If you invest in shares, you may be able to claim as a deduction from assessable income certain expenditure incurred in deriving your income from those shares. The following are examples of expenses that may be deductible.
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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Where you pay ongoing management fees or retainers to investment advisers, you will be able to claim the expenditure as an allowable deduction. Only a proportion of the fee is deductible if the advice covers non-investment matters or relates in part to investments that do not produce assessable income. You cannot claim a deduction for a fee paid for drawing up an initial investment plan.
If you borrowed money to buy shares, you will be able to claim a deduction for the interest incurred on the loan, provided it is reasonable to expect that assessable dividends will be derived from your investment in the shares. Where the loan was also used for private purposes, you will be able to claim only interest incurred on that part of the loan used to acquire the shares.
State governments charge debits tax for operating certain types of accounts held with financial institutions such as banks, building societies and credit unions. You can claim a deduction for that part of any debits tax charged on debits from your account used to fund deductible expenses in relation to earning dividend income. If only a proportion of the debit was used to fund deductible expenses, only the same proportion of debits tax is deductible.
You may be able to claim a deduction for travel expenses where you need to travel to service your investment portfolio - for example, to consult with a broker or to attend a stock exchange or company meeting. You can claim a deduction for the full amount of your expenses where the sole purpose of the travel relates to the share investment. Where the travel is predominantly of a private nature, only the expenses which relate directly to servicing your portfolio will be allowable.
Cost of newspapers and journals
You may be able to claim the cost of purchasing specialist investment journals and other publications or subscriptions which you use to manage your share portfolio.
Internet access and computers
You may be able to claim the cost of Internet access in managing your portfolio. For example, if you use an internet broker to buy and sell shares, the cost of internet access for this purpose will be deductible.
You can also claim a capital allowance (previously known as depreciation) for the decline in value of your computer equipment to the extent that it has been used for income-producing purposes. You cannot claim a capital allowance for the private use portion.
You may be able to claim expenses you incurred directly in taking out a loan for purchasing shares which can reasonably be expected to produce assessable dividend income. The expenses may include establishment fees, legal expenses and stamp duty on the loan. If you incurred deductible expenses of this kind totalling $100 or more, they are apportioned over five years or the term of the loan, whichever is less. If your expenses are less than $100, they are fully deductible in the year you incur them.
Dividends that include listed investment company capital gain amounts
If a listed investment company (LIC) pays a dividend to you that includes an LIC capital gain amount, you may be entitled to an income tax deduction.
You can claim a deduction if:
- you are an individual
- you were an Australian resident when a LIC paid you a dividend
- the dividend was paid to you after 1 July 2001, and
- the dividend included an LIC capital gain amount.
The amount of the deduction is 50% of the LIC capital gain amount. The LIC capital gain amount will be shown separately on your dividend statement.
You do not show the LIC capital gain amount at item 17 on your tax return (or item 9 if you complete Retirees TaxPack 2004).
Ben, an Australian resident, was a shareholder in XYZ Ltd, a listed investment company. For the 2003-04 income year, Ben received a fully franked dividend from XYZ Ltd of $70,000 including an LIC capital gain amount of $50,000. Ben includes in his tax return the following amounts:
Franked dividend (shown at T item 11)
Franking credit (shown at U item 11)
Deduction for LIC capital gain (shown as deduction at item D7)
Net assessable income
Note: If Ben uses Retirees TaxPack 2004, he shows the amounts as follows: franked dividend at U item 8; franking credit at T item 8; deduction for LIC capital gain at item 12.
Any other expenses that you incur which relate directly to maintaining your portfolio are also deductible. These could include bookkeeping expenses and postage.
Expenses that are not deductible
Unless you are considered to be a share trader, you cannot claim a deduction for the cost of acquiring shares - for example, expenses for brokerage and stamp duty. These will form part of the cost base for capital gains tax purposes when you dispose of the shares. For more information, see the publication Personal investors guide to capital gains tax.
Last modified: 12 Jan 2005QC 27523