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EOFY tax planning for shareholders

tax eofy

With the End Of The Financial Year on the not so distant horizon, it’s a good time to organise your financial affairs and assess whether your investments are structured to give yourself the best tax advantage. Tax planning, or ‘tax-effective’ investing, is a legal way of minimising your tax payable by researching and understanding the tax aspects of investment opportunities before you invest. Michael Kodari, founder of KOSEC – Kodari Securities, and one of Australia’s prominent experts in the stock market, shares his expert tax planning tips for shareholders.

Taxable Income

There are two forms of taxable income that shareholders typically receive; dividends and capital gains.


Dividend payments are a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits. They are typically paid every six months as ‘interim’ and ‘final’ dividends, although companies are under no obligations to pay dividends to their shareholders.

Shareholders can also receive franking credits attached to their dividends, which pass on the value of any tax that the company has already paid on its profits, which could result in an increase in after tax returns. Dividend income can also be offset by claiming deductions for related costs, including management fees and interest on money borrowed to buy the share.

Capital Gains;

When preparing your tax return it is important to take note of any shares that you have disposed of, and whether you have made a capital gain or capital loss.

Capital gains are a result of selling the shares at a higher value than they were bought, resulting in a profit that is considered income for tax purposes. Your capital gain is the difference between your cost base (costs of ownership) and your capital proceeds (what you receive when you sell your shares).

There are several ways to reduce the tax payable from capital gains, including carrying forward past capital losses, negative gearing, and claiming the concessional capital gains tax.

While you cannot deduct capital losses from the sale of shares from your personal income, you can carry it forward and deduct it from capital gains in later income years. Additionally, there is no time limit on how long you can carry forward a net capital loss.

For individuals and small businesses, the concessional gains tax can provide a 50% discount on shares that are sold 12 months of more after the date of acquisition.

Shares that are valued at $5,000 or less, that were acquired at least 12 months earlier, can also be claimed as a deduction if given to a deductible gift recipient.

For shares acquired under an employee share scheme (ESS), you must include what’s known as the ‘discount’ received (the different between market value and what you paid) on the shares or rights in your income for tax purposes. Income tax may apply to any capital gain you make when you dispose of shares or rights from the scheme.

Another tax minimising strategy is Negative Gearing, which involves borrowing money to invest, and using the ongoing borrowing costs (interest, fees, etc) to reduce your tax payable. Where the overall expenses are more than the income you receive from the investment, your taxable income can be lowered, even resulting in a tax return. However this is a high risk strategy that only pays off if the expected capital gain is higher than the interest paid on the loan.

Records To Keep

Keeping thorough and up to date records relating to your investments or investment assets are essential for effective and legitimate tax planning, as it allows you to report your income accurately and claim all the deductions you are entitled to.

Records should provide detailed information about how much you paid for your investments, what you received if you disposed of them, income received, and expenses incurred in owning and maintaining them. These records should generally be kept for five years after the tax return has been processed.

Examples of important records and documents to keep include; bank statements and passbooks, dividend or managed investment distribution statements, purchase and sale details (including any contracts), expenditure records, and details of capital losses made in previous years that could potentially be used to offset against future capital gains.

Tax Planning vs Tax Crime

While tax planning is legitimate when done legally, shareholders should be wary of potentially committing a tax crime. A tax crime can involve taking action to deliberately evade tax obligations or fraudulently use the system to obtain an improper financial benefit.

If you are unsure whether your tax planning arrangements are within the letter of the law, it’s best to seek professional advice from a reputable source to help you make an informed decision. A good piece of advice to remember is that if it seems too good to be true then it probably is.

Things to watch out for include; excessively large deductions or tax offsets when compared to investment income, mixing private expenses with business expenses, complex financing arrangements with no obvious commercial purpose, creating a loan that may never need to be repaid, or claiming deductions that may never be paid for.

You can also contact the Australian Tax Office anonymously to receive advice as to whether your tax arrangements are legal.

KOSEC are offering Dynamic Business subscribers 15 per cent off of KOSEC’s annual service fee, simply mention the code words “Dynamic Business” when calling.

About The Author

Michael Kodari- KOSECMichael Kodari is the founder of KOSEC – Kodari Securities, and one of Australia’s prominent experts in the stock market. Since its formation, Kodari Securities has experienced unprecedented growth, attributed to their unique investment strategy.

With a strong background in funds management and stockbroking, Michael has worked with some of Australia’s most successful value investors and consulted to leading financial institutions. He has been referred to as ‘the brightest 21st century entrepreneur in wealth management’ and ‘a trailblazer within the Australian stock market’, CNBC Asia.