If I lend some shares to a third party where they will be under an obligation to pay back the shares plus interest.If they then convert the shares into cash, do I ever accrue any capital gains tax consequences of what they do with the shares?
and
what interest rates can I charge, eg bank rate, RBA rate etc
Hi @luciesharp,
If your shares are used as collateral to secure a bank loan, does this mean you are unable to sell or dispose of the shares. If this is the case, it would not trigger a capital gains tax (CGT) event as the shares are still in your name.
However, if you defaulted on your loan repayments, the bank may seek to uphold your loan agreement with them. If they claimed ownership of your shares, this would trigger a capital gains tax event because a transfer/involuntary disposal of your shares would occur. If this happened a CGT rollover may be available.
Please use the links below for further information.
I hope this helps.
Links -
Capital gains tax event.
Events where a rollover is available.
All the best.
Hi @luciesharp,
When you lend the shares to the other party that itself will be a capital gains event for you as it is considered that you have disposed of the shares. When you are repaid in cash that will be considered interest income and not a capital gain.
For example, say your shares have a market value of $100 at the time that you lend them and have a cost base of $80. The moment you lend them you have triggered a capital gain event of $20. Now say the other party sells them for $110 and and also needs to pay you $10 interest, and so you receive back $120 in total. That is taken as you receiving $20 interest income. In total you would need to pay tax on $40: $20 on the capital gain and $20 on interest received. The other party would also trigger a $10 capital gains tax event for themselves.
The interest rate you can charge is whatever you and the other party agree upon.
Hope that helps.
I have not stated my question correctly
Ok so when I mortgage my house why is that not a CGT event?Let me restate my first position
If I get a loan again my shares (they are collateral, but are not realized unless I default) does that attract CGT so a Margin loan.or securutized loanIn this instance is that a CGT event.
Hi @luciesharp,
If your shares are used as collateral to secure a bank loan, does this mean you are unable to sell or dispose of the shares. If this is the case, it would not trigger a capital gains tax (CGT) event as the shares are still in your name.
However, if you defaulted on your loan repayments, the bank may seek to uphold your loan agreement with them. If they claimed ownership of your shares, this would trigger a capital gains tax event because a transfer/involuntary disposal of your shares would occur. If this happened a CGT rollover may be available.
Please use the links below for further information.
I hope this helps.
Links -
Capital gains tax event.
Events where a rollover is available.
All the best.
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