Protected Share Portfolio

Big tax refunds for prepaid interest for a capital protected share portfolio (with NO cash required by 30 June)

Apart from the usual general tax planning strategies (eg. incur business expenses prior to 30 June to claim a tax deduction this financial year), there are 2 other main ways to reduce your tax:

  1. Increase superannuation contributions; and
  2. Prepay interest on borrowings for investments before 30 June.

This e-mail will focus on this second item.

With the solid performance of equity markets over the past 9 months, we have seen a significant amount of interest by investors looking to leverage back into the share market with the benefit of capital protection and tax efficiency.

This coupled with a reduction in volatility of shares and reduced borrowing costs have made share investments as attractive as ever.

Use Tax Money to pay for your Share Portfolio!

Here’s how this strategy works:

You borrow an amount (say $50,000) from the bank to purchase $50,000 of blue chip shares before 30 June. Some banks will lend you a further amount for you to use to immediately pay back to them to prepay interest on the original $50,000 loan for the next 12 months.

Assuming that the ATO allows you to claim interest up to 6.95% and that your individual tax rate is 49%, using this strategy would result in a new tax deduction for you of $3,475. This would result in an additional TAX REFUND to you of $1,702.

You receive all dividends from the shares throughout the year.

You cannot lose your Capital!

If you use a capital PROTECTED share investment, your shares are 100% protected. This means that if the share market goes down, you don’t lose any capital. And your shares go up in value, you keep all of the upside.

This is ideal for investors who want to have share investments but who don’t want to have any chance of losing their capital.

Here is a brief summary of the features of a Capital Protected Share Investment:

  • 100% leveraged and capital protected via a Limited Recourse Loan
  • Interest cost deductible up to benchmark RBA limit (currently 6.95% p.a.)
  • Menu of around 80 ASX listed securities, ETF’s, LIC’s or pre-selected portfolios put together by Macquarie Research
  • Full dividend and franking entitlements
  • Terms ranging from 1 to 5 years
  • Each security protected in its own right so no netting off winners and losers. Winners are kept and losers are handed back.
  • Minimum investment $50,000 equities

Interest rates are dependent on the stocks chosen, the term of the investment, and the interest type (fixed or variable).

Your Action Plan

If you are looking for some tax relief by leveraging back into the share market, but want the added security of 100% capital protection, contact our office TODAY and make an appointment to discuss your financial circumstances.

In summary, instead of paying some tax, you can use this money to prepay interest on a loan for shares with full 100% capital protection for the shares.

It’s a great option to consider – contact Wise Accountants TODAY to implement this strategy before 30 June and save tax!