On Monday 6 September 2021, an ATO media release was issued to advise that transactions involving the buying and selling of shares and ETFs (Exchange Traded Funds) is on their radar. Given the increasing popularity of micro-investing platforms, the warning is targeted at younger or first-time investors to ensure they are capturing and reporting their capital gains/losses and investment income correctly.
Assistant Commissioner Tim Loh noted that the ATO is ‘keenly aware’ of the growth in micro-investing platforms which has seen record numbers of first-time investors entering the market. The barriers to entry for investing are lower than ever and the low-interest rate environment we’re in has forced investors to search for better returns beyond the minimal interest received on cash in their bank accounts. Some of the more common micro-investing platforms include:
- Raiz Invest
- Spaceship Voyager
- CommSec Pocket
The appeal of these platforms is the ability to start investing with small amounts of capital that are supplemented with regular contributions. For example, you may purchase a $4.50 coffee with the 50 cents round-up being invested into your portfolio. It may not sound like much but with regular purchases and additional top-ups when cash is available, the investment could grow to a significant sum in the eyes of the investor.
ATO areas of concern
The ATO’s release outlines several key considerations and potential errors that taxpayers need to understand when investing in shares or ETFs:
- Investment income – many shares and ETFs will issue a dividend or distribution to their shareholders at various times during the year. This may be issued in the form of a cash payment or reinvested via a DRP (Dividend Reinvestment Plan). This means the cash from the dividend or distribution is automatically reinvested to purchase more shares or units. Although no cash is received by the investor, the dividend or distribution is still taxable at this time;
- Unrealised capital losses – when investors sell their shares or units and receive cash, this is a CGT event and either a capital gain or loss will be realised on the investment. If an investment has not been sold and is sitting as an unrealised capital loss, this is merely a ‘paper loss’ and cannot be used to offset other realised capital gains. Until the investment is sold, the loss is not crystallised;
- Realised capital losses – when an investment is sold at a loss, a capital loss has been realised and can be utilised to offset other realised capital gains. It’s important to note that this realised capital loss cannot be utilised to offset other types of income, such as investment income or wages. If there is no realised capital gain in a particular year to absorb the realised capital loss, it will be carried forward to future years.
Role of the taxpayer
The ATO release makes a final point of the requirement to keep good records. Thankfully most of the micro-investing platforms provide comprehensive Financial Year annual reports that their members can generate and download from the app or website. These reports will detail key information such as:
- Date of purchase/reinvestment;
- Cost of purchase/reinvestment;
- Date of disposal;
- Sale proceeds on disposal;
- Dividends/distributions received or reinvested;
- Realised capital gain/loss;
- Unrealised capital gain/loss (not reportable in your tax return, but beneficial for tax planning and potential future tax obligations);
- Any brokerage, fees, commissions paid;
- Details of specific corporate actions related to any of the portfolio’s holdings, such as share splits or consolidations, returns of capital, takeovers, mergers or demergers, or share purchase plans or rights issues.
The ATO boasts that the information they receive from ASIC, brokers, exchanges, and share registries gives them a significant amount of data on dividend/distribution payments and purchases/sales of shares for investing taxpayers. This tax time, information on 5.8 million transactions will automatically be added to the tax returns of 612,000 taxpayers.
If you are investing in shares, ETFs, or even cryptocurrency, you’ll need to be aware of the tax implications of your trading activities and provide us with the Financial Year annual report each year. If you have any questions on this please do not hesitate to contact your Hall Chadwick QLD representative.
Hall Chadwick QLD is not a financial advisor. This article should not be taken as financial or investment advice and is general in nature. You should consider seeking independent financial and legal advice to see how the information provided relates to your unique circumstances.