What's The Deal With Personal Tax Shares

Martin Spiers - Monday, September 25, 2017

Having worked in the same building as financial planners when I first became an accountant I was exposed to the world of share markets. Most of us are familiar with some of the big name companies on the Australian Stock Exchange (ASX) such as BHP, Telstra and Commonwealth Bank. When it comes to the impact of ASX listed shares on your tax there are a variety of factors that need to be considered so below are a few of the basic concepts for individuals:

1. Dividends - 

These are the profits (or reserves) of the company paid out to its shareholders. They are either:

1. franked (include a tax credit for tax already paid by the company on behalf of shareholders) and/or

2. unfranked (no tax credit attached).

The benefit of franked dividends from a tax perspective is that you receive a 30 cent credit for every $1 of taxable income relating to the dividends. Therefore, depending on your income tax rate this means you only need to pay the remaining balance of tax (maximum 19 cents per $1 for those on the top marginal tax rate currently) or even receive a refund per $1 if you are in one of the lowest tax brackets. If you receive unfranked dividends you will pay tax on them at your marginal tax rate.

2. Capital Gains/Losses -

 In its most basic form this is the difference between the cost of the shares and the sale price of the shares. So, if you purchase shares for $1,000 and sell them for $2,000 you would make a capital gain of $1,000.

When a capital gain is made it will either have 100% of the profit taxed (if it was sold within 12 months of purchase) or 50% of the profit will be taxed (if it was sold after 12 months of purchase - called a 'Discount').

When a capital loss is made it is either offset against any other investment gains made or it will be carried over to future years if the losses do not have any gains to offset against in that year. Your capital losses will not be offset against your other taxable income.

Some of the additional items that may need to be factored into a capital gain calculation can include any dividends reinvested, returns of capital and brokerage.

3. Other Considerations –

The tax implications of receiving income from shares and in particular capital gains can at times be quite tricky so making sure you have all the necessary information and documents is vital. Shares received in companies, partnerships, trusts and SMSF’s will have other tax implications. The above only applies to individuals and does not include the impacts of distributions or capital gains situations of some of the more complex structured companies on the ASX.

If you wish to find out more or discuss the impact of your personal shares on your tax situation please contact our team at H & M Accountants.