Macquarie scores positive ATO ruling
The Australian Taxation Office now allows borrowers involved in Macquarie’s Geared Equities Investments (GEI) to obtain tax benefits for 100 per cent of the interest paid on borrowings.
This latest move was granted in Product Ruling PR 2000/07.
According to Macquarie Margin Lending (MML) division director Scott Young, under the old ruling, investors were only able to make about 80 to 85 per cent of their prepaid interest payments tax deductible as this portion of the interest rate charged was below the benchmark.
However, under the new ruling, yearly interest payments above the benchmark can now be recycled into the asset capital which means they reduce the liability for capital gains tax.
"A large portion of clients of our clients are referred on to us from financial planners, and for this reason we have been working with the ATO for many months to reduce the uncertainty that has surrounded these products in the last couple of years," Young says.
"Macquarie is the only capital protected margin lender that has a product ruling from the ATO."
Macquarie has been in the margin lending game since 1992, and typical clients of the GEI product tend to be younger clients who are, as Young says, "income rich and asset poor".
However, older clients are becoming more numerous in margin lending investments, and Young says they are investors who are "risk averse and want to be able to sleep at night".
Macquarie's GEI product requires a loan of a minimum of $50,000, where investors retain the total amount of profits and dividends in a fixed term of either three to five years. To capitalise on the new product ruling, Macquarie have responded by setting a lower prepaid interest rate of 13.5 per cent in their five year option.
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