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.
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:
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:
Please speak to your Crowe adviser or get in touch with the Tax Advisory team if you require more information or assistance.