Tax time is quickly approaching which means its time to get together your tax documents. Whether your tax return is completed yourself or through a tax agent, there are some things you need to know.
Let’s consider income and deductions that you may need to complete your return, specifically for investing in the S&P/ASX200 Index (ASX: XJO).
Income
For your ASX shares, you may have received dividends from, say, BHP Group Ltd (ASX: BHP) or from Scentre Group (ASX: SCG) and bought or sold investments.
Dividends are assessable income for investors and need to be reported on your annual tax return. To assist, you will need to keep on file your dividend statements. If you have misplaced the statements, it can be retrieved from a share registry such as Computershare Limited (ASX: CPU).
In addition, organisations such as Scentre Group will issue a tax statement as they pay distributions from trusts. This will be needed to complete your tax return.
Furthermore, selling your shares attracts a capital gain event and you will need to keep a record of your purchase and sale contract.
Other types of investment income are interest and rent from investment properties.
Deductions
Investing in ASX shares can cost money in the form of borrowings, a subscription to an investment service or internet to manage investments. It’s important to know what you can claim to minimise your tax bill or maximise your tax refund.
You may have borrowed money to acquire some shares. If you did, the Australian Taxation Office (ATO) advises that:
- You can claim a deduction for interest charged on money borrowed to buy shares and other related investments that you derive assessable interest or dividend income from
- Only interest expenses incurred for an income-producing purpose are deductible
- If you used the money you borrowed for both private and income-producing purposes, you must apportion the interest between each purpose.
In addition, other deductions from the ATO include:
- financial advice fees
- some travel expenses
- the cost of specialist investment journals and subscriptions
- borrowing costs
- the cost of internet access
- the decline in value of your computer.
It’s important to be mindful of keeping your receipts. Unfortunately, receipts can fade. For this reason, I recommend taking a photo of any paper receipts or requesting a digital copy where possible.
Foolish takeaway
An often overlooked aspect of investing in ASX shares is the cost of tax when making investment decisions. It is important that tax is considered before any decision is made to buy and sell shares. Paying more tax than you need to may severely harm your investment returns.
Likewise, deductions can be used to decrease the amount of assessable income earned from investing.
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Motley Fool contributor Matthew Donald owns shares of Scentre Group. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Tax time is approaching – what you need to know appeared first on Motley Fool Australia.
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