Understanding Taxable Financial Products
August 12, 2024
Knowing the tax treatment of Shares, Managed Funds, Crypto, Real Estate, Interest, Foreign Investments
When investing in various financial products, it’s important to understand the tax implications of transactions involving these products. A key distinction to make is between investing for profits and investing for capital gains. Investing for profits typically involves generating regular income, such as dividends or interest, trading in shares or similar, and is generally subject to normal income tax.
On the other hand, investing for capital gains focuses on the appreciation of the asset’s value over time, with profits realised upon the sale of the asset, and is subject to capital gains tax (CGT). Understanding the intent behind your investment helps in determining the applicable tax treatment.. This guide will help you identify the tax obligations associated with common financial products and ensure you maximise tax deductions and achieve the maximum refund on your Income Tax Return.
Index of Contents
- Shares and Equities
- Managed Investment Trusts (MITs)
- Cryptocurrency
- Real Estate and Property
- Interest-Bearing Investments
- Foreign Investments
- Determining Tax Payability and Type
- Gotax Deduction Grabber App
1. Shares and Equities
Taxable Events: Buying, selling, and receiving dividends.
Income Tax: Dividends received from shares are subject to income tax.
Capital Gains Tax (CGT): Profits from the sale of shares are subject to CGT, with a potential 50% discount if held for over 12 months.
Determination: Calculate the difference between the sale and purchase prices to determine the capital gain or loss.
2. Managed Investment Trusts (MITs)
Taxable Events: Distributions received from the trust.
Income Tax: Distributions from MITs include interest, dividends, and capital gains, taxed accordingly.
Capital Gains Tax (CGT): Capital gains distributed by the trust are subject to CGT.
Determination: Your annual tax statement from the trust details the nature of each distribution component.
3. Cryptocurrency
Taxable Events: Buying, selling, and exchanging cryptocurrencies.
Income Tax: Trading cryptocurrencies as a business results in profits being subject to income tax.
Capital Gains Tax (CGT): For personal investments, profits from sales or exchanges are subject to CGT.
Determination: Calculate the difference between the sale and purchase prices to determine the capital gain or loss.
4. Real Estate and Property
Taxable Events: Buying, selling, and renting out property.
Income Tax: Rental income is subject to income tax.
Capital Gains Tax (CGT): Profits from property sales are subject to CGT, with a potential 50% discount if held for over 12 months.
Determination: Calculate the difference between the sale and purchase prices to determine the capital gain or loss.
5. Interest-Bearing Investments
Taxable Events: Receiving interest payments.
Income Tax: Interest income is subject to income tax.
Capital Gains Tax (CGT): Not applicable to interest income.
Determination: Include the interest earned in your assessable income for the year.
6. Foreign Investments
Taxable Events: Receiving foreign income, dividends, and selling foreign assets.
Income Tax: Foreign income and dividends are subject to income tax.
Capital Gains Tax (CGT): Profits from foreign asset sales are subject to CGT.
Determination: Convert foreign income to AUD for assessable income and calculate capital gains as with domestic assets.
7. Determining Tax Payability and Type
Step 1: Identify the Financial Product and Transaction Type
Determine whether the transaction involves buying, selling, receiving income (e.g., dividends or interest), or exchanging assets.
Step 2: Assess the Nature of the Profit
Income Tax: Regular income, such as dividends, interest, and rental income, is generally subject to income tax.
Capital Gains Tax (CGT): Profits from asset sales or exchanges like shares, property, or cryptocurrencies are subject to CGT.
Step 3: Calculate the Profit or Gain
For CGT, calculate the difference between the sale and purchase prices.
For income tax, include the income received in your assessable income.
Step 4: Apply Relevant Discounts and Exemptions
For CGT, apply any eligible discounts, such as a 50% discount for assets held over 12 months.
Check for specific exemptions or concessions applicable to your situation.
Step 5: Report and Pay Tax
Include the calculated income or capital gain in your Income Tax Return and pay any tax due according to applicable rates.
8. Gotax Deduction Grabber App
Make tax time easier with the Gotax Deduction Grabber App. This powerful tool includes all the logbooks and tax expense recording systems you need to maximise tax deductions and ensure you're claiming everything you're entitled to. Scan the QR code below to download the app and start optimising your Online Income Tax Return for a maximum refund today!
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