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  • Shares: helping you to avoid common mistakes

    We have identified some common mistakes in shareholders' tax returns, with:

    Dividends

    When to declare a dividend

    A dividend is assessable income in the year it was paid or credited to you. Your dividend statement shows the relevant date – often referred to as the payment date or date paid.

    See also:

    Reinvesting dividends

    Most dividends you are paid or credited will be in the form of money, either by cheque or directly deposited into a bank account. However, the company may give you the option of reinvesting your dividends in the form of new shares in the company – this is called a dividend reinvestment scheme. If you take this option, you must pay tax on your reinvested dividends. The amount of the dividend received will form part of the cost base of the shares you receive.

    Keep a record of your reinvested dividends to help you work out any capital gains or capital losses you make when you dispose of the shares.

    See also:

    Shares

    Bonus shares

    Bonus shares are extra shares you receive for shares you already hold in a company. If you dispose of bonus shares you received on or after 20 September 1985, you may:

    • make a capital gain
    • have to modify your existing shares' cost base and reduced cost base in the company.

    See also:

    Inherited shares

    If you acquire shares as part of a deceased estate, you have certain tax obligations and entitlements for these shares.

    If you inherit shares:

    • you treat inherited shares in the same way as any other capital gains tax assets
    • where the deceased acquired the shares before 20 September 1985, you must use the market value on the day the person died, not the market value on the day you received the shares
    • keep records, so you do not pay more tax than you need to.

    See also:

    Shares as a gift

    A family member may give shares to relatives – for example, a parent gives shares to their child.

    Giving shares

    If you give shares as a gift, you:

    • treat the shares as if you disposed of them at their market value on the day you gave them as a gift
    • may have a capital gain or a capital loss.

    If you give shares as a gift, a capital gains tax event occurs and you must include any applicable capital gain or loss in your tax return for the year you gave away the shares.

    Receiving shares

    If you receive shares as a gift, you:

    • treat shares as though you received them at their market value on the date you received them
    • have certain tax obligations and entitlements.

    If you dispose of shares you received as a gift, you must use the market value on the day that you acquired the shares as the first element of your cost base.

    Demerger

    A demerger occurs when a company restructures by splitting its operations into two or more entities or groups. If you own shares in a company that demerges, you may:

    • receive new shares and/or cash
    • be entitled to a demerger rollover.

    Make sure you:

    • are entitled to a rollover before you choose to use it
    • declare any capital gains or losses you made under the demerger.

    See also:

    Employee share scheme

    The tax law contains special rules for shares and rights acquired from employee share schemes, for both income tax and capital gains tax purposes.

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    Share trader or share investor

    You deal with income and expenses differently, depending on whether you are a share trader or a share investor. A share trader conducts business activities for the purpose of earning income from buying and selling shares. A share investor invests in shares with the intention of earning income from dividends and capital growth, but does not carry on business activities.

    If you made a loss when you disposed of your shares, and you are not a share trader, you must claim it as a capital loss – not as an immediate deduction.

    See also:

    Disposing of shares

    If you dispose of shares, you may make a capital gain or a capital loss. You must report a capital gain or capital loss in the income year you dispose of the shares. If you make a capital loss and you don't have other capital gains to offset it against in that financial year, you can carry it forward to later income years. To do this you will need to keep your taxation records.

    If you dispose of shares you must:

    • only apply the 50% discount where you held the shares for more than 12 months
    • not reduce your capital gain by the 50% discount until after you have applied all your current year and/or carry-forward capital losses.
    • declare any capital gain or loss in the financial year you enter into the contract, not when you received the proceeds; if there is no contract, the CGT event happens when you stop being the owner of the shares
    • use the reduced cost base if you make a capital loss; this does not include any costs you have already claimed as a deduction - for example, deductions for interest on a loan you took out to purchase your shares.
    See also:

     Investment records you need to keep

    You need to keep proper records, regardless of whether you:

    • use a tax agent to prepare your tax return
    • do it yourself.

    You must keep:

    • your acquisition and disposal statements (your 'buy' and 'sell' contracts) – keep these records for five years from the date you dispose of your shares
    • your dividend statements – keep these records for five years from 31 October or, if you lodge later, for five years from the date you lodge your tax return.

    You will receive most of the records you need to keep from:

    • the company that issued the shares
    • your stockbroker or online share trading provider
    • your financial institution, if you took out a loan to buy the shares.

    An easier way to keep your records

    Set up an asset register. It is easy and once you have entered your information into the register you may be able to throw out records you would otherwise have to keep for a long time.

    See also:  

    Claiming deductions

    Claiming deductions against dividend and other investment income

    It is important to read the instructions for the income tests labels and in particular, IT5 when completing your tax return. If you incur a total financial investment loss, you will need to show the amount of the loss at IT5. This is often referred to as negative gearing. You will need to show the total net financial loss at label IT5 on your tax return. The amount of the loss is included in your adjusted taxable income and may be used in calculating various tax obligations, tax offsets and entitlement to other tax-related concessions.

    We report the information provided at these questions, along with other income details, to the Department of Human Services. They use this information to determine their customers' entitlements and obligations, including family assistance and child support.

      Last modified: 27 Jun 2019QC 22911