Lower tax on your investments can help you reach your financial goals sooner. But don’t choose an investment based on tax benefits alone.

How investment income is taxed

You need to include investment income in your tax return. This includes what you earn in:

  • interest
  • dividends
  • rent
  • managed funds distributions
  • capital gains

You pay tax on investment income at your marginal tax rate.

You’re allowed tax deductions for the cost of buying, managing and selling an investment. But there are rules around what you can and can’t claim as a tax deduction. See the Australian Taxation Office (ATO)’s investment income deductions.

Investing and tax can be complex. See choosing an accountant for where to go for help.

Making capital gains or losses
Capital gains

If you sell an investment for more than the cost to acquire it, you make a capital gain. You need to include all capital gains in your tax return in the year you sell the investment. Capital gains are taxed at your marginal rate.

If you’ve held the investment for more than 12 months, you’re only taxed on half of the capital gain. The is known as the capital gains tax (CGT) discount.

The ATO has information to help you work out your capital gains tax on different investments.

Capital losses

If you sell an investment for less than the cost to acquire it, you make a capital loss.

You can use a capital loss to:

  • reduce capital gains made in the year the loss occurs, or
  • carry forward the loss to offset future capital gains
Case Study

Savannah makes use of a capital loss

Savannah bought $2,000 worth of shares (50 shares at $40 per share) in a large mining company.

After 18 months she sold the shares. They had fallen in price to $20 per share. She made a capital loss of $1,000.

Savannah also made a profit of $1,500 from selling others shares she held. She had held these shares for five years.

Savannah can deduct the $1,000 she made a loss on from the $1,500 capital gain. This leaves her with a profit of $500. As Savannah held the shares for more than 12 months, she only includes half the capital gain in her tax return. She’ll pay tax on this $250 at her marginal tax rate.