If you invest in shares, you may be able to claim a deduction for certain expenditure you incurred in deriving your income from those shares. The following are examples of expenses that may be deductible.
Management fees
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.
Interest
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.
Interest on capital protected borrowings
A capital protected borrowing is an arrangement under which listed shares, units or stapled securities are acquired using a borrowing where the borrower is wholly or partly protected against a fall in the market value of the listed shares, units or stapled securities.
Interest attributable to capital protection under a capital protected borrowing arrangement for shares, units or stapled securities entered into or extended, on or after 1 July 2007, are not deductible. The interest is treated as if it were a payment for a put option. This treatment applies where the shares, units or stapled securities are held on capital account for investment purposes.
The amount of interest that is reasonably attributable to the capital protection is worked out using the methodology applicable to the type of capital protected borrowing.
For more information on capital protected products and borrowings and on how to work out the interest payable on a borrowing that is attributable to capital protection go to capital protected products and borrowings or contact a recognised tax adviser.
Travel expenses
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 journals and publications
You may be able to claim the cost of purchasing specialist investment journals and other publications, subscriptions or share market information services which you use to manage your share portfolio. See Taxation Determination TD 2004/1 – Income tax: are the costs of subscriptions to share market information services and investment journals deductible under section 8-1 of the Income Tax Assessment Act 1997?
Internet access and computers
You may be able to claim some of 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 will be deductible to the extent you use the internet for this purpose. You cannot claim a deduction for the private use portion.
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.
For more information, see Claiming mobile phone, internet and home phone expenses.
Borrowing expenses
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 more than $100, they are apportioned over five years or the term of the loan, whichever is less. If your expenses are $100 or less, 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 a 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 a LIC capital gain amount and the capital gain resulted from a CGT event happening to a CGT asset owned by the LIC for at least twelve months.
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 18 Capital gains on your tax return.
Example 8: Completion of tax return
Ben, an Australian resident, was a shareholder in XYZ Ltd, a listed investment company. For the 2018–19 income year, Ben received a fully franked dividend from XYZ Ltd of $70,000 including a LIC capital gain amount of $50,000. Ben includes on his tax return the following amounts:
- Franked dividend (shown at T item 11) = $70,000
- Franking credit (shown at U item 11) = $30,000
- Assessable income = $100,000
- Deduction for LIC capital gain (shown as deduction at item D8 Dividend deductions) = $(25,000)
- Net assessable income = $75,000
Other deductions
Any other expenses you incur which relate directly to maintaining your portfolio are also deductible. These could include bookkeeping expenses and postage.
Deductions denominated in a foreign currency
All deductions that are denominated in a foreign currency must be translated into Australian dollars before being claimed on your Australian tax return. For more information on the exchange rates that should be used in translating foreign currency deductions, see:
Expenses that are not deductible
Unless you are carrying on a business of share trading, 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 CGT purposes when you dispose of the shares. Unless you are carrying on a business of share trading, you cannot claim a deduction for a loss on the disposal of shares. The loss is a capital loss for CGT purposes. For further information, see Personal investors guide to capital gains tax 2019 (NAT 4152).