ADVANCED STRATEGIES • STEP 1 OF 4
Borrowing against assets: mechanics and full cost
How a loan secured by your investments works, what it costs, and how it differs from selling.
Your Learning Journey
Your Learning Journey
This Step Takes: 15 minutes
The mechanics of borrowing against an asset compared with selling it, the main collateral loan types, and how Australian tax applies to each path.
Why This Matters
Selling an asset is a CGT event. Pledging it as collateral for a loan is not a CGT event at the time of borrowing, but the loan carries interest, must be repaid, and a sale of the collateral by the lender is a CGT event. This page sets out both paths.
The Core Concept: Two Ways to Raise Cash From an Asset
Selling an asset is a CGT event in the year of sale. Borrowing against it is not a CGT event at the time of borrowing; the loan is repaid later, with interest.
Path A: sell
- •CGT event on the units sold, in the year of sale
- •Cash received = sale price minus the CGT on the gain
- •Later price changes, up or down, affect only the units still held
- •No loan, no interest, no liquidation
Path B: borrow
- •No CGT event when the loan is drawn (loan proceeds are not income)
- •Later price changes, up or down, affect all units held; the loan is owed in full either way
- •If the LTV passes the lender's threshold, the lender can sell the collateral, which is a CGT event
- •Interest is payable; it is deductible only if the money is used to earn assessable income
The Trade-Off
Borrowing defers the CGT event and adds these costs and risks:
- • You pay interest on the loan (typically 5-15% APR depending on asset type)
- • You face liquidation risk if collateral value drops significantly
- • You need to monitor your loan-to-value ratio
Before counting CGT, borrowing costs more than selling when the asset grows by less than the interest rate, and less when it grows by more. The CGT on the units you would sell, and any CGT on a liquidation, change the result; the try-it calculator computes both paths with your own numbers.
Types of Collateral Loans
Different assets support different types of loans. Here's what's available for Australian investors.
Crypto Loans
Borrow against Bitcoin, Ethereum, or other crypto. LTV: 25-50%. Interest: 8-15% APR.
Gold/Silver Loans
Borrow against vaulted precious metals. LTV: 50-70%. Interest: 5-10% APR.
Margin Loans (Stocks)
Borrow against ASX/US stocks. LTV: 50-70%. Interest: 6-10% APR (often Prime + margin).
Home Equity Loans (HELOC)
Borrow against property equity. Providers: All major AU banks. LTV: Up to 80% (including existing mortgage). Interest: 5-7% APR.
LTV = Loan-to-Value Ratio
LTV is the percentage of your asset's value you can borrow.
Example: If you own $100,000 of Bitcoin and the lender offers 50% LTV, you can borrow up to $50,000. If Bitcoin drops significantly and your LTV exceeds the lender's threshold (e.g., 70%), they may liquidate your collateral to recover the loan.
Australian Tax Treatment
How Australian tax applies to each path.
1. Loan Proceeds: NOT Taxable Income
Money you borrow is not considered taxable income by the ATO. So drawing a loan is not a CGT event.
2. Interest Payments: May Be Tax-Deductible
Interest is tax-deductible if the loan is used for income-producing purposes:
- • Deductible: Borrow against BTC to buy stocks/investment property
- • Deductible: Borrow against property to buy more investments
- • Not deductible: Borrow for personal expenses (house deposit, holiday)
3. Collateral Liquidation: CGT Applies
If your lender liquidates your collateral (due to a margin call), this is treated as a sale. CGT applies. The lower the starting LTV, the larger the price fall needed before the lender's threshold is reached.
Tax Rules Change
What Changes the Outcome
The same inputs move both paths. This table shows how each one acts on selling and on borrowing.
| Input | Path A: sell | Path B: borrow |
|---|---|---|
| Asset price rises | The units sold do not share in the rise | All units share in the rise; the loan balance does not change |
| Asset price falls | The units sold are not affected by the fall | All units fall; the LTV rises, and past the lender's threshold the lender sells collateral (a CGT event) |
| Interest rate | No effect | Sets the yearly interest cost; variable rates can change during the loan |
| Use of the money | No effect on tax | Interest is deductible only if the money earns assessable income |
| Your marginal tax rate | Sets the CGT paid now | Sets the CGT if the asset is sold later, and the value of any interest deduction |
| Price volatility | No effect after the sale | Larger price swings make it more likely the LTV reaches the lender's threshold |
Borrow Strategy - Get Ready: Complete
- Drawing a loan against an asset is not a CGT event; the loan brings interest, repayment and liquidation risk with it.
- Four main types of collateral loans in Australia: crypto, gold/silver, margin (stocks), and home equity.
- Interest may be tax-deductible if used to generate assessable income (consult your accountant).
Homework
Which of your current assets could you borrow against if you needed liquidity? What would you use the borrowed funds for?
List each asset you hold, its value, and the LTV range for its loan type (table above). Value × LTV is the most a lender would advance against it; that amount × the interest rate is the yearly interest.
What's Next?
15 minutes