You’ve bought yourself some assets and have started to get your foot into the door of investing. It’s definitely an exciting time for you, but probably just as confusing because of how investments impact your Tax Return.
What is the tax on interest income, and what are investment tax deductions? Capital gains tax in Australia and tax on your investments is trickier to work out than your regular income.
But don’t worry, you can be sure you’re maximising your tax refund on your investments by using an online tax professional. In this article, we explain some of the things you should be aware of when reporting tax for your investments.
What is a tax deduction?
A tax return deduction is an expense that you spend for a work related reason. When you claim an allowable deduction, it helps lower your taxable income. If you lower your taxable income, you don’t have to pay as much tax which means you can spend more money on the things you love. The best way to do this is lodging with an online professional tax agent.
When it comes down to it, there are three main criteria that qualifies an expense for tax deduction:
- You must have spent the money and not have been reimbursed
- It must be related to your job
- You must have a record to prove it
What is your taxable income?
Your taxable income is money generated from your employer or your work. Your taxable income also includes:
- PAYG summaries
- Pensions and government allowances
- Interest earned (banks etc)
- Dividends
- Rental property income
- Business income
- Other income earned (capital gains etc)
What is tax on investment income?
You must declare the income from your investments just as much as you must declare the income from your employment. This income is calculated at your income tax bracket, and must be declared whether it is paid:
- Directly to you
- To a distribution partnership, share club, or trust
When you own assets jointly it is assumed that you own them equally and income is divided equally, unless it can be proven otherwise.
Forms of investment income include:
Interest income
If you receive money from positive interest gains, you must declare it for tax purposes. Interest income includes:
- Interest from financial institution accounts and term deposits
- Penalty interest from investments
- Interest from children’s savings accounts
- Interests paid or credited to you
- Bonus from insurance policies (life insurance etc)
- Interest from foreign sources
Dividend income
If you have any stocks with dividends or shares with dividends, you will have to pay dividends tax. A dividend can be paid as money or as property (including more shares), and both you have to declare for tax on shares in Australia. Your dividend income will come from:
- Listed investment companies
- Public trading trusts
- Corporate unit trusts
- Corporate limited partnerships
Franked dividends
Some dividends will give you franking credits as well. If you receive franked dividends you have to declare:
- The franked amount
- The franking credit
If you are issued with franked dividends from a company, you will usually be entitled to a franking tax offset. Dividends usually come up automatically when you use an online tax agent like One Click Life. If they are not showing up and you need to discuss with a tax agent, just use the book a meeting feature on your One Click Life dashboard for a free meeting with a tax agent.
You can also contact us by clicking here to speak to a tax professional.
Rent income
If you own a rental property, you must declare the full amount of any rent related payments that you receive or become entitled to. Such payments will include:
- Rental bonds that you become entitled to keep
- Insurance payouts you receive for lost rent
- Letting or booking fees
- Any reimbursements your receive for rent tax deduction expenses
- Rent collected from short-term contracts, such as Airbnb
If you receive goods or a service instead of money for rent, you must work out how much the goods or service is worth and declare it for tax. The best way to get an accurate estimate is to book a meeting with a tax accountant.
Managed investment trusts
You must disclose any income or credit you receive for tax on managed funds. Managed funds distributions tax can come from:
- Cash managements trusts
- Money market trusts
- Mortgage trusts
- Unit trusts
- Managed funds such as property, shares, equity, growth or balanced trusts
Capital gains income
Any time you sell a capital asset and you make more money than you bought it for, you must declare the capital gain. This capital gain can be, but not limited to:
- Cryptocurrency
- Shares
- Property
- Collectables
If you want to know if something you have sold is liable to capital gains tax in Australia, then you should consult with a professional tax accountant, and work out how much tax you should pay.
What sort of investment tax deductions are you allowed?
Whether it be interest tax deductions, capital gains tax deductions, or tax deductions for share investors, there are a few reasons you can claim. Examples of allowable deductions include:
- Account-keeping fees for an investment account
- Interest accrued from money that was borrowed to buy shares and other investments that give you dividends
- Ongoing management fees and retainers for advice on changes in the mix of investment
- Costs to manage the investment, such as some travel, investment journals, borrowing costs, and maintenance
Remember, if you’re unsure of what to claim you can always set up a free meeting with an online tax agent.
How is your investment taxed?
Your income tax bracket in Australia is the rate for which you will have your investments taxed. The tax income rates being:
| Taxable income | Tax percentage |
| $0 – $18,200 | 0% |
| $18,201 – $45,000 | 19% for every $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5% for every $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37% for every $1 over $120,000 |
| $180,001 and over | $51,667 plus 45% for each $1 over $180,000 |
You can pay half the amount of capital gains tax
If you sell a capital asset, you have to pay capital gains tax based off your taxable income bracket. However, if you hold onto the capital asset and sell it after more than a year, the amount of capital gains tax you pay is halved.
Which tax agent should you use?
The more you deduct, the less tax you pay and the more money you can spend on yourself. The sure-fire way to do that is with a tax agent or accountant. You can also claim your tax agent/Tax Return fee back on tax, so why wouldn’t you use one to minimise your tax and maximise your money?
One Click Life offers Online Tax Returns at your fingertips in an easy-to-use platform run by industry professionals.
Taxes, Health Insurance, and Wills can be time-consuming and tedious. Our app allows you to be able to do this fuss-free, giving you a simple way to organise, track and manage all of your Life Admin in one place.
Let One Click Life take care of your Tax Return and life’s essential tasks, so you can spend more time doing the things you love.