DIY Super For Dummies, 3rd Australian Edition

Chapter 16

Borrowing and DIY Super

In This Chapter

Understanding that your fund can’t borrow, except in limited circumstances

Taking advantage of three exceptions to the ‘no borrowing’ rule

Getting the inside story from the ATO on nine borrowing scenarios

U sing borrowed money to invest is a popular way to accelerate wealth accumulation. Borrowing to invest is also known as gearing and involves an individual borrowing money to buy an income-producing asset. The income earned from the geared asset is then used to cover the expenses in purchasing and maintaining the asset, including repaying the loan. If the costs of investing, including interest payments, are greater than the income earned on the asset, individual taxpayers can then offset other income with the loss on the geared investment.

Borrowing to invest is a higher-risk strategy that relies on the investment returns or tax benefits associated with such a strategy outweighing the interest costs. Any loan that you take out still has to be repaid, which means the returns and tax benefits on that geared investment would at least have to deliver the costs of borrowing money to make the strategy worthwhile.

When borrowing to ...