There are various products around that can conceptually turn CGT into Income for you… which then allows you to be creative with the deductions.
THERE IS INHERENT RISK WITH THIS ACTIVITY – PLEASE MAKE SURE YOU FULLY UNDERTAND THE RISKS INVOLVED
However having said that, if you structure it right , the risks can be minimized substanualy to meet your risk profile.
Basically what you do is.
1. Make sure you have a potential Capital Gains Tax liability in a partuicular tax year – selling an IP eg….. $30,000 liability you definitely know will be going to the Taxman
2. You need investment money at hand .. it could come from a sale of a property itself.
3. Invest in Hi Notes (pick 4 or 5 companies with 15 – 30% returns) The higher the % the higher the risk. As you can see from the list of shares available. NAB – 17.24% for 100%, Fortescue Metals 21.81% at 95% for 180 dayshttp://www.macquarie.com.au/dafiles/Internet/mgl/au/docs-pa/brochures/hi-notes-rates-sheet.pdf
4.Invest an amount $100,000 for various terms – 6months to start with.. at 95% or 100%. you will receive approximately in interest $100K X .20 X .5 = $10,000 in interest for 6 months. Do the exercise twice and conceptually have $20K on $100K investment. (But there are risks)
YOUR RISK IS LOSS OF CAPITAL IF THE INVESTMENT (THE UNDERLYING SHARE PRICE) IS LESS THAN THE ORIGINAL STAKE.
(And you still get the full interest payment regardless if the share price is higher or lower than originally bought)4. BUT SHOULD THE SHARES GO DOWN you offset this against the Capital Loss from your property..,. so effectively the first $30,000 LOSS is insurance. Basically your investment stake would need to fall beyond 30% across all your share protfolio. Yes it can happen, does it happen often , there is the risk profile you have to work out for you
5. You can tinker with the numbers and get really cute and set the risk profile to 40% or even 70 % before there is a real capital loss, but obviously your interest returns are lower. Remember also , you have just picked up over the odds interest payments, so any Capital loss could be also factored into the risk equation.
6. Now that you have income from an interest bearing account you will need to pay tax, but an entirely set of rules come into play. This strategy works best if you can time both the Capital Loss and Gain in the same year.
Hi -note info on Macquarie website (I have no vested interest in Macquarie)
http://www.macquarie.com.au/mgl/au/personal/investments/specialised/unlisted/hi-notes
Food for thought. Complicated structueres suggest you taslk to your advisor, but the concept does have merit. I know i will be investigating when I know I have a CGT liability, that is a sunk cost.Tim
what’s the difference between this and any other investment of your windfall until the tax is due? Other than risk?
Nothing, however, the over the top interest rates available (income) from the lenders rely on the RISK being transferrsed from them to you. But once alreaday have a liability (a CGT to pay from a sale for example) the game changes on its head. ,Simplisticly, average punter has to rely on share market losses to offset share market gains , when clearing good/bad/ugly investments. Property investors don't have that problem in the main.(they only have capital gains to worry about) I don't know the % nor would I speculate, but most would sell for profit, trigering capital gains. Once this happens wouldn't it be nice to have another framework to offset this money which you know is going to leave your domain (to the tax office). The subtle difference is the % rates offered transfer the 'perceived risk' if you didn't have a CGT liability already realised. That is the point, that needs some thought and reflection. Once the light goes on, then it becomes apparent the opportunity.There are products specifically designed to pay you to gamble on having a lose at the benefit of having high % interst return. But if you already have a known mechanism to offset this risk (your CGT payment) then the risk is completely negated….
I'm not sure if I have articulated a credible answer.. research and you may find a suitable strategy
Cheers
Tim
(I have no pearls of wisdom)
Hope this helps,
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