Tax Time: Pay Down or Pay Interest Up Front?
Last November's star ratings report illustrated only too painfully how the huge stock market falls of 2008
impacted investor loan-to-value ratios (LVRs). In simple terms, this is the amount of the loan compared to
the value of the security. Following this roller coaster year many investors are picking up the pieces in
readiness for the next hurdle – tax time.Traditionally, the end of the financial year is when many margin loan clients pay a year’s worth of interest in advance on their loans in order to offset these payments against tax liabilities. However, the temptation this time around will possibly be to direct any spare cash towards paying down the loan. Another plan could be to combine a pay-down with interest payments on the remainder, perhaps keeping a cash reserve in case of further margin calls. There is a strong argument that anyone who has navigated the margin lending carnage of the past year should look to stay invested at what some analysts believe may be the bottom of the market. The ASX200 has roughly halved since late 2007, yet even if markets have not bottomed out and fall to zero, any further margin calls would, at worst, require a repeat of the same payouts as the past 18 months. This doomsday scenario is highly unlikely to happen but sometimes a look at an extreme hypothetical can clear the air for the best way forward. If a repeat performance of 2008 is something you can financially manage, it’s likely you are positioned to take advantage of any eventual market turnaround. Investing ... Margin Loans ... |
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