How do my investments get taxed?

by

Jack Derwin

June 21st 2022 3 minute read

With 30 June fast approaching, it’s almost time to get your tax return in order. To help you this tax time, we’ve put together a quick guide on Superhero’s reporting system and what to expect this year. 

What do I need from Superhero for my tax return?

With Superhero we automatically provide you a tax report at the end of every financial year. This includes shares bought and sold over the last financial year as well as income received as part of a distribution (dividend payment) which you’ll need for your tax return.

It is important to note that tax information for ETFs are provided by the ETF issuers themselves – these details are commonly known as Attribution Managed Investment Trust Member Annual (AMMA) statements. Once the ETF provider has sent us these details, we will display them within your account in the reports tab. We expect to receive these by September this year. 

When do I need to pay tax on my investments?

When it comes to shares, Australian investors are generally obligated to pay tax whenever they sell shares for a profit or receive dividends from a company they own shares in. These taxable events are added up and settled at the end of every financial year when you submit your tax return.

What is capital gains tax (CGT)?

A profit is sometimes called a ‘capital gain’. When you successfully sell shares for more than you bought them for (congratulations) you’re usually expected to pay tax on the difference. 

For example, say you bought 100 shares at $10 a share. You paid $1,000 in total. If you were to then sell those shares for $15, you would have made $500 profit ($1,500 in total minus the $1,000 you originally invested).

At the end of that financial year, Investors pay capital gains tax (CGT) on their profits. This is usually paid at the rate of an investor’s marginal tax rate (the percentage of tax an individual pays on their income).

In the above example, let’s say you’re in the income bracket that pays 32.5%. You would pay 32.5 cents for every dollar of profit. If you’d made $500 profit, you would pay $162.50 in CGT. Your after-tax profit would be $337.50.

What is the capital gains (CGT) discount?

Investors that hold shares for 12 months or more before selling them however receive a CGT discount of 50%. This means you pay half as much tax on your profits.

How are dividends taxed?

Dividends are counted as a form of income. While they aren’t eligible for the capital gains tax discount, they are also taxed at your marginal tax rate.

What are franking credits?

In Australia investors can also receive something called ‘franking credits’. These are sometimes distributed when shareholders are paid dividends by a company that has already paid tax on its profits.

Eligible distributions are called ‘fully franked’ or ‘partially franked’ dividends. These franking credits may be used by investors to lower their overall tax obligation.

What if I sold some shares for a loss?

Not every investment can be a winner. If you sold some shares for less than you paid for them, you can use the loss to reduce your tax obligation.

Still got questions about your tax return?

Our team is happy to help you navigate our investment platform but Superhero does not provide tax advice. Please consult the ATO website for more resources or seek professional advice from a tax agent if you require help with your personal situation.