Tax considerations of share investment and property investment
27 October 2021
Investing in property and investing in shares are both popular investment strategies in Australia. To help you understand the different tax consequences of investing in shares and property, we’ve prepared an overview of the tax issues share investors and property investors should consider.
Tax considerations for share investors
If you invest in shares or Exchange Traded Funds (ETFs) you will have to report capital gains from the sale of shares or income in the form of dividends and distributions on your income tax return. You will also have to pay tax on dividends and distributions automatically reinvested into a reinvestment plan.
If you have made a capital loss when selling your shares, the capital loss can only be offset against capital gains. Investors who don’t have a capital gain in the same income year to absorb the loss can declare the loss in their tax return and carry it forward to future years to offset against future capital gains.
The Australian Tax Office (ATO) generally uses data obtained from the Australian Securities and Investments Commission (ASIC), brokers, exchanges and share registers on dividend payments and the purchase and sale of shares to pre-fill your tax returns. It is then up to you to check that all relevant data has been included.
Record-keeping is also very important to evidence information in your tax return and we recommend that you keep the following records:
Date of the purchase or reinvestment and purchase amount or value (e.g. details of any share split, share consolidation, returns of capital, takeovers, mergers, demergers and bonus share issue events);
Date of sale and sale price;
Details of capital losses made in previous years; and
Brokerage costs or commissions paid to brokers when shares were bought and sold (e.g. dividend or managed investment distribution statements should contain details of these costs).
Tax considerations for property investors
If you invest in property, it is important to remember the ATO uses data matching and technology to compare the rental income data they receive directly from third party resources. This includes data from sharing economy platforms (e.g. AirBnB), rental bond authorities and property managers, to the information property investors had filled in on their income tax return.
It is very important to keep receipts and not to claim expenses for personal use or to claim interest charges on personal loan amounts. Claims for capital works (e.g. an extension to your property) also need to be spread out over a number of years and cannot be claimed immediately in a lumpsum.
During COVID-19, landlords may also have negotiated (at arm’s length) reduced or deferred rent. Set out below are some tips on how to treat receipts and expenses in this time for tax purposes:
If you are a landlord, you only need to declare the rent you have actually received – there is no need to declare the deferred rent in the current year if you will only receive the deferred rent in the next year;
Back payments for deferred rent or insurance for lost rent should be declared as income in the income tax year in which you receive the amounts;
You can still claim normal expenses paid in respect of your property even though your rental income has been reduced (on arm’s length terms);
You can still claim the same proportion of expenses on short-term rental properties (e.g. AirBnB) if you intended to rent out the property the same way you had done in previous years but then lockdown and travel restrictions were imposed making it impossible for you to rent out the property; and
If the property was used privately - for example if you let your family or friends stay at the property for free or at a reduced rate, you will not be able to claim all expenses but only the portion of these expenses that relate to the income received for those periods.
Please speak to your Findex adviser or get in touch with the Tax Advisory team if you require more information or assistance.