Tax Tips
Are you tax-wise?
Rules relating to taxation of investments can get very involved, very quickly. So professional taxation advice is prudent. However, you should also try to develop your own informed overview of the main tax issues that apply to investment - it is all part of the investment learning journey - it will help you better understand what the tax professional is doing for you.
Below are 3 scenarios and the applicable tax deductions for each. These may or may not strike a chord with you. Talk to your taxation professional before making any claims.
Scenario 1 - Norma
A little about Norma:
* Holds a large and diverse investment portfolio, but does not carry on a business of share trading,
* Trades through a stockbroker,
* Investment decisions, although ultimately her own, are generally made in consultation with her broker after monitoring trends to ensure the best return for her investment.
* The majority of her investments yield income in the form of dividends or unit trust distributions, but in the past she has also made capital gains.
Norma subscribes to a share information service, which provides information used to monitor her portfolio.
What is Norma entitled to by way of tax deduction?
Norma may be entitled to a deduction for the cost of sharemarket information subscriptions, as the expenditure is relevant to the management of her investments. Costs incurred are for the purpose of producing assessable dividends and trust distributions, rather than to source capital gains.
Scenario 2 - Mike
Mike’s situation:
* Previously purchased three parcels of shares in listed companies (X, Y & Z) - all of the companies yield assessable total dividends in excess of $2,000,
* Has sold half of his shares in company X, purchased more shares in company Y and made an initial investment into a managed fund; and
* Actively manages his investments by closely monitoring not only his shareholdings, but market activity in general.
Mike purchases a monthly journal and a daily financial publication, which provide him with general information and analysis of market conditions, in order to keep track of his investments. These subscriptions cost $790.
What is Mike entitled to by way of tax deduction?
As the publications are used by Mike to keep track of current investments, and are not used solely for the purpose of generating capital gains, he may be entitled to a deduction for the cost of purchasing both the investment journal and daily financial publication.
Scenario 3 - Jill
Let’s look at Jill’s situation:
* Has held a small parcel of shares in two blue chip companies for a number of years,
* Has a share portfolio with a value of $5,000,
* Receives bi-annual dividends from both companies - approx. $200 in total; and
*Is nearing retirement and is anticipating a lump sum of $50,000, part of which is earmarked for investment in more shares.
Jill has decided to subscribe to an online investment service, which costs her $500 per year.
What is Jill entitled to by way of tax deduction?
On face value, it would be reasonable to conclude that Jill subscribed to the online investment service for the purpose of making investment decisions & purchases after her retirement, thus the expense would be deemed non-deductible.
However… given Jill’s current shareholdings, it’s also reasonable to assume that a portion of the subscription would be used to monitor and make decisions for her current investments. In this case, at least a portion of the expense may be deductible. Jill could claim a nominal amount of the subscription fee; say $50, as a deduction.
Simply put, if Jill didn’t have shareholdings prior to taking up the subscription, she would not be entitled to any deduction.
Disclaimer
The above scenarios do not constitute tax advice and you should not rely on any of the information contained above. wise-owl.com, its advisers, Directors and officers do not accept any responsibility or liability for any taxation consequences. As a result, you should consult a professional tax consultant to consider your specific circumstances.
