The information in this article is general in nature. As always, please seek advice from a licensed financial advisor. Just You Accounting are not licensed financial advisors and do not provide investment advice. What we can do is help you to understand and meet your tax reporting obligations in relation to your investments.
Gains and Losses
When you buy shares in a company, you hope that their value will increase over time so that you can sell them for a profit. If the value goes up and you sell them for more than you paid, you make a capital gain. If the value goes down and you sell them for less than you paid, you make a capital loss.
You may have to pay tax on your capital gains, but you can use your capital losses to reduce your tax bill. It's important to keep track of all your share transactions and to understand the tax rules.
Remember that share values can go up and down, so investing in shares always involves some risk.
Dividends
Dividends are money that companies pay to their shareholders. It's like sharing some of the profits that the company has made. This can be paid as cash or as more shares in the company.
Some companies pay dividends regularly, while others may not pay them at all. It depends on how well the company is doing financially and what it needs to do with its money.
For people who own shares in the company, dividends can be a way to get some extra money. However, not all companies pay dividends, and it's important to think about other things before investing in a company.
Franking Credits
Franking credits are a kind of special tax credit given to shareholders of Australian companies. When a company makes a profit and shares it with the shareholders, they also give a credit for the tax the company already paid on the profit.
Shareholders can use this credit to lower their own personal income tax. This way, they don't get taxed twice for the same money.
Franking credits can be helpful for shareholders who get money from a company and want to pay less tax. But not all companies pay money to their shareholders, and the credits only work for people who pay taxes in Australia.
Managed Investments
These include exchange-traded-funds (ETFs), management investment funds or trusts and a mixture (stapled securities).
The fund managers access the same stock exchange markets. Your income will, if applicable, include franking credits and capital gains. All of this is tracked and calculated by the fund managers and reported in the annual tax statement.
Annual tax statements are generally not issued until mid-August of each year, or later. If you have this type of investment, please wait until you have received your tax statement before preparing your tax return.
Keeping Records
The purchase records for any investment needs to be kept for the life of the investment. This will be needed in the future to calculate and report your capital gain or loss at the time of sale.
We recommend keeping 2 types of tax files:
- Permanent - this is for share or investment purchases.
- Annual - this is for dividends and tax statements. Look for the payment date on your dividend statements and file accordingly.
In the case of any new shares received instead of cash dividends, the dividend statement should be added to the permanent file after your tax return is completed.
When shares are sold, the purchase records from the permanent file should be transferred to the annual file with the sale records.