This article appeared in the ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

Tax considerations

Tax time is a confusing time of year for most investors.  ASX has assembled the following information to help identify the possible tax implications of the various products traded on ASX. Please note that this is general information only and is not tax advice.  ASX strongly advises you to speak to a professional tax adviser about your particular circumstances before making an investment decision.

Equities (shares) - Shareholders need to keep a record of the date and value of share parcels they acquire.  When shares are sold they are generally subject to capital gains tax (CGT).  The length of time shares are held could also determine whether a CGT discount is applicable.  Shareholders can receive franked dividends.  Investors that satisfy the 45 day holding period rule must include the imputation credits attached to franked dividends in their assessable income but are entitled to a tax offset equal to the amount of the franking credits.  Shareholders should consult their taxation adviser regarding the deductibility of interest on margin loans.

Listed Investment Companies (LICs) - Dividend payments are typically fully franked and capital gains are managed by the manager of the fund and passed through to investors. CGT discounts may be available to individual investors.

Interest Rate Securities (including bonds and hybrids) - Coupon payments from Interest Rate Securities are subject to income tax.  The sale or redemption of bonds is generally not subject to CGT, but gains or losses are assessable or deductible for income tax.  However, there are CGT considerations from disposal of shares that are received from conversion of convertible notes.  It is important to note that there are distinctions in the taxation treatment for convertible notes issued after 14 May 2002.  Some hybrid securities are reset preference shares which may pay franked dividends.

Property trusts and infrastructure funds - A portion of the distribution may be tax deferred until the holder sells their units. Stapled securities may also have income partly- franked.  Holders should consult their annual distribution statements for further information.

Pooled development funds (PDFs) - These funds display some unique taxation characteristics so investors are advised to seek professional advice.  In certain situations, capital gains and dividends can be tax-free.  PDFs are concessionary taxed and a concessional tax rate of 15% may apply even though dividends received from PDFs can carry franking credits at the 30% rate.

Exchange Traded Funds (ETFs) - Dividends from ETFs typically have franking credits attached to them that are passed through the underlying shares in the portfolio.  Capital gains are also managed by the fund manager in order to minimise costs to investors. 

International Shares via ASX World LinkŪ - ASX World Link service provides dividend and transaction information in Australian dollars to help in preparation of tax returns.  Investors may be able to claim a foreign tax credit in respect of all or part of the dividend withholding tax amount.

Instalment Warrants - The issuers of instalment warrants publish Product Disclosure Statements and may obtain ATO Product Rulings for their warrant series.  In addition, issuers usually provide holders with annual tax statements to assist in completing income tax returns.  Generally, holders will need to consider the tax treatment of the purchase price (split between interest, the put option premium and the capital component relating to the underlying securities) as well as dividends and associated franking credits (subject to the 45 day holding period rule).  Some Holders may be entitled to deductions for interest paid. 

Options - Tax Assessment is dependent on the individual’s circumstances.  Premiums received for selling options may be  treated as ordinary income or as a capital gain dependent on the individual’s circumstances. Buying an option and then exercising it to acquire the underlying shares adds to the cost base of the acquired shares for CGT purposes.  The length of time shares are held could also determine whether a CGT discount could apply, and remember the holding period rule in relation to dividends.

For more information about the tax implications of owning shares please consult your taxation professional.

This information is provided for general purposes only. ASX, its employees or officers accept no responsibility arising in any way for errors or omissions.

ASX is interested in your feedback, please email us any comments on this article.