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What is margin lending?

Margin lending is a gearing solution where an investor borrows funds that will be secured by a portfolio of listed securities, unlisted corporate bonds and managed funds.

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You can use margin lending to increase your exposure to the share market; both domestically and internationally. 

You may choose to use margin lending to increase your long term exposure to an asset class, or to strategically increase your short term exposure to a perceived opportunity. 

While a margin loan can increase your gains in a rising market, it can also magnify your losses when the market declines. Consequently, you should consider investing in a diversified portfolio of quality assets and ensure that you have enough time (and discipline) to ride out investment fluctuations.

What is a margin loan?

A margin loan is a flexible line of credit that can be used to borrow money for investment purposes, such as investing in shares and managed funds.

For example, you can provide existing approved shares, or managed funds as your deposit, or equity contribution. You can then use the loan to pay for other new investments. The assets you contribute, plus those acquired with the borrowed funds, become security for your margin loan.

Margin lending introduces additional risk to your investment strategy, by amplifying the impact on your investment return from any rise or fall in the value of your portfolio.

It is important that you consider your individual financial circumstances. We recommend that you talk to your financial or tax adviser to discuss whether margin lending is a suitable product for your particular circumstances.

What are the benefits?

A margin loan can provide the following benefits:

  • Greater market exposure - Margin lending lets you build a larger investment portfolio than if you relied solely on your own funds. When the assets acquired outperform the cost of borrowing, your returns improve. 
  • Diversification opportunities - By having more to invest, you can potentially diversify your portfolio and spread your exposure across a wider variety of investments.
  • More liquidity – If you have an existing investment portfolio, a margin loan can become an efficient source of funds for a wide range of business or investment purposes; instead of liquidating some or all of your existing assets. 

What are the risks?

While a margin loan can increase your gains in a rising market, it can also magnify your losses when the market declines. That’s why you should consider investing in a diversified portfolio of quality assets, gearing conservatively, and allowing enough time to ride out the inevitable investment market ups and downs.

You should also consider whether you have enough cash/other assets to:

  • Meet higher interest payments if margin lending rates potentially rise
  • Meet interest payments if your portfolio’s income potentially falls
  • Meet potential margin calls if the market declines substantially.

What are the gearing and tax implications?

Using margin lending to gear your investments may generally have the following tax consequences:

  • Tax deductible interest - The interest you pay on a margin loan may be able to be claimed as a tax deduction.
  • Tax implications of interest payments - For a fixed rate loan, you have the ability to pay your interest in advance on your margin loan for up to 12 months. This allows you to bring forward an expense that may be otherwise tax deductible in the following financial year.
  • Capital Gains Tax - By borrowing against existing investments, you may be able to take advantage of other investment opportunities without triggering a Capital Gains Tax (CGT) liability. This is because you don’t need to sell your existing investments to use them as security for your margin loan.
  • Franking credits - If you invest the borrowed money in Australian shares and certain New Zealand shares, directly or via a managed fund, you may be entitled to valuable franking credits. Depending on your personal circumstances and subject to various holding period rules, these credits may be able to be used to offset some (or all) of the income tax payable on the franked distributions as well as your overall income tax liability.


NAB is not a registered tax agent and the tax information contained on this website should not be relied upon to determine your personal tax obligations. 
You should also seek professional advice or guidance when deciding on the best solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications for you. 

 

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