How is gearing tax effective?
Gearing is sometimes called borrowing to invest. This is the principle behind investing through a margin loan or in some cases taking out a mortgage. A person takes out a loan in order to invest in an asset in the hope the asset will increase in value. As with any loan the borrower pays interest on the loan.
You can generally deduct the interest on a margin loan from your annual income meaning you pay less tax.
Be aware of gearing tax benefits
Interest on a margin loan to acquire assets will generally be tax deductible, where it is reasonably expected that dividends/income will be derived from that investment. Interest may not be deductible where the investment is acquired solely for the purpose of making a capital gain. Certain borrowing expenses such as loan establishment fees are deductible over the period of the loan or five years, whichever is shorter.
Learn more about Tax
- What taxes on investments do I pay?
- What is CGT?
- What is the benefit of imputation credits?
- How is gearing tax effective?
The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and we strongly recommend you should seek independent professional tax advice.
Did you know?
If you are eligible for dividends from an investment in shares in a company, those dividends may include imputation credits.
A capital gain is the profit you make from the sale of an asset. You could also have a capital gain distributed to you as part of a managed fund distribution.
