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Krypto(Newbie)Newbie
6 June 2024

Hi


I currently have an ETF portfolio and would like to sell all of it (all gains, no losses) to pay down my home loan to zero and redraw it immediately to purchase some of the same ETFs I had previously sold to take advantage of debt recycling.


I know this is not a wash sale as I'm not selling at a loss, however it is unclear whether what I'm trying to do is still considered part of Part IVA as the purpose of this is to obtain a tax benefit?


Am I able to proceed with this strategy to debt recycle?


Thanks.

1,172 views
6 replies
1,172 views
6 replies

Most helpful response

Most helpful reply

TobyJDodd(Devotee)Registered Tax Professional
6 June 2024

Hi @Krypto


If the primary purpose and reason for the strategy is to obtain a tax benefit, then Part IVA will apply.


Toby

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Most helpful reply

TobyJDodd(Devotee)Registered Tax Professional
6 June 2024

Hi @Krypto


If the primary purpose and reason for the strategy is to obtain a tax benefit, then Part IVA will apply.


Toby

Krypto(Newbie)Newbie
6 June 2024

Hi @TobyJDodd,


Thanks for the reply... part IVA applies even though I'm actually bringing forward my CGT by selling my ETFs, therefore there is no benefit but rather having to pay tax where I would otherwise not have to pay?


Also, my understanding was for Part IVA to apply, you need a tax benefit which is set out in section 177C of the Income Tax Assessment Act 1936. 


Crystalising a capital gain is not a tax benefit under section 177C.

TobyJDodd(Devotee)Registered Tax Professional
7 June 2024

Hi @Krypto


The objective of the above scheme seems to be to make the non deductible interest on your home loan deductible.


S177C 1b) may apply.


The first step of selling the assets with a gain is not the whole scheme


Toby

Krypto(Newbie)Newbie
7 June 2024

Hi @TobyJDodd,


Actually the primary purpose of what I'm doing is to simplify my portfolio. Currently I have over 15 ETFs and shares and I want to consolidate into 4. Since I have to sell anyway, I saw it as a great time to debt recycle.


But regardless of this, I have since found the following asking exactly what I am but with the primary purpose to debt recycle and an ATO staff's reply was it was fine: https://community.ato.gov.au/s/question/a0J9s000000QGaMEAW/p00215886.


So I'm very confused right now.

TobyJDodd(Devotee)Registered Tax Professional
8 June 2024

Hi @Krypto


That question was worded differently to yours and I suspect Part IVA was not considered.


If your primary purpose is not to obtain the tax benefit (such as simply your portfolio) then part IVA will not apply.


Toby

Krypto(Newbie)Newbie
8 June 2024

Hi @TobyJDodd


How I see it is the other person's situation is closer to being a potential issue than mine as they are selling their shares and repurchasing the exact same ones for the purchase of debt recycling, whereas I'm consolidating 15+ ETFs/shares down to only 4.


Regardless of whether Part IVA was considered, an ATO staff has given it the all clear in writing. So it begs the question, what happens if that person is then audited and the ATO staff reviewing interprets the situation different, like you are, and applies Part IVA. That person I would think can argue that they've already reached out to ask the question and was given the green light and reference their post.


This continues to be such a grey area.

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selling and repurchasing same ETFs to debt recycle | ATO Community