Australia: My Experience With The Stock Market - Part 1

Because I was already familiar with stock investing, I decided to do the same here in Australia and based on my research, I opted to be more long-term (tax purposes) due to:

Tax Implications

Before you get excited, you have to understand the tax implications first. It is pretty much different in the Philippines which is in a way like final tax - it is deducted right away upon selling the shares. It took me awhile to comprehend this 😆 but you can refer to this topic - CAPITAL GAINS TAX.

Capital gains tax in Australia is not a separate tax; it will be added to taxable income and taxed at marginal rate. Hence, there is no capital gains tax rate unlike in the Philippines.

Any capital losses can't be claimed against your other income but you can use it to reduce a capital gain. If there's no capital gain, the net capital losses are carried forward to later income years where you can offset it.

I think what is advantageous here especially when you are in the long-term is the 50% discount you can avail if you've held the asset for more than 12 months. BUT....

Share Trading as Investment or Business

Tax implications are different if you are classified as a 'trader' or an 'investor'. 

According to ATO, there are some factors to be taken into account to determine whether a person is a trader or an investor:
  • nature of the activities particularly whether they have the purpose of profit making from buying and selling the shares. You should be able to show your intention with a business plan showing how you analyse and base your decisions on when to buy, hold and sell the shares.
  • repetition, volume and regularity of the activities
  • organisation in a business-like way including keeping accounts and records of trading stock, business premises, licences or qualifications, a registered business and an ABN.
  • amount of capital invested
Taxes
👉 Costs of buying and selling the share - traders can claim as a deduction (cost of shares) outright while an investor can't, it is a capital costs.
👉 Traders can't claim CGT as any income forms part of the assessable income. Any losses incurred for the year may be carried forward or may be offset against other income in that year if it meets the criteria (non-commercial loss).
👉 Investors can claim the 50% discount if they have held the shares for more than one year. Any capital losses incurred are deducted first to the capital gains before discounting it. Capital losses are carried forward and not allowed as an offset against other income.

Franking Credits

One of the passive ways to earn in the stock market is through dividends. In Australia, the dividends can be unfranked or franked. A franked dividend comes with a bonus tax credit called 'franking credit' which is refunded at the end of the financial year because the company has already paid tax on it. It will be noted in your dividend statement. 


*You can choose whether to deposit the dividends into your account or to participate with their DRP (Dividend Reinvestment Plan). You'll be able to notify them via the share registry (refer to part 2 of my blog).

That's why in your tax return, you'll need to declare the following information:

Unfranked amount - $100
Franked amount - $100
Franking credit - $42.86 
Total dividends to be taxed - $242.86 (If total taxable income is less than $37,000 so tax rate is at 19%)
Total tax to be paid on dividends - $46.14 ($242.86*19%) - $42.86 (franking credit) = $3.28 

If total taxable income is less than $18,200, then you'll receive a refund of $42.86 which is the franking credit.

If the dividend is unfranked, then tax to be paid will be $38 ($200*19%).

Ready?

I know it's complicated but no worries, we can hire a tax agent to do that for us. If you want to learn more about taxes, maybe the below articles can help. 


NOW, ARE YOU READY? If yes, head on to Australia: My Experience With The Stock Market - Part 2.


Disclaimer: We do not provide tax or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax or accounting advice. You should consult your own tax and accounting advisors before engaging in any transaction. 

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