Total Noob Questions

After reading a little on all things LIC I would like to buy some.

Since I haven't done this before I have some very basic questions I hope someone can help with. I have just today opened a CDIA account with CBA. I am told this is the account i need to buy and sell shares.

I have an IO loan using equity from my house. It is not in CBA but with a different lender. So - in order to show that the IO loan is only used for investment purposes (and therefore I can claim the interest as a tax deduction) - do I transfer money directly to the CDIA account? Is that all good for tax and accountants and stuff?

I did ask the CBA staff if I could link an account from another lender to CommSec - but apparently you can't.

Thank you for your patience in answering such a basic question.

 

Which lender is it? Some banks allow you to transfer directly our of a loan account which is handy. Others are probably best turned into a line of credit so you can transact directly out of it so there's no confusion as to the use of funds.

Going loan - offset - CDIA - shares is possibly too far removed for the tax office so better to go loan - CDIA if possible.

 

@Jess Peletier I have my mortgage with CUA.

I will have to talk to them about how to get money from the IO equity loan into the CDIA account I think.

 

Hopefully their product is flexible enough to allow it. Do they have a line of credit product?

 

@Jess Peletier I have no idea.
The equity loan was originally for an IP purchase and I am still hopefully I might be able to borrow enough to make that happen. I am waiting on a mortgage broker to get back to me on what options I have.

If I can't get anywhere with that - then I will have to consider how I can rearrange things with shares as the focus instead.

 

I have a noob question about how margin loans work, this thread seems as good as any to post in.

If I were approved for a margin loan how do the interest payments work?

Would interest be charged similar to a credit card, where interest is payable on the balance of the loan withdrawn/invested?
Or do i get charged on the entire balance of the available loan even if it's not withdrawn/invested in shares?

I ask only because I am considering get approval for a margin loan to buy when good opportunities arise, however don't want use the loan right now.

 

CDIA is a CBA centric account associated with a commsec account. When you make a share purchase the money will be withdrawn from the CDIA.

Buying LICs over the long term is a good idea. My only question is whether you have the right entity from a tax perspective purchasing the LICs? LICs purchased in your name will pay you an income that will be taxed at your marginal tax rate.

 

@ErYan - so far I have nothing.
I have tried to read about Trusts and their bucket companies but a lot of it is so far over my head I just can't follow. I should go back and read Terry_w's posts again.

Is a trust important when there is only 1 adult? I have two small kids too - oldest is 6. But from what I understand a trust has to pass all dividends onto someone - so it would be no different then owning in my own name?
So then some people add a company. That's where things get seriously confusing for me.

Any information on what others have done and what others recommend would be most welcome.

 

Good questions. Keep asking.

My reason for asking is that the structure will be costly to change later due to CGT.

You need to discuss with an accountant, however, there are scenarios where a trust can legally reduce taxation, such as:

"family trusts commonly exist where there is a high income-paying partner of a firm, a low income-earning spouse, and children studying full-time."

The benefits of family trusts and how they can minimise tax and help transfer wealth between the generations

 

Structuring can help in some situations but it does come with its complexities and its ongoing costs.
Distribution to kids are not viable given they get taxed so much.
If you wanted to set something up for your kids, you could look into an investment bond.

 

Seek professional advice.

Never discount what can happen in 30 years’ time. Ask yourself if you are in this space to invest for the VERY long term. In a 30+ year time-frame, children grow up, have partners and have children of their own. A Trust, set up correctly can distribute it anybody on the beneficiaries list and that list can be wider than it appears on first glance.

This is where the value of an investment plan with an end goal in mind comes into its own.

Pay for some good accounting / legal advice. Don't try this at home by yourself.

Not advice.