100% income producing. And there are concerns refinance may not contionue to be deductible.

 

If u borrows $100k to buy 100 shares and sell 50 shares you have borrowed $50k for these shares so if you sell them for say $70k you only need to pay off $50k of the loan