I've been playing around with the Borrowing For Shares calculator on Noel Whittaker's website and have gotten myself thoroughly confused.
https://www.noelwhittaker.com.au/resources/calculators/borrowing-for-shares-calculator/I previously thought that leveraged investment income was treated thus:
Borrowing 100k to buy 100k shares. Shares return 4% dividend. ($4000 pa), interest on borrowing of 5% ($5000 pa), interest is deductible against investment income leaving net loss of $1000. For simplicity, assume there are no franking credits.
However, when I input the above scenario into the calculator it's showing a loss of $1000 on the investment PLUS a tax liability on the $4000 income (so $760+ depending on tax bracket). So a holding cost of $1760+ per year.
Is the interest not deductible against the investment income? Is the calculator wrong? Is there something else I have misunderstood?
Appreciate any thoughts.