It's only a few weeks until the Australian Tax Office starts full processing of 2020-21 income tax returns, with its objective to begin paying refunds from mid-July.
As an investor it's important to understand what information you need to record in your next income tax return, particularly in relation to income and deductions including capital gains and losses.
Here's a check list of what you will need to include in your 2020-21 income tax return.
Investment income to declare in your income tax return includes any amounts you've received or in the case of managed funds and exchange traded funds any amounts that have also been declared. This includes money you've earned from:
Your total net investment income will be taxed at your individual marginal tax rate.
Income also includes any capital gains (profits) that you've made during the financial year from the sale of investments or through a distribution or declaration by a managed or exchange traded fund, after the deduction of allowable expenses.
A capital gains tax (CGT) event is only triggered when an investment (including an inherited investment) is sold. A 50 per cent CGT discount applies if you are an individual or trust and you've held an investment for more than 12 months.
Be mindful that the ATO has advanced data analytics capabilities to track investment income paid into bank accounts, including fund distributions, share dividends and savings interest.
The regulator also recently issued a warning, advising it will be prompting around 300,000 taxpayers to explain their obligations in relation to reporting capital gains and losses made from their cryptocurrency investments.
As a general comment, only expenses incurred in gaining or producing assessable/taxable income is deductible.
The ATO allows you to claim a tax deduction for any direct expenses that you incur in making your investments, unless the income from specific investments is exempt from having to pay tax.
You can claim a deduction for interest charged on money borrowed to buy managed funds, exchange traded funds, shares and other investments that you derive assessable interest or income from.
Only interest expenses incurred for an income-producing purpose are deductible.
If you sell an investment for less than you paid to buy it, you can use the value of that capital loss to only offset against any capital gains you've made in the current year, or carry forward the loss to offset against only future capital gains.
According to the ATO, you can claim a deduction for costs you incur to invest, such as:
In addition, if you've made any direct personal superannuation contributions during the year using after-tax money, you're allowed to claim a 15 per cent tax deduction in your income tax return.
Before you can claim a deduction for personal super contributions, you must give your super fund a Notice of intent to claim or vary a deduction for personal contributions form (NAT 71121) and receive an acknowledgement from your fund.
Having all your investment records at hand for the financial year, including details of your transactions and investment distributions received, will ensure you accurately report your income and can claim all allowable deductions.
Your investment statements will also help you to calculate any capital gains or losses when you sell an investment.
The ATO requires you to keep records for five years that show the following:
Note – the above is general information available from the ATO. For tailored advice, investors may wish to consult a professional tax practitioner before completing their next income tax return.
By Tony Kaye
Senior Personal Finance Writer, Vanguard Australia
29 Jun, 2021
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