Tax tips for investors

Many Australians invest in property, financial markets and other assets, both in Australia and overseas. Managing the tax on your investments can help you increase your wealth.

The ATO’s data matching and information-gathering capabilities are significant and cover many capital transactions and investment revenue streams.

It is more important than ever to report investment income, including from overseas, and maintain accurate records, correctly calculate capital gains or losses on disposal and comply with the various rules and concessions available to investors.

Speak with a CPA Australia-registered tax agent who can advise you on the tax consequences of your investments.

Back to top

Investment deductions

You can claim a deduction for expenses incurred in earning interest, dividend or other investment income, but not for exempt dividends or other exempt income.

Examples of investment deductions include:

  • account-keeping fees for an account held for investment purposes
  • interest charged on money borrowed to buy shares and other related investments from which you derive assessable interest or dividend income
  • ongoing management fees or retainers and amounts paid for advice relating to changes in the mix of investment
  • a portion of other costs if they were incurred in managing your investments, such as some travel expenses, investment journals and borrowing costs.

If you attend an investment seminar, you are only entitled to claim a deduction for the portion of travel expenses relating to some investment income activities.

Back to top

Rental properties

The ATO has an ongoing focus on checking rental deductions and matching reported income against details from real estate agents, Stayz, AirBnb and other providers.

If you are a landlord, you must lodge a multi-property rental schedule with your individual tax returns.

Make sure that interest expense claims are correctly calculated, rental income is correctly apportioned between owners, claims for costs to repair damage and defects at time of purchase are depreciated and that holiday homes are genuinely available for rent.

Landlords of rental properties that are being rented out or are ready and available for rent can claim immediate deductions for a range of expenses. These may include interest on investment loans, land tax, council and water rates, body corporate charges, repairs and maintenance and agents’ commissions.

Landlords may be entitled to claim depreciation for the declining value of assets such as stoves, carpets and hot-water systems. They may also be able to claim a deduction for capital works spread over a number of years, such as structural improvements like re-modelling a bathroom.

Be aware that depreciation deductions for residential real estate properties are now limited to outlays actually incurred on new items. For properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase; however, should they purchase a new (not used or refurbished) asset, they can depreciate that asset.

Residential landlords are no longer allowed travel deductions relating to inspecting, maintaining or collecting rent for a rental property.

COVID-19 has raised a number of tax issues for rental property owners or agents to consider, including:

  • deductions for properties where tenants are not paying their full rent or have temporarily stopped paying rent as their income has been affected due to COVID-19
  • reductions in rent for tenants whose income has been adversely affected by COVID-19, to enable them to stay in the property
  • assessable receipts of back payments of rent or an amount of insurance for lost rent
  • interest deductions on deferred loan repayments for a period due to COVID-19
  • cancellation of bookings due to COVID-19 for a property that is usually rented out for short-term accommodation, but has also previously had some private use by the owner
  • the private use of a rental property by the owner (e.g. holiday home) to isolate during COVID-19 and adjusting available deductions
  • changes to advertising and other fees for short-term rental properties during COVID-19 due to no demand for the property.

While you’re still able to claim deductions for your expenses and depreciation, you may need make adjustments if you’ve changed how you use the property.

If you’re a landlord, it’s well worth reading the ATO’s information on holiday homes, renting out part or all of a home and holiday apartments in commercial residential properties, as well as factsheets on:

Back to top

No deductions for vacant land

Deductions for holding vacant land have now been limited. The new rules apply to costs incurred on or after 1 July 2019, even if the land was held before that date.

Deductions for expenses incurred for holding costs of vacant land can continue to be claimed by corporate tax entities, superannuation plans (other than self-managed superannuation funds), managed investment trusts, public unit trusts and unit trusts or partnerships where all the members are the previous entity types.

There are some entities and circumstances where deductions for vacant land can still be claimed. For example, where the entity holding the land is a company, where you use the land in carrying on a business, or exceptional circumstances apply.

Expenses of holding land remain deductible if they are incurred in carrying on a business such as farming or gaining or producing assessable income.

The rules can be complex and require you to determine whether you are holding vacant land, whether it satisfies the various requirements or if exceptional circumstances apply.

The ATO has produced a flowchart to assist in determining if deductions for expenses related to vacant land are limited.

Back to top

Residential property and non-residents

If you are a foreign resident for tax purposes at the time you dispose of your residential property in Australia, you will not qualify for the CGT main residence exemption unless you satisfy the life events test.

Back to top

Gains or losses from cryptocurrencies

Almost one in five Australians invest in cryptocurrencies. If you are or have been involved in acquiring or disposing of cryptocurrencies in the past, you need to be aware of the tax consequences.

You may have to pay tax on any capital gain you make on disposal of the cryptocurrency. There are also rules when you exchange one cryptocurrency for another cryptocurrency and for chain splits, staking rewards and airdrops.

The ATO now matches transaction data from digital exchanges, so it is more important than ever to ensure cryptocurrency gains and losses are correctly reported.

If you use cryptocurrency in business, such as to run your start-up or to trade large volumes of cryptocurrency, different rules apply.

Back to top

Capital gains tax planning

You should carefully time the disposal of appreciating assets, as this may trigger a capital gain. It is important to recognise that CGT is triggered when you enter into a contract for the sale of a CGT asset, rather than on its settlement.

This is particularly important where the entry and settlement of the contract straddle the end of the financial year. In these circumstances, it may be preferable from a cash flow perspective to defer the sale of the CGT asset to the subsequent year where other relief may be available, such as a capital loss sold on another asset.

You should also take care to ensure that an eligible asset is retained for the 12-month holding period required under the CGT discount. The CGT discount is generally not available to foreign residents or temporary resident individuals.

Keep proper records for all of your investments and ensure that you keep them for at least five years after a capital gains tax event occurred.

Read the ATO’s guidance on capital gains tax.

Back to top

Foreign investments

If you are an Australian resident with overseas assets you need to include any capital gains or losses you make on those assets in your tax return. You may also have to include income you receive from overseas interests in your tax return.

You can receive income even if it is held overseas for you. If you receive foreign income or gains that are taxable in Australia, and you paid foreign tax on that income, you may be entitled to an Australian foreign income tax offset.

Be aware that the ATO has information exchange agreements with revenue authorities in many foreign jurisdictions and therefore is likely to receive data on any of your overseas investments and income.

Read the ATO’s guidance on foreign source income and property and guide to foreign income tax offset rules.

Back to top

Exchange traded funds

Exchange traded funds (ETFs) are an increasingly popular investment product but calculating the tax on them can be complicated. Because ETFs are classified as trusts, not ordinary company shares, they fall under the Attribution Managed Investment Trust (AMIT) rules.

This means that you will need to separately report the various distributions and capital gains amounts in your tax return.

While many investors will receive a member annual statement with the necessary details, these reports are optional. You need to ensure that you correctly report ETF amounts on your tax return so check to see if the necessary details are there and follow up with the fund or registry if they aren’t.

Back to top

Investment products

Towards the end of the financial year, there is often an uptick in the promotion of investment products that may claim to be tax effective.

Check to see if a Product Ruling is available or if a Taxpayer Alert has been issued by the ATO.

A product ruling provides ATO assurance on the tax consequences of an arrangement, provided it is carried out as described in the ruling. However, it isn’t a sanction or guarantee of the tax effectiveness of a product or investment.

Taxpayer alerts are warnings issued by the ATO about higher risk arrangements or issues.

You should form your own view about the commercial and financial viability of a product. Consider issues such as whether the projected returns are realistic, the ”track record” of the management, the level of fees compared with similar products, and how the investment fits an existing portfolio.

If you are considering such an investment, seek independent advice before making a decision. 

Back to top