I have been trying to work out the net costs of borrowing to invest in income producing shares.
For the purpose of this discussion assume $100,000 borrowed at 10.5 %
placed in shares returning 5% fully franked dividends.
assuming 30% Tax rate
Borrowing cost 10500 Tax Return 3150 Real Cost 7350
Return 5000 Out of Pocket 2350
Assuming 40% Tax rate
Borrowing cost 10500 Tax Return 4200 Real Cost 6300
Return 4500 Out of Pocket 1800
Are these figures correct. It seems almost too good to be true. In effect it only cost me around 2% of borrowed funds to control and benefit from capital gains on up to $100,000 dollars woth of shares