I'm just in the process of setting up a Margin Loan and just wanted to clarify the maths on it a bit, especially in regards to the tax conductibility of the interest on the loan. I've based the below on the 37c for each $1 tax bracket.....Mostly looking at the ability to service a loan with the dividends of a High Yield ETF. Not factoring in any capital gains.. (for those curious I'm using VHY for the maths)
They quote a 'grossed up' yield of 7.74% (from what i interpret of the clause it means that it extrapolates out the various franking levels of the companies it reflects to give a pre tax value of the income???)
50/50 Split with the Margin Loan.
Initial Equity Investment 10,000.00
Amount Borrowed 10,000.00
Initial Stock Price 66.80
Shares Purchased 299
Ending Stock Price 66.80
Cash Dividends 1 year $5.04 per share.
Total Dividends through year $1505
Margin Loan rate 8%
Interest on Margin Loan $800
So Net Income =1505-800=705
My question surrounds the tax deductions available on the interest of the loan which in effect from what I understand would reduce my tax bill .37*800...
Net income becomes (.67*705)+(37*800)=768.35
Have I messed up my maths here???