Interest on margin cover deductible? - Aussie Stock Forums

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  1. #1

    Default Interest on margin cover deductible?

    I am not too sure about the location where this should be posted but as my question relates primarily to derivatives, I have chosen to post here. Please forgive me if incorrect

    Is the interest cost of redrawing funds from a line of credit (secured against property) tax deductible if used for margins cover when writing put options?

    Scenario: I am considering writing put options on against shares I would be happy to own as (a) a cashflow strategy and (b) a chance to buy below current market prices.

    For example considering using $50K in redraw - interest rate of 8% pa.
    Funds placed into cash management account for margin cover, account paying 5% interest pa.
    Put options written against XYZ shares where total position is $50K. Premium received is $1000 net of brokerage.

    This is repeated each month.

    I guess other questions would be:
    Is interest received from cash management account taxable? I guess so.
    Is interest costs from LOC deductible on the full $50K

    Hope you can provide some initial answers.


  2. #2

    Default Re: Interest on margin cover deductible?

    Anyone have any thoughts?


  3. #3

    Default Re: Interest on margin cover deductible?

    OSS, if you are generating income on borrowings (ie the interest generated on margin cover), that interest payable on your borrowing is generally regarded as a deductable expense. If you are taxed on an accrual rather than a cash basis (a trader rather than an investor) these expenses should be included in your personal P&L.

    As usual, consult your licensed tax professional etc. etc.
    Whether you think you can, or think you can't; you are right.

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