Tax Doubt On Protected Equity Loans
The tax office has thrown a cloud over the level of tax deductability on the interest component of protected equity loans.
According to the Tax Commissioner part of the interest charged on these products is a capital protection fee and is therefore not tax deductible. Interest rates for protected equity loans range from 12% to 41% depending on the type of shares and the level of coverage required. Rates on non capital protected margin loans range from 6.6% to 9.75%.
According to industry sources they do not believe the Tax Office announcement will have a great impact on the product as it is not usually used for tax purposes. They also commented that the protected equity product is only a small percentage of the equity lending business with the vast majority of investors preferring margin lending products.