Non-resident with a margin loan

Hello,

I moved to London earlier this financial year, so now I am going to make my tax status non-resident.
I left behind a margin loan + shares so am I wondering if my paid interest is still tax deductible on my Aus tax return? Has anyone been in a similar position?

thanks,
Jurn

ring them and put the scenario to them - or write in for a guaranteed answer.

jurn said:

Hello,

I moved to London earlier this financial year, so now I am going to make my tax status non-resident.
I left behind a margin loan + shares so am I wondering if my paid interest is still tax deductible on my Aus tax return? Has anyone been in a similar position?

thanks,
Jurn

Click to expand...

It should be. Basically a non resident for tax purposes just means your not a res for tax for income generated by employment...investments still attract tax and therefore you can still claim expenses against them. This is my case anyway.

Cheers, DYOR

Sorry, Jurn, the interest will no longer be tax deductable.

On the plus side though, you won't have to pay any tax on fully franked dividends (though you don't get franking credits either) and tax on unfranked dividends will only be at 15%. Some companies can also declare the unfranked dividends they pay to non residents "foreign conduit dividends" and they are then tax free too.

Also you don't pay CGT on any gains for shares bought as a non resident while you are a non-resident. You will pay CGT if you sell them after again becoming resident, but the cost base will be the value on the day you again become resident.

You can also declare that you have disposed of your shares on becoming non resident, without actually selling them. This stops CGT liability acruing while you are non resident, but you will have to pay CGT on any CG based on the shares value on the day you became non resident (the day you notionally disposed of the shares). You need to decide if this is worth doing for you. If you won't have too big a current CGT liability and you plan on being non resident for a long time, then it probably is.

Check out the Guide to Capital Gains Tax thatyou can download from the ATO web site.

Ferret

hi everyone,

Thanks for your replies

I phoned up the ATO and canuck aussie is right, they said I can still deduct it my interest even though I am non-resident.

I found the link about non-resident capital gains that ferret mentions
http://ato.gov.au/individuals/content.asp?doc=/content/64155.htm&pc=001/002/012/014/003&mnu=29565&mfp=001&st=&cy=1

now to come up with a plan

cheers,
Jurn

jurn said:

hi everyone,

Thanks for your replies

I phoned up the ATO and canuck aussie is right, they said I can still deduct it my interest even though I am non-resident.

I found the link about non-resident capital gains that ferret mentions
http://ato.gov.au/individuals/content.asp?doc=/content/64155.htm&pc=001/002/012/014/003&mnu=29565&mfp=001&st=&cy=1

now to come up with a plan

cheers,
Jurn

Click to expand...

Jurn,

I believe the info you got from the ATO is incorrect and that Ferret is correct in that you cannot claim interest as a tax deduction.

Once you change your residency status to a non resident, your dividends will either be taxed at non resident withholding tax (for unfranked dividends) or nothing extra (on fully franked dividends) under section 128B of the ITAA 1936).

As the dividends are subject to 128B, 128D of the ITAA 1936 comes into play, in that the dividends become 'exempt income'.

Section 8-1 of the ITAA 1997 does not allow you to claim deductions against exempt income.

Therefore, interest charged on your margin loan for your shares will not be tax deductable as there is no assessable income to apply against.

Strongly suggest that you write into ato for a free private ruling.
Or check this link out:

http://ato.gov.au/rba/content.asp?doc=/rba/content/68647.htm