Tax Return & Investments: How to Declare and What You Need to Know

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Many Australians love to invest their money on something that interests them or what they believe is worthwhile. The data may be contradictory with reports in the past, where the majority did not invest in shares and other investments in 2017.

But in the same year, about 37% of adults (equivalent to 6.9 million) have invested in a securities exchange. Approximately 31% of them have shares while 7% hold derivatives. It is not just adults who are actively participating, but people as young as 18. In 2012, only 10% of people around the 18-24 age brackets were interested in investments. After five years, this number grew double.

Australians tend to invest in on-exchange investments or those that take place directly upon the exchange. This type of investment beats other ways, including properties and cash.

Now, if you have an investment, it is important that you understand how to declare it. This blog will give you the information you need when declaring your investments when lodging your tax return.

Is Your Investment Treated as an Income?

According to the Australian Taxation Office, you are required to declare any income you have received for the specific tax year on your tax return. Lodging your tax return does not have to be difficult. Most of the income you have will be pre-filled. The information comes from financial institutions or your employer.

However, in many cases, if you have an investment, you will need to enter individual details on your own. These details include your investment income, which includes interest, capital gains tax, and dividends.

So, to answer the question above, yes, your investments are a part of your income. Therefore, if you have received income from any of your investments, you should declare it as required by the ATO. All investments, whether you have received the payment directly or through a trust or a partnership distribution, should be listed in your tax return.

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What Types of Investments Should You Declare?

Some profits from your investments may be counted as part of your income. It means they should in your tax return. The expenses relating to these investments may be deductible, such as interest gained from the money you borrowed to purchase shares.

There are four general categories of investment income that you should have in your tax return, which you can find below:

  1. Interest

    Any interest that you have earned from your bank accounts, such as through term deposits, are considered an investment income. Other types of interest include:

    • Those you have earned from other sources, such as through penalties from any of your investments
    • The interest from your child’s savings account (Note: only accounts you opened, are operating, or have spent the funds that belonged to you)
    • Interest credited or paid by the government
    • Foreign sources

    If you have received bonuses from your life insurance, they are considered an investment income as well. You may even be entitled to a 30% tax offset out of these bonuses.

  2. Dividends

    Shares are a form of a dividend. To declare the bonus shares, the company from which the shares came from should provide a statement that confirms the shares are a dividend. The company can be anything from a public trading trust to a corporate unit trust or even a listed investment business.

    In some cases, there are dividends with imputation credits, which should also be declared on your tax return. If so, you can get a franking tax offset for these dividends. To elaborate further, franking credits are those that have already been paid on a dividend. If you have super funds, such as self-managed super funds, you are allowed to utilise the franking credits to offset a portion of your taxable income.

    Are you a share trader? According to the ATO, a share trader is someone who performs business activities to earn income by buying or selling shares. Taxing share traders is different from other investors. If you are a share trader, you are allowed to claim your losses as a tax deduction. Meanwhile, if you are a regular investor, the deductions will be made on your capital gains.

  3. Managed Investment Trust

    On your tax return, do not forget to list any income you have received from a trust investment product. Some examples are:

    • Money market
    • Cash management
    • Unit trust
    • Mortgage trust

    These types of trust are also viewed as investment income.

  4. Capital Gains

    Capital gains tax can be quite complex to understand. But to summarise, the capital gain is the difference between the amount that you paid for a specific asset and the amount you have received for it. There are some situations where you make a capital gain for a managed fund (e.g. share trust, growth trust, or equity trust) if it gives a capital gain to you.

    Capital gains are included in your total income and will not be treated as a separate income. Therefore, they will be taxed the same way.

    In relation to the matter, all super funds are required to pay capital gains tax if there is any capital gain from the sale of the asset, such as shares. Gains are currently taxed at 10% but only if the asset has been a part of the taxpayer’s properties for more than 12 months. If the gains were made on the sale of the asset, which was held for less than 12 months, it would be taxed at 15%.

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Lodging Your Tax Return

As mentioned above, your tax return for all investments should be a part of your regular tax return. The process may be different depending on the type of investment you have.

Let us talk about your tax for shares as an example. You will need to report the capital gains you have made on both buying and selling throughout the entire financial year. If you earned any dividends, they should already be added to your taxable income automatically.

At the end of the financial year, you should receive a tax statement from your broker or share trading platform. This statement includes the total profits that you have earned for the period. If you lodge your own tax return, you should include your total profits in the report. Meanwhile, if you hired a tax accountant, you will only have to send the tax statements, and they will work things out on your behalf.

Your investment earnings, including interest and dividends, are typically taxed at 15%. This percentage applies when you are in the accumulation phase. For instance, you make contributions to your super fund investments. Any allowable deductions or credits will be deducted, such as franking credits from any shares that are covered by the dividend imputation system.

Super funds that are in the retirement phase do not need to worry about any taxes imposed on the investment earnings. Nevertheless, it is important to understand that a transfer balance cap is applied on these earnings. It limits the number of funds that can be transferred when they are in the accumulation phase until you reach the retirement phase. Currently, the cap is placed at $1.6 million.

If you have had some experience with lodging your tax return, you know how significant it is to keep records. With your investments, make sure that you have specific documents that will allow you to report your investment income. This way, you can claim all the tax deductions that you are entitled to.

Do you need to speak to an expert about your investments and tax return? Contact TaxReturn.com.au, and we will assist you in lodging your tax return with us.