Macquarie Geared Equities Investment plus

About GEI plus

Macquarie Geared Equities Investment plus (GEI plus) allows investors to borrow their full investment amount and build a portfolio of ASX-listed shares and managed funds, or leverage off an existing portfolio and benefit from the security of 100 per cent capital protection throughout the term.¹

GEI plus’ unique MSI Cash Trust feature provides investors with advantages over traditional protected equity loans in the market.

• Download the flyer to find out how.

At a glance

How GEI plus works – illustrative example

Features

GEI plus is different – unique MSI Cash Trust feature

GEI plus’ unique MSI Cash Trust feature provides investors with advantages over traditional protected equity loans in the market. 

• Download the flyer to find out how.

No netting of gains and losses – higher gains for investors

There is no netting of gains and losses of stocks in a GEI plus Facility. This means that investors have the freedom to walk away from stocks in their GEI plus Facility that fall in value at maturity, resulting in a higher gain on their sharemarket investment.

Interest rates

Interest rate will depend upon a number of factors including the investor’s choice of the:

• GEI Securities to be included in the GEI plus portfolio
• loan term
• Interest payment option.

Benefits & risks

Key benefits

• Invest in ASX-listed shares, unlisted managed funds and pre-selected portfolios
• Direct share ownership – access potential capital growth and dividends
• 100 per cent capital protection¹ – stocks protected at an individual level and no netting of gains and losses
• Tax efficiency:
  • ATO Product Ruling
  • certainty over tax treatment²
  • potential for franking credits³ on dividends or distributions
  • interest payments may be deductible up to the applicable benchmark rate for capital protected borrowings⁴
• No upside caps
• Reduce portfolio interest rate and net funds at risk – choose the Low Vol Blend pre-Selected portfolio or blend an allocation to the MSI Cash Trust
• Refinance existing margin loans – remove margin call risk and lock in current gains
• Flexible loan term of 1, 2, 3, 4 or 5 years
• Flexibility to choose the day of investment.

Risks

• Performance risk: The value of the GEI Securities investors choose may go down by a material amount, even over a short period of time
• Borrowing to invest: By using a GEI plus Facility to invest in chosen GEI Securities, the investment is leveraged. Leverage can magnify gains and losses on an investment
• Breakeven risk: There is a material risk that investors will lose money on a GEI plus Facility. That is, the total value of the returns at maturity (if any) and distributions from the GEI Securities throughout the term of the investor’s loan (if any) could be less than the total interest payments and other costs (including break costs), and could be zero. In this case, investors will have lost the amount of interest and costs they have paid
• Early termination risk: A GEI plus Facility may be terminated by Macquarie early in certain circumstances or investors may choose to terminate their GEI plus Facility early. In either case, they will still receive the benefit of the limited recourse nature of the loan. However they will need to pay any break costs, interest charges, fees and other costs that may apply
• Interest rate risk: There is a risk that the interest rate applicable to the investor’s Facility may rise
• Liquidity risk: There is a risk that the investor’s ability to close out their GEI plus Facility early or to sell their GEI Securities may be limited due to a lack of liquidity for their GEI Securities.

Tools

GEI plus Brochure and Application for Finance Form

GEI plus flyer

Approved List of Securities

Pre-selected portfolios

Securities Selection Form

Macquarie Equities Limited's best execution obligations

Please refer below for the link to Product Disclosure Statements for unlisted managed funds currently on the Approved List of Securities:

• MSI Cash Trust
• BlackRock Global Allocation Fund (Aust) (Class D Units)
• Vanguard Index Australian Shares Fund
• Vanguard Hedged International Shares Fund

Frequently asked questions

Who can open a GEI plus?

What's the loan term?

What's the minimum Loan Amount?

What interest rate do your clients pay?

What GEI Securities can your clients invest in?

What if your clients already own ASX listed securities?

How are GEI Securities acquired?

What happens with Distributions and franking credits?

What happens with Corporate Actions?

Can your client prepay their interest?

Can your client take out an Interest Prepayment Loan?

When do your clients receive statements?

What happens at the end of your clients loan term?

What happens to the GEI Securities that are "unprofitable"?

What if your client wants to close their GEI plus early?

Tax information

The following information is general and not specific to your client's particular circumstances. We strongly recommend your clients discuss this with their taxation adviser.

In order to provide your clients with certainty regarding the tax treatment of interest paid on the Macquarie Geared Equities Investment plus (GEI plus), the ATO has issued various Product Rulings in relation to the GEI plus since the product was first offered. Your client may therefore be able to rely on a Product Ruling issued by the ATO where they entered into the GEI plus during the "period of application" (ie, the period from the issue of the ruling until its withdrawal) of one of these Product Rulings. Investors can generally continue to rely on a Product Ruling even after its withdrawal where they entered into the GEI plus during the Product Ruling's period of application.

The Product Rulings are only binding on the Commissioner of Taxation if your client's investment through the GEI plus is implemented in the specific manner provided in the applicable Product Ruling and the assumptions set out in that Product Ruling are satisfied. The Product Ruling is only a ruling on the application of taxation law and is in no way expressly or impliedly a guarantee or endorsement of the commercial viability of the GEI plus, of the soundness or otherwise of the GEI plus as an investment, or of the reasonableness or commerciality of any fees charged in connection with the GEI plus.

The Product Rulings specify how much of the GEI plus interest payments can be claimed as a tax deduction for "eligible investors" (i.e. those investors who, having regard to their personal circumstances, can rely on a particular Product Ruling). The table below assists your clients to identify which Product Ruling potentially applies to them and enables them to download the Product Rulings.

For those investors who may not be able to rely on a Product Ruling, please see "What is my level of tax deductibility?" below for a guideline as to how your client's interest deductibility should be calculated.

We recommend that investors visit the Australian Taxation Office's website for further details of how capital protected products and borrowings are treated.

* PR 2011/5 was updated on 5 October 2011 with an addendum (PR 2011/5A1) to reflect the change to the benchmark rate from the RBA’s Indicator Lending Rate for Personal Unsecured Loans to the RBA’s Indicator Lending Rate for Standard Variable Housing Loans plus 100 basis points. Please note that the update to PR 2011/5 does not affect previously issued Product Rulings.

How much of my interest is deductible?

The amount of your client's GEI plus interest payments that is deductible will depend on when they applied for their GEI plus, their loan term and whether they are paying a fixed or variable interest rate. Your client should refer to the applicable Product Ruling for further details.

Generally, if your clients entered into their GEI plus on or after 9.30pm on 16 April 2003 but before 1 July 2007, they can claim a deduction for their interest up to the lower of:

• the Reserve Bank of Australia's Indicator Rate for Personal Unsecured Loans - Fixed or Variable (whichever is applicable) or
• 85 per cent of the interest rate (for five year loans), 82.5 per cent of the interest rate (for four year loans), 80 percent of the interest rate (for three year loans), 72.5 per cent of the interest rate (for two year loans) or 60 per cent of the interest rate (for one year loans).

Generally, if your clients entered into the GEI plus on or after 1 July 2007, they should be entitled to a deduction for the amount of interest payable on their GEI plus, less any amount that is reasonably attributable to the cost of capital protection. The amount that is reasonably attributable to capital protection is currently calculated in the following way:

1. Calculate the total costs your clients incur under or in respect of the GEI plus for the income year, ignoring amounts that are not in substance for capital protection or interest
2. Apply the Reserve Bank of Australia's Indicator Rate for Variable Personal Unsecured Loans to your client's loan amount under the GEI plus:
   • If your client's borrowing is at a fixed rate for some or all of the loan term, your clients would apply the Indicator Variable Interest Rate at the time the first of the amounts in Step 1 was incurred for the term, or that part of the term, or
   • If your client's borrowing is at a variable rate for some or all of the loan term, your client would apply the average of the Indicator Variable Interest Rates during the term, or part of the term.
3. Where the amount under Step 1 exceeds the amount under Step 2, the excess is attributed to the cost of capital protection for the income year. If the securities your clients purchased using their GEI plus are held on capital account, the excess would be a capital cost and will not be deductible.

Legislation was passed in June 2011 which changed the benchmark rate applicable to those investors who entered into the GEI plus on or after 7.30pm on 13 May 2008. As a result of this change, the amount that is reasonably attributable to capital protection for those investors will be calculated in the following way:

1. Calculate the total costs your clients incur under or in respect of the GEI plus for the income year, ignoring amounts that are not in substance for capital protection or interest
2. Apply the Reserve Bank of Australia's Indicator Lending Rate for Standard Variable Housing Loans plus 100 basis points to your client's loan amount under the GEI plus:
   • If your client's borrowing is at a fixed rate for some or all of the loan term, your clients would apply the Indicator Variable Interest Rate at the time the first of the amounts in Step 1 was incurred for the term, or that part of the term, or
   • If your client's borrowing is at a variable rate for some or all of the loan term, your clients would apply the average of the Indicator Variable Interest Rates during the term, or part of the term.
3. Where the amount under Step 1 exceeds the amount under Step 2, the excess is attributed to the capital protection for the income year. If the securities your clients purchased using their GEI plus are held on capital account, the excess is a capital cost and will not be deductible.

The Reserve Bank of Australia's Indicator Lending Rate for Standard Variable Housing Loans plus 100 basis points will also apply from 1 July 2013 to any investors who entered into the GEI plus on or after 1 July 2007 whose loan is still in existence on 1 July 2013.

If as a result of the change to the benchmark rate your client is required to amend their income tax return, they have until 29 June 2013 to do so.

Please visit the Australian Taxation Office's website for further details of how capital protected products and borrowings are treated.

What are the Reserve Bank of Australia's Indicator Rates?

The applicable Reserve Bank of Australia's Indicator Rate used to determine the deductibility of interest on your client's GEI plus will generally depend on when your clients entered into the GEI plus.

If your clients entered the GEI plus before 1 July 2007 and the interest rate on your client's GEI plus is variable, use the Reserve Bank of Australia's Indicator Rate for Variable Personal Unsecured Loans. If the interest rate on your client's GEI plus is fixed, use the Reserve Bank of Australia's Indicator Rate for Fixed Personal Unsecured Loans.

If your clients entered the GEI plus on or after 1 July 2007, use the Reserve Bank of Australia's Indicator Rate for Variable Personal Unsecured Loans.

If your clients entered the GEI plus on or after 7.30pm 13 May 2008 use the Reserve Bank of Australia's Indicator Lending Rate for Standard Variable Housing Loans (plus 100 basis points).

The Reserve Bank of Australia publishes the monthly Indicator Rates six to eight weeks after the end of the applicable calendar month. Current Indicator Rates are available on the Reserve Bank of Australia's website www.rba.gov.au