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Tax Efficient Investment Opportunity with Capital Protection

Tax Efficient Investment Opportunity with Capital Protection

The MP Financial Planning team have been researching innovative tax efficient investment strategies to build wealth and have identified a unique opportunity with key benefits as follows:

  • Direct Share ownership to access capital growth and dividend income
  • Borrow 100% with loan protection
  • Pre-pay interest and receive a tax deduction this financial year
  • No margin calls
  • Investment term of 1-5 years
  • Low break even point ie higher return potential

How Does it Work?

This is a geared strategy investing into blue chip shares while limiting the downside risk with 100% loan protection at an individual stock level ie you can hand back the non-performing shares at the end of the loan term.  Your only obligation is the yearly interest which you can prepay in this financial year and claim a tax deduction up to the indicative rate.  Your investment is held in your name and you receive all dividends and potential capital growth on your portfolio.

The following is an example assuming we borrow $200,000 to invest into a portfolio invested 50% into equities and 50% into a unique Cash Trust:

Projected cash flow Year 1

Income/Tax Saved Amount Cost Amount
Dividend and franking (est 5%) $5,000 Interest (@ 7.25%)* $14,500
After tax interest on cash $1,250
Tax refund (at top MTR) $6,000
Total income $12,250 Total costs $14,500
Net cash flow cost $ 2,250    

*indicative interest rate

Capital growth required to break even is $2,250 or 1.125% pa.

Capital protected loan

The loan is protected at an individual stock level… if one or more of the shares is worth less than the purchase price at the end of the term, you can hand back and you owe nothing further.  Shares that have performed well we have a number of options including refinancing.

Who is it suitable for?

This opportunity should appeal to Growth orientated investors with limited upfront capital, or not wishing to tie up capital, also looking to reduce tax in the current financial year.

A low break even point and capital protection means less downside risk whilst enjoying unlimited upside.

It is important to consider your individual situation to assess if this strategy is appropriate for you.  Please contact your MP accountant in the first instance or ring Aaron McCracken for further information on (08) 9321 2200.

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