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Tax deductablility- selling some shares to pay for reno

Discussion in 'Accounting & Tax' started by WallyB66, 5th Dec, 2015.

  1. WallyB66

    WallyB66 Well-Known Member

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    Hi


    I have a question I hope you may assist with

    I set up a margin loan to purchase some shares ~ 7 years ago and sold some last year to pay for personal house renovations. I did not pay down the loan at all however I only sold some shares and the dollar value of the shares I have remaining have always been much more than the margin loan amount. My accountant thinks i should have paid down some of the margin loan to an amount of at least the cost base of the shares I sold however I would have expected the purpose of the original loan has not changed it is still for the shares 100% and therefore the margin loan should be fully deductible


    Any thoughts?


    Thanks


    Wally
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. WallyB66

    WallyB66 Well-Known Member

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    Thanks for the reply Terry- appreciated. I understand if I sold all the shares then the loan is not deductible if I use the $$ for personal use. I basically had a 200k margin loan to buy 200k of shares. These shares then increased in value to ~400k. I sold 100k worth. So currently I have 300k of shares and 200k loan ie I sold dollar value of less that the capital growth of the shares. Hope this makes sense?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Nope, doesn't make sense from either a logical or tax point of view.

    You may have purchased 200,000 x $1 shares. each share you borrowed $1 for. If you sell that particular share that loan of $1 no longer relates to that share.
     
  5. WallyB66

    WallyB66 Well-Known Member

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    OK- many thanks Terry. Appreciate your time,

    Wal
     
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  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Exception : You buy $100K of shares. Sell them years later and realise $50K. The remaining $50K loan may still be deductible. This assumes the proceeds are used to paydown the existing loan to $50K. If it isn't paid down you end up with a tainted loan and all of it may pose a concern.
     
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