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Re: Tax Deductibility of Money Borrowed to Buy Shares

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Newbie

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Last year I borrowed to invest in shares. No it’s my understanding that the interest charges can be a tax deduction against the distribution income from the shares.

My question is if I sell the shares and reinvest this money in other shares that also have distribution income does the deductibility continue? Or do I need to put the money back in the loan and use the redraw facility to pay for the new parcel of shares?
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ATO Certified

Community Support

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Hi @JakeE,

 

Welcome to our Community!

 

Generally speaking, if you've borrowed money to buy or invest in shares you're able to claim a deduction for the interest incurred on the loan, provided it's reasonable to expect that assessable dividends will be derived from your investment in the shares.

 

If the loan is used for private and investment purposes, you'll be able to claim only interest incurred on that part
of the loan used to acquire the shares.

 

You can find more information in our guide You and your shares or alternatively, you can phone us on 13 28 61 between 8am - 6pm, Monday to Friday if you have further questions.

 

Thanks, JodieH.

4 REPLIES

SX
Initiate

Replies 0

i guess as long as you do not change the purpose of th eoriginal loan money then you can still claim the interest again to the dividends etc.

 

SX

kezhengxie@gmail.com

Best answer

ATO Certified

Community Support

Replies 2

Hi @JakeE,

 

Welcome to our Community!

 

Generally speaking, if you've borrowed money to buy or invest in shares you're able to claim a deduction for the interest incurred on the loan, provided it's reasonable to expect that assessable dividends will be derived from your investment in the shares.

 

If the loan is used for private and investment purposes, you'll be able to claim only interest incurred on that part
of the loan used to acquire the shares.

 

You can find more information in our guide You and your shares or alternatively, you can phone us on 13 28 61 between 8am - 6pm, Monday to Friday if you have further questions.

 

Thanks, JodieH.

Newbie

Replies 1

Thanks Jodie for your reply.

I do understand I should be able to claim interest as a tax deductions as the shares will provide dividends. My question related to sale of shares.

If I sell and then buy shares with the proceeds (day the same or next day) is the tax deductibility of the loan still applicable? I understand that if I sell the shares the interest on the loan no longer applies as a tax deduction but what if I use the proceeds to buy more shares? Will the tax deduction still apply or has the link to the original loan stoppped?
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MVF
Devotee

Replies 0

Hi @JakeE

 

If the purpose of the loan does not change, and your still using the sale proceeds for purchasing more shares then you can keep claiming the interest as the nexus between the income and the loan interest has not been altered for income tax deductibility purposes.

 

Its the same as if you were carrying on a business of selling a range of products and you obtained a loan to purchase your inventory and you used the sale proceeds to continue to buy more inventory or for other business related purposes such as purchasing plant and equipment.  The interest on the loan is still deductible because there is still an income producing connection with the loan.

 

 

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