INVESTMENT / MARGIN LENDING
Potential Tax Benefits
You can achieve significant tax benefits by using the Pinn Deavin margin lending facility - adding additional value to your investments than an ungeared portfolio may deliver. These benefits may include:
Interest deductibility : where loan funds are used to produce assessable income, the interest paid on the loan should be tax deductible. If the interest cost is more than the derived income from the geared investment, this excess deduction may be able to be offset other income from taxation.
Pre-payment of interest : by pre-paying interest for the year ahead, you can generally derive a tax deduction in the year in which payment is made.
Capital gains : in general, you should not be taxed on any capital appreciation in your investment until it is sold. If the investment complies with Capital Gains Tax provisions and has been held for 12 months, an inflation equivalent component may be protected from CGT.
Dividend franking : where you receive dividends that are fully or partly franked, you effectively receive a rebate for the tax previously paid by the company. Franking credits can considerably reduce your tax liability.
The value of any taxation benefits depends upon each individual's financial circumstances. We recommend that you obtain independent professional advice on the tax consequences of margin lending and gearing as it applies to your own individual circumstances.
Cash flow of geared versus ungeared portfolio
An indicative cash flow is provided below as a comparison of the potential capital growth benefits that margin lending can provide.
| Assumptions |
| Investment Period : |
12 months |
| Portfolio gearing level: |
75% |
| Loan interest rate : |
9.85% pa |
| Dividend yield : |
4.50% (fully franked @ 36%) |
| Capital Growth : |
7.00% (capital gains tax excluded) |
| Personal tax rate : |
48.5% |
| |
Geared |
Ungeared |
| Personal Contribution |
$25,000 |
$25,000 |
| Borrowed Funds |
$75,000 |
- |
| Total Portfolio Value |
$100,000 |
$25,000 |
| Dividend Received |
$4,500 |
$1,125 |
| plus Imputation Credits |
$2,531 |
$633 |
| less Tax on Dividend (adj) |
$3,410 |
$853 |
| less Loan Interest Paid |
$7,387 |
$0 |
| plus Tax Benefit on Interest Paid |
$3,583 |
$0 |
| After Tax Cash Flow |
($183) |
$905 |
| Capital Growth (unrealised) |
$7,000 |
$1,750 |
| Total Net Gain |
$6,827 |
$2,655 |
| Return on Initial Investment |
27.3% |
10.6% |
To know more about starting your margin lending plan, or one of many other wealth creation options that we support and endorse, contact
Tony Deavin or
Mark Cupitt, at Pinn Deavin Securities Pty Ltd.