Summary: Many Australians do not directly invest in shares or other exchange-traded products (bonds, ETFs, etc) because the barriers and ongoing hassles are not considered worthwhile unless investing large amounts. The biggest ongoing hassle is having to manage yearly tax reporting of capital gains and dividends. And if you have to pay an accountant or other finance professional for assistance, these fees can overwhelm any benefits.
Superannuation is the best way to be invested in shares, bonds and other investment types (e.g. infrastructure, property) as there are significant tax and fee advantages, it is lower risk than picking winners yourself, and there is no yearly overhead relating to tax or deciding when to realise capital gains.
However, those seeking to achieve financial freedom will want access to capital gains and investment income well before the age of 60, which means they need considerable investments outside of superannuation. With interest rates set to be low for many years, it doesn't make sense to have all of your investments in term deposits or savings accounts.
In this post, I explain how you can directly invest in shares and other exchange-traded products (e.g. Vanguard bond or property ETFs) but minimise the hassles, overhead, and having to pay fees to accountants and other professionals.
Gain: ~$500 to $5,000 per year from being able to invest efficiently and at low cost in shares and a wide variety of ETFs for bonds, property, gold, etc.
My Situation: I currently invest about 25% of my wealth in LICs or ETFs via CommSec. I pay $275/year to use Sharesight to manage my portfolio including reducing unnecessary capital gains tax. If an annual membership isn't worthwhile you can pay $25 for one month's paid access after the financial year end when doing your tax.
Details:
1. Which companies dividend income is automatically pre-filled into ATO's MyTax?
Not all companies report pre-fill data to the ATO. The tracking list of those that have done between July 1 and October 31 is here:
> ATO - 2016 Pre-fill data from companies (dividend income) - full list
In my case, ATO MyTax showed only the NIB dividend:
It did not show dividends from M2 Group and Spark New Zealand. As of the October 31 deadline for tax returns M2 Group was not marked as Available for pre-fill data and Spark New Zealand doesn't appear on the list.
2. How can you use your broker statements to complete the MyTax dividend section?
Many Australian online brokers will have financial year statements or reports showing interest and dividend income.
My CommSec account provides the below 2015-16 summary:
It is pretty simple to use these broker statements to add missing dividend income directly. The columns provided in the broker statement are easy to match with the ATO fields to add a dividend.
You can cross-reference an example via the NIB dividend data. The Reference number is your CHESS Holder Identification Number (HIN) and is on your broker statement.
Thus, if useable broker statements are available, it can be straightforward for individuals to manage their own dividend tax information directly at the end of each financial year. You can wait till October for maximum pre-fill data if you will be owing tax. Or submit in July and collate yourself data not yet pre-filled.
However, some brokers do not provide dividend statements or even web pages allowing dividend information to be easily collated. Nabtrade only allows dividends to be identified via the cash account transaction history. And this only works if you have set dividend crediting direct to Nabtrade.
When broker accounts aren't efficient enough to track dividends the remaining method is to check the transaction history of the account you've set up to have dividends paid to.
3. What capital gains tax information is required by ATO MyTax and how do you obtain it?
MyTax requires aggregate capital gains data for the financial year to be entered:
- Total current year capital gains
- Net current year capital gain (minus current year losses)
- Net capital loss carried forward (prior loss carried added to Net current year gain/loss)
E.g. Assuming my current year gains were $5,000 and current year losses were $2,000 then my Net gain was $3,000. If I had prior net capital losses carried forward they would be applied to the $3,000 to reduce it. If these prior losses were greater then $3,000 then the Net capital gain would be zero and the remaining prior losses would be entered into "Net capital loss carried forward to later income years". The exemption or rollover answer is generally No unless you have special circumstances.
If you have large capital losses you will be asked: "Did you have total current year capital losses of more than $10,000?". If you did then you will need to fill out an additional Capital Gains Tax Schedule so for the sake of simplicity I recommend not realising losses that bring your yearly total over $10,000.
If your broker provides financial year reports it may have a report that provides the relevant information. CommSec's relevant report is called the Transaction Summary:
However, you can't rely on the aggregate Total Buys and Total Sells summary to fill out MyTax for two reasons:
(a) In the completed financial year, you may have bought shares you haven't sold and sold shares you didn't buy.
(b) MyTax requires a report of the Total current year capital gains not just the net Profit/Loss.
Instead, you need to look at all sales of shares in the financial year and then determine the capital gain or loss. If you've bought the shares in multiple parcels then you'll need to decide which parcel(s) of shares your sale came from. To reduce capital gains tax you'll want to take advantage of the 50% discount for holding shares more than 12 months and also pick optimal times to crystalise gains/losses.
All online brokers have trade confirmations web pages that allow you to filter transactions by date. Most broker websites then allow the results to be exported to a CSV file which can be imported into a spreadsheet or application.
The CommSec website trade confirmations page can be seen below. After exporting the results to a spreadsheet you can then eliminate transactions that aren't "capital gains events" for that financial year and then sum the relevant transactions together to determine the two required MyTax figures:
- Total current year capital gains
- Net current year capital gain (minus current year losses)
4. Using value-for-money automated apps like Sharesight to manage share portfolios and tax
If you have more complicated share ownership, such as having bought different parcels of the same share over many years, and wish to save time and effort doing your tax and minimising capital gains tax, then I highly recommend paying $25/month ($275/yr) to use Sharesight.
Sharesight will auto-import data from most Australian brokers and provides very powerful tools for managing all essential aspects of your portfolio over it's lifetime - including all tax issues such as accurately reporting dividends and capital gains but minimising capital gains tax.
You can use a free account for an unlimited time to try most essential features with a single portfolio. There is a limit of 10 holdings in the single portfolio (this used to be a soft limit). Reports have a hard limit of 10 holdings, so if you have more than 10 (e.g. from stocks you've bought and sold) the others aren't shown till you upgrade. The free account is a worthwhile way of evaluating Sharesight before purchase, or using it for very simple portfolios, or for running reports on less than 10 holdings.
Sharesight's Taxable Income Report and Capital Gains Tax Report are part of the free account, so you can auto-import all desired share transactions from your online broker (CommSec, Nabtrade, etc) and then run these reports on the past financial year to determine the numbers to report in MyTax.
You can auto-import from multiple brokers as well as import CSV files from brokers not supported or your own spreadsheet:
I imported my transactions from Nabtrade and CommSec. During the import you can choose the date range (or all data available), exclude specific transactions and amend or add transactions. The simplest thing is to import everything and just click "Save all transactions."
Using the free account, Sharesight's reports are limited to 10 holdings. If depending on the free account you can not import (or delete post-import) holdings not required or critical for your current reporting purpose.
For example, if most of your capital gain transactions are simple (one buy and one sell) then you could eliminate those in order to gain the efficiency of Sharesight in managing the more complicated holdings - many parcels bought over different financial years with not all sold yet.
Personally, I recommend at least paying $25 for one month's Sharesight access at the end of each financial year when doing your tax so you can efficiently report my capital gains and dividends in MyTax. When your portfolio is large enough to justify it, I highly recommend a yearly subscription so you can determine when and how best to realise capital gains/losses by June 30th each financial year.
Even with the free plan, you can use Sharesight to manage tax reporting for dividends and capital gains. If you have more than 10 holdings you may just need to modify your holdings list to collate all data. Sharesight provides the tax data in exactly the way required by MyTax.
Below you can see the Capital Gains Report Summary:
In this example, I have carried forward $1,000 of losses and the current year losses were $2,523.14.
For MyTax, the relevant data is:
- Total current year capital gains = $7,743 (Sharesight's Short Term Gains)
- Net current year capital gain (minus current year losses) = $4,219 as the $1,000 is also subtracted
- Net capital loss carried forward (prior loss carried added to Net current year gain/loss) = $0
Not all shares pay dividends and, even if they do, you may not hold them during the period required to claim the dividend. Hence, the Taxable Income Report often works fine on the free Sharesight account as the 10 stock holding restriction doesn't matter:
Sharesight
> Capital Gains Tax Report
> Tax loss selling made easy
> Making tax time easy
> Don’t pay for your investment data
> How do I record the conversion of options, rights, or warrants to shares?
5. Using roboinvesting apps like Stockspot for investing and management
There are good reasons for most people who don't want to learn about investing in individual companies or ETFs to use a high-quality roboinvesting platform that charges low fees.
Stockspot is one option and one advantage of using roboinvesting platforms is that they provide a Stockspot annual investor statement and tax guide that makes it simple to fill out the Managed Funds section of MyTax with all required tax details for Stockspot investing.
I put $10,000 into Stockspot to try them out during their introductory 12 month, no-fee period. You can see how easy it is to be invested in Australian and overseas shares, bonds and gold and filling out the aggregate tax information would only take 5 minutes using the roboadvisor's tax summary. My 2015-16 Stockspot tax summary is below:
Further Info:
Australian Tax Office
> Capital gains tax
> Working out your net capital gain or loss
Sharesight
> Blog
> Capital Gains Tax Report
> Making tax time easy
Smart Company
> Have you sold shares in the last 30 years? The ATO is coming for you
Astute Accountants
> Capital Gains Advice
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