Westpac launched its first series of Self Funding Instalments in February 2004 and the popularity of Westpac Self Funding Instalments has risen as investors have begun to understand how the investment can provide solutions to their investment challenges.

There are a number of strategies that individuals and Trustees of SMSFs can use when investing in Westpac Self Funding Instalments. This article outlines five of the strategies.



Use as an alternative to Margin Lending

Advantages in using SFIs over Margin Lending include:

• No margin calls.
• SFIs are low maintenance geared equity investments, meaning that there are no physical payments required¹ from you during the investment term.
• Margin Loans require margin calls if there are unfavourable movements in the Underlying Security price.
• Management of cashflow is automatic with the cash component of the dividends being directed to pay off the loan. Interest is added to the loan on an annual basis.
• Downside is limited through the Put Option.
• Margin Loans have no downside protection.
• SFIs provide exposure to the Share market without the obligation to acquire the full legal ownership of the underlying Securities (repaying the loan, being the completion payment, is optional).
• Margin Loans are secured with the Securities owned by the investor.
• Interest relating to the cash component of the dividend is reimbursed and used to further reduce the loan. The amount of interest is calculated from the ex-date to the next Annual Interest Date.
• You will not have to adjust your holdings of SFIs due to a fluctuation in the Securities price.
• If you are unable to satisfy a Margin maintenance call when the Loan to Value Ratio (LVR) increases, the Margin Lender may sell some or all of your Securities to protect your Margin Loan.
• You are able to relinquish your Loan obligations by selling your SFIs on the ASX at any time, or by exercising the Put Option on the Expiry Date.
• A fee may be applicable when repaying your Margin Loan early.

Enhanced tax planning with dividends and franking credits

Self Funding Instalment Holders receive dividends from the underlying securities which are used to reduce the loan on the Self Funding Instalments. Holders might also be entitled to receive the benefit of any franking credits attached to those dividends.

As an SFI holder, your assessable income will include an amount equal to the cash dividends paid on the underlying securities, increased by the amount of franking credits attached to those dividends, even though the holder does not physically receive the dividends.

An SFI Holder is then generally entitled to reduce their tax payable by the amount of the franking credits.

If the franking credits exceed the amount of tax payable, SFI Holders who are individuals or Trustees of complying Self Managed Super Funds (SMSFs) will potentially receive a tax refund.

Cash extraction for diversification

Self Funding Instalments provide individuals with the ability to exchange their existing shareholdings for Self Funding Instalments and receive a cash payment to use for investment or business purposes. Investors acquiring SFIs through cash extraction are referred to as Securityholder Applicants.  Cash extraction is not available for SMSFs.

The cash payment you receive will be the balance of the Loan Amount less costs and fees associated with the Loan. These costs and fees include the Interest Amount, Put Option Fee and Borrowing Fees (if applicable).

There is no other payment to be made when a Securityholder Applicant acquires SFIs. Instead, the SFI Holder can now use the cash extraction to diversify their shareholdings with additional approved Securities, and build on their share portfolio.

Leverage through SMSF

Being unable to borrow to invest means that SMSFs have a limited spectrum in which to attain geared exposure to markets.

Self-Funding Instalments are one of the ways for SMSFs to take advantage of geared investments.

With approximately half the funds, clients can get exposure to growth, dividends and franking credits from the full value of the underlying shares.

As well as providing leveraging opportunities, SFI interest payments may be tax deductible for SMSFs, and the benefits of franking credits can also apply.

SMSFs may only acquire SFIs by making a Cash Application or buying them on the ASX.

To implement any of these strategies, simply call your Financial Planner or Westpac on 1800 990 107.

1 Subject to the investor providing their Tax File Number (TFN) or Australian Business Number (ABN) or proof of an exemption to the Registrar, Computershare Investor Services Limited.


Important Information
Westpac Banking Corporation ABN 33 007 457 141, AFSL 233714 (“Westpac”) is the issuer of the Westpac Self-Funding Instalments (“SFI”). A product disclosure statement (“PDS”) is available for the Westpac SFI.  A copy of the Westpac SFI PDS and a copy of Westpac’s Financial Services Guide can be obtained by calling 1800 990 107 or visiting www.westpac.com.au/structuredinvestments. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of the Westpac SFI.  This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs.  The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.  Information for trustees of SMSF.  In certain circumstances, under guidelines issued by the Australian Prudential Regulation Authority and Australian Tax Office (the "Super Regulators), Instalments can be an eligible investment for self-managed superannuation funds when acquired using a Cash Application or on market.  However, trustees of super funds should read the guidelines before deciding to invest.  Under the law, superannuation fund investors are subject to restrictions on the types of investments they can make and activities they can undertake, including restrictions on borrowing and charging their assets.  The Super Regulators require trustees of superannuation funds to consider an investment in the context of the superannuation fund's particular investment strategy and to ensure they are familiar with the risks involved in investing in Instalments, have appropriate risk management procedures in place prior to making the investment and disclose to members the details of the fund's investment strategy.  Superannuation fund trustees will need to ensure that they have the power to acquire Instalments or other derivatives, ensure they have sufficient liquidity in the superannuation fund to pay the Completion Payment, or have an investment strategy in place that contemplates the superannuation fund electing not to make the Completion Payment, and therefore not acquiring the underlying Security.  The information in this newsletter is factual only.  It does not constitute financial product advice.  Before acting on this information you should seek independent financial and taxation advice to determine its appropriateness to your objectives, financial situation and needs.
The information is current as at 26 April 2006.