"It would be such a shame if you decided not to use our fairly priced services to complete your tax return and you end up bankrupt and in jail with a husband named Big Bubba."
Have you seen the flood of basic tax questions being asked on this sub during every tax time?? You’re right, it’s not rocket science but people still don’t understand how to do it year after year.
And this is on a finance sub where people are more inclined to get it right. Can you imagine what’s happening out there amongst the people who couldn’t give a crap?
There’s people in this thread alone commenting who don’t know the difference between distributions and dividends and which tax year they relate to, and also etfs can also distribute capitals gains even if the holders of the etf haven’t sold any during the year.
Because it's money out of your pocket, even if you get a bit back. My general philosophy is avoid paying someone else to do something you can do for yourself, or perhaps get a family member to do for you.
That is only if you use that saved time to earn more money and not watch footy (or whatever). For those on a typical salary extra work is rarely an easy option. Note that if you're self employed then some professional help does likely make sense. (PS you must be doing well if you clear $200 an hour after tax)
Because tax gets confusing once your spread your income across multiple sources. If you’re confident in our on ability to do it congratulations but I’m not sure how your ability to do your personal tax is relevant?
As a person who fits into this box, I've been to H&R specifically and the first year I had an accountant who knew allll about managed funds and foreign income sources and etc.
The next year she had gone private, and I got someone else at H&R block. I basically had to do it all myself, they just read the questions out for me, and I had to do all the capital gains calcs and number fields. This is AFTER I handed them all the stuff I got from the broker and registry.
Last year I just did it myself. Anyway so my court hearing is coming up soon. ^^/s
If you can recognise that the statements and tax return are letter coded, you are 99% the way there...
It really isn't all that confusing, people just give up too easily.
It is perhaps more an issue with a lack of journalistic skills. I'd expect better from the AFR. The reporter did not even poi t out the bias.
PS he is wrong. If you're smart enough to have extra income to invest and read the AFR then you're smart enough to copy a number from a box that says 18A to a box that says 18A...or even just checking that the value matches if it's prefilled.
ETF capital gains aren't that simple.
Very often you will have AMIT cost base adjustments which you need to track year on year to factor into the final capital gain calc.
Considering you can hold ETFs for decades that can easily be missed by most people.
I'd guess that 99% of investors wouldn't understand those cost base adjustments. It's easy if you know it but I'd say pretty hard for a casual investor. Especially if you buy and sell chunks at different points it's probably out of the question.
I believe tax agents have software to easily access data for tax distribution history which would save a bunch of time as well.
To slightly diverge...it's a worry if 99% of investors don't understand how they will be taxed. One rule of investing is to understand what you're buying and how it makes you money, which does need to include how you'll be taxed.
Understanding that an ETF tracks the ASX200 is completely different from understanding AMIT tax rules. I have no idea why you need the latter to invest in an ETF as professional accountants exist exactly for this reason.
Lazy ETF holder here, DCAing into DHHF. is this saying there’s something else that needs to be done other than just keeping the statements come tax time? Assuming we’re only ever buying and not selling anything? Pretty sure this was all prefilled on my tax return last year, although i may be remembering incorrectly, my accountant did it.
Difficult to tell if i’m one of the confused people being spoken about or if it’s other people doing something wrong.
The article may be referring to ETF investors who don’t register their TFN against each of their holdings on the share registries and so their tax return doesn’t pre-fill with the figures for the distributions
Yes. This whole article is a bit overblown. It states all the problems, but fails to point out that *most* of those problems disappear if people register their TFN.
If you’re buying through a brokerage platform then you need to give the broker your TFN to begin trading. But it’s my understanding that once you purchase shares or an ETF on the brokerage platform, it’s up to you to register your holding when you get the CHESS holding statement and the share registry letter mailed to you
They give a link on the paperwork they send. If you've got vanguard or blackrock funds, they use computershare, and you want: http://computershare.com.au/easyupdate
You do need you HIN to fill in the stuff and create an account.
The ETF companies outsource the management to computershare or similar companies, who then track taht kind of data and pass it on to the ASX. Why the broker can't tell the ASX that data and pass it on to the company literally managing that asset is something I don't know the answer to, but the above is how it works today.
That's what I was trying to understand. It's all pre-filled leaving very little for the 'investor' to do? Why would you not want to provide a TFN so take all the hassle out of manually calculating income/dividends/franking credits/tax owed etc?
I'm holding VDHG. The tax details all got imported into mytax. As long as you've provided your TFN all the info should flow in. I did cross check with the statements as well.
Did you enter the GCT component though? That still seems to require manual entry (at least in mine it did).
The pre-fill data is described as "pre-fill info only data".
No need to have sold; I didn't either. I still have a CGT component. I suspect this is what the article is talking about. I wonder how many people don't declare the GCT.
This is from myTax (mine):
https://i.imgur.com/OF5gL8S.jpg
Says "pre-filled **info only** data", but they force you to manually declare it. I assume because they don't know what other GCT you have to roll into that, and don't want to leave you with the excuse that the ATO pre-filled the value incorrectly.
It should fill the capital gains section under managed fund distributions, but that does not count towards your taxable income. Hence you needing to also include it in the capital gains or losses section. I believe it does not prefill in that section as ATO can't be certain you didn't have any other CGT events or the calculation of them if you did
Right - there's still a manual step required. Had I not had additional capital gains I might not have noticed myself. I'm just wondering whether this is what the article is talking about. Seems like an easy mistake to make; people tend to rely on pre-fill. Maybe even accountants. I have met some sloppy ones in my time.
If your investment is an AMIT fund you will also need to adjust the cost base of your holdings annually.
[https://www.ato.gov.au/general/trusts/in-detail/managed-investment-trusts/managed-investment-trusts---overview/?page=15](https://www.ato.gov.au/general/trusts/in-detail/managed-investment-trusts/managed-investment-trusts---overview/?page=15)
The values appear on your annual Tax Statement as an excess or shortfall and will either increase or decrease the cost base of your holdings. This becomes important when selling as the cost base determines the capital gain.
Your accountant can do this for you, but there is no harm in tracking this yourself or reminding them if it applies to your AMIT holdings.
Question on the AMIT cost base net increase/decrease.
My ETF was purchased at $1,000.
The ETF statement had an AMIT cost base net increase of $200. Does that mean that if I sell all my ETFs for $1,200, My Capital gains is $1200 - $1000 - $200 = 0?
The AMIT net increase also equals the cash distribution of $200.
Does this mean that I should declare $200 as my dividend income.
ATO pre-filled $5 which doesn't quite make sense to me and I think that it is a mistake.
Disclaimer: hypothetical scenario
* Did you sell share(s)? - Capital gain
* Did you receive dividend(s) - Taxable income
Since you didn't sell you only need to worry about the dividends/distributions.
If you've connected your share registry (e.g. Computershare) with your TFN, then it should be all be pre-filled.
If you only started buying shares in 2020/1 and all dividends so far have been paid in 21/22 does that mean there’s no taxable events for this years tax return? And the dividends I got this year will be on next years?
No, the Vanguard distributions paid 16 July must be included in your 2020-2021 return. This is because the trust (ETF) itself received the dividends from the shares it owns during the 2020-2021 year.
Yes, it's because it is called a distribution, not a dividend. Distributions are calculated in the calendar year that income was earned. So for FANG ETF or VAS that pays out a dividend on say 15 July 2021, that will be calculated in your 2020/21 Financial year.
But for a dividend, say CBA that pays you on 1 July 2021, that goes in to the 21/22 FY tax return!
Dividends = date it's paid = year you claim for Distributions (most ETFs) = year the gains were earned = year you claim for
Edit\* - Sharesight tracks this accurately and is how I first found out about it before confirming with an accountant.
My ETF income pre-filled, but the capital gain component only pre-filled "FYI"; I still had to enter the data into the capital gains section. If it's under $10,000 it can all get lumped into one sum, which I assume is why the ATO says it cannot tell the numbers apart, but in my return I have to list the line items individually (on-line return), so they can't complain about that with mine.
Dollar cost averaging I believe. My understanding of this is thar if, for instance, you buy three lots of one share (or ETF) at three different prices you instead average them out to a single cost and treat them as such.
Very relevant for Vanguard shares which distribute in one financial year, but are taxable in the previous. E.g. if they distribute 2nd week July, but it relates to the previous FY.
New players can't handle that level of complexity.
Paywall:
ATO turns screws on ‘confused’ ETF investors
Duncan Hughes
Reporter
Tax authorities are tightening scrutiny of increasingly popular exchange traded funds (ETFs) amid concerns about failure to report capital gains from share sales and income from dividends and distributions.
The number of ETF investors has doubled to more than 1.3 million in the past 12 years, with holdings in Australian shares estimated at some $34 billion. Analysts say younger investors are attracted by the ease of trading ETFs online using micro-investing apps on their phones.
Tim Loh, ATO assistant commissioner, says many investors, particularly those using the funds for the first time, are not aware of their obligations, fail to keep appropriate records and are more likely to make mistakes when lodging their tax returns.
“ETFs generally do not pay their own tax,” Loh says. “This is the responsibility of each investor. Due to the way taxpayers report income from ETFs, we cannot differentiate which capital gains, income or dividend amounts were realised from ETF investments by looking at a tax return.”
The ATO is helped in identifying transactions by registries, stockbrokers and managed funds reporting their data to the tax authority. Last year it received details on nearly 6 million transactions involving more than 600,000 taxpayers.
More than 46,000 taxpayers “appeared to have a discrepancy” reporting their CGT liability from the sale of shares and were asked to review their return, Loh says.
An ETF is a “basket” of shares rolled up into one security.
“It can be a convenient way to spread risk and get access to stocks that the fund manager believes will be high performing,” says Mark Chapman, director of tax for H&R Block. “But while an ETF might look similar to an investment into an individual share, the tax implications are very different.”
ETF distributions
The return from an ETF is in the form of a distribution that incorporates different components including dividends, franking credits, interest, foreign income and capital gains.
Each of the individual elements needs to be split out and entered into the correct boxes on a tax return.
“The potential for mistakes is considerable,” says Chapman.
Loh says ETFs are treated in the same way as a managed investment trust because they bundle up a range of securities into a single security which is then traded like a stock on the exchange.
He says ETFs will provide investors with a standard distribution statement (SDS) that shows amounts such as foreign and Australian income that was earned, net capital gains and other non-assessable amounts.
These statements will help taxpayers to report their income as they show which label on the tax return against which to report the income.
When an investor disposes of shares, the SDS will show the capital gains or losses made from the sale of the shares which also need to be included in tax returns.
“Make sure you look out for and keep your annual statement because without it, completing your tax return accurately can be almost impossible,” Chapman says.
“Dealing with the tax implications of shares and ETFs can be very complex.”
Most ETFs offer investors an opportunity to reinvest any distribution, which means instead of paying cash it offers shares. Anything received through a dividend or distribution reinvestment plan is considered income and for tax purposes is treated in the same way as receiving cash.
“Generally speaking, taxpayers will typically need to declare distributions despite not withdrawing any money from their account,” Loh says.
“Most people recognise that they must pay tax on any money earned from selling shares. But many don’t realise that tax also applies to dividends and distributions, even if they are automatically reinvested into a reinvestment plan.”
Claiming losses
Investors selling shares will also need to calculate capital losses or gains and record it in their tax return.
“Capital losses only happen on the sale of the share,” adds Loh. “Investors cannot claim ‘paper losses’ on investments if the share price drops but they continue to own the share.”
Any capital losses from selling shares can only be offset against capital gains and not income. Investors can “carry forward” any capital loss declared in their tax return to future years to offset against future capital gains.
Loh says the ATO’s “sophisticated analytics” can spot any attempts to offset capital gains against income, such as salary and wages, or attempts to offset “paper losses” against actual income.
Investors are encouraged to keep comprehensive records of their investment dealings.
“That includes dates, prices, commissions and details of taxable events such as share splits, share consolidations, mergers and demergers. These are essential to avoiding trouble at tax time,” says Loh.
Records an ETF investor needs to keep include:
The date of purchase/reinvestment.
The purchase amount/value.
Details of any non-assessable payments that could affect the amount of any capital gain, or loss, when the fund is sold.
The date and amount of any call options (if shares were partly paid).
The date of sale and sale price (if you sell them).
Any brokerage costs or commissions paid to brokers when you buy or sell.
Details of events such as share splits, share consolidations, returns of capital, takeovers, mergers, demergers and bonus share issues.
Details of capital losses made in previous years – you may be able to offset these losses against future capital gains.
Dividend or managed investment distribution statements (standard distribution statements).
> When an investor disposes of shares, the SDS will show the capital gains or losses made from the sale of the shares which also need to be included in tax returns.
News to me…I thought this had to be calculated manually. Is the “SDS” a different thing from the AMMA statement?
Also interesting that cost base adjustments weren’t mentioned in the article. IMHO they’re the trickiest part of figuring out your ETF-related tax obligations.
Maybe they’re trying to say when the “fund” disposes of shares etc. If the investor themselves dispose of shares that’s a capital gain on top of any other capital gain distributed from the fund. I’ve never seen that turn up in the statement for you.
Yeah, everything apart from the cost base adjustments are ok. They aren't mentioned at all when doing your tax return (at least what I could see), so not surprised ( and the ato shouldn't be either) if people get stuff wrong.
They need to be tracked over time and taken into account when calculating CGT for years in which you sell ETF units.
So while there isn’t a “cost base adjustment” field on the tax form each year, they can affect your tax return indirectly. Which is why many people forget about them.
Yeah don't ever rely on that shit. Mine was completely wrong this year (like they just made up the numbers out of nowhere). Cross check with your annual statement at the very least.
I went through everything, adjusted some pre fills and also had an accountant look at everything. I have no idea if I've done everything correctly. I have 4 different ETFs, that I've bought and sold in various parcels over the last 5 years.
For all I know, it's correct. Or not. I have no idea what I can do further to ensure accuracy. I'm not even 100% sure on the pre fill adjustments I made. If I didn't spent all the time going through the statements and updating the pre fills, for all I know that's just as correct. There's no instant feedback when you submit to say this looks wrong or right.
I bet all the people saying its simple, just line up the numbers in the statements, blah blah blah probably have at least 1 or 2 things off and they wouldnt even know.
Out of curiosity, in which way was it wrong? I ask because my prefill information matched what I saw in the ETFs annual reports (and, also, what Sharesight showed me for capital gains and taxable income) - I did check because I am a "look both ways" kind of person, but there was nothing egregiously wrong.
Its dependent on what ETFS you have and when the data is available to the ATO (may be outdated or different from tax statement). Main thing I picked up for mine was the Capital Gains where the AMIT section seems to have messed up during the data transfer to their database.
I also had to allocate capital gains against losses in the CGT section, so had to remove it from distribution side anyway but that is a different matter
You can enter the details from your AMIT statements in there but it's more complicated than it needs to be.
It's also annoying that the ATO seems to have more data in the prefill than Vanguard gives directly to investors. You only get the full year's AMIT statement showing all the different categories; Sharesight tries to spread this out across the year's distributions as best it can, but the ATO prefill seems to have data for each distribution separately.
Yes, let’s investigate average Australian’s who are trying to self fund their retirement and not be a burden on the system by claiming the pension. Big corporations not paying millions oh that’s fine.
You know it’s possible to do both, right? It’s not an either/or situation.
The ATO disseminating a message for individuals in a consumer-facing document doesn’t mean they are taking no action in relation to corporate tax evasion.
Individuals and small businesses not paying tax on things like investments is unfair on those people that do, and in the aggregate contributes equally to Australia's tax gap. Stop trying to pretend it isn't a problem.
It about focusing on the top priorities first. A few hundred million in lost tax due to shitty individual investors or many billions in tax from corporate tax dodgers.
I’m know what I care about.
Sure but by that statement they should be focusing their efforts into the areas that are likely to have the most effect.
Having to hunt down thousands of people for small amounts of money or large organisations for lots of money. I know what I’d be focusing on.
Prosecuting big corps is not easy or quick, and rarely a slam dunk even after its delayed and appealed a thousand times.
In contrast, going after ill-resourced individuals is quick and easy.
I don’t think that’s true. They first have to prove it on a case by case basis. They have to highlight and communicate the deficiencies and remediation actions required by each party. Than that party has to work out what when wrong with their accountant and how to remediate or challenge it further.
No doubt the big ones are a lot harder to win but they are much more valuable to spend man power on.
Those large organizations also have large teams of lawyers and accountants to fight the ATO at every turn. It’s not exactly picking the low hanging fruit.
Yes the end result may be a big pot of gold if they ever get to it, but there will be constant appeals and counter-appeals to draw out the process as long as they can. Ask any govt that have gone after Apple, google, Facebook, etc.
It is a problem, but should it be a big priority for ATO resources? I think it should be more carrot than stick if it's genuinely confusing. Much progress has been made by the ATO in making filing accurate tax returns easy, and they should figure out how to make paying taxes on your ETF holdings easy and accurate rather than penalising investors in the main.
They're not as far as I know, but if they were to slap penalties on taxpayers for making errors in their returns I think that would be a poor use of ATO resources.
It's remarkable how cheap it is to jog the memory of a million investors by talking to a journalist.
This is essentially a press release. Duncan Hughes probably got a nice steak dinner too!
Just because they are an 'average Australian' doesn't justify them evading tax. The ATO should very much investigate them just as they should any other entity evading tax.
There is always the standard 'stop going after the average aussie' obligatory comment on every ATO post. The reality is the tax gap (essentially estimating the tax that should have been collected that wasn't) is larger for individuals (and even larger again for small businesses) than it is for large corporates.
The tax gap estimated for individuals was $8.4 billion (6.4% of tax paid) compared with $2 billion (4% of tax paid) for large corporate groups. (ato source - [https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings]
Regardless the ATO still dedicates immense resources to conducting compliance activities on corporations and is not soley focussing on everyday aussies.
There's a difference between tax avoidance and tax evasion. Big corporations are avoiding tax using legal "loopholes." Whereas confused investors are evading tax by lying to the ATO.
I never understand this.
It'd the same way that Crntrelink chases those paid a couple of hundred too much and ask for complex income evidence- but the government is more than happy to give former Premkers.$400k a year indefinitely.
Thr whole system is fucked.
How does this work with Interactive Brokers? They do not provide tax component information for Australian ETFs; neither IBKR nor Computershare nor Vanguard will help me (they just pass me to each other).
My accountant recommended that I just declare everything as income as I cannot underpay tax this way, but surely this isn't how it's supposed to work?
Only way with interactive brokers(and other brokers like superhero, sharesies who don’t provide tax component information) is to use sharesight to get the tax component breakdown on the distributions made by the etf during the year.
Sign up for a free account with sharesight(free for up to 10 holdings), enter your purchases/sales information in there until your holdings match and the “taxable income report” should spit out the right numbers(should be the same as the annual tax statement information provided by the share registries). Note that every year you’ll have to wait till sharesight announce that they’ve gotten the information to do the tax component breakdown accurately from the registries, this usually happens in September.
Not every accountant knows about sharesight as a product so the way they’re recommending is kinda like taking a sledgehammer to the problem, a very blunt answer that’s not at all accurate.
The sites you use like etoro etc require you to input your TFN when you sign up - why would they do this if they didn't automatically report the tax for you?
The big fish are too smart for them.
This is why the ato go after the little fish. Easier to catch.
An example. How many big business were let off the hook recently by centrelink when claiming jobkeeper payments when the businesses profits didn't drop but went the opposite direction.
Centrelink instead went after the employees for over payments they allegedly received whilst on job keeper.
Are we ever going to hold the people who wrote and passed the law that allows this to happen accountable? I may be wrong but I don't remember reading any clawback provision in the jobkeeper law and the eligibility is based on the projected decline in turnovers. [It looks like ATO made submissions about this issue in mid 2020 but no action was taken.](https://www.theguardian.com/australia-news/2021/oct/05/incompetent-frydenberg-attacked-over-jobkeeper-after-profit-warnings-from-ato-revealed)
Centrelink does not administer jobkeeper. It's the ATO. Big businesses got away with claiming jobkeeper due to the way the law was written not because of a lack of compliance. Blame your government not the ATO.
I have a crazy idea. Instead of turning the screws on individuals for filling out their admittedly complex tax returns out wrong, why not simplify the rules?
The rules are pretty simple, it's the investment vehicle that makes it more complex.
If you try and change the tax rules for every investment vehicle you will only add complexity and likely loopholes into the tax system.
If you don't understand the investment, then you shouldn't be investing in it.
If your etf makes a capital gain as per the AMIT can that be offset by capital loss from selling shares? Reason for this question is you have to include the capital gain portion from distribution in the capital gain section on the ATO reporting... Hopefully this question makes sense
Your question makes sense, yes, and as far as I know the answer is yes, it can be offset as you describe. All caveats apply, I'm not a tax accountant etc. etc. (but I do hold ETFs).
Thanks. I guess it's only logical, if you're forced to add it to the CG section and pay tax on it, it's only fair it can be offset! Makes punting on a penny somewhat bearable 🤣
I have a bunch of ETFs through CommSec pocket. I have only ever bought, and have never sold any of them. I’ve always assumed I have to pay tax when I do eventually sell them, but is this saying I might not necessarily have enough information to accurately do my taxes?
My shares gave line codes items to put in. They were there on the my gov tax last year this year not. It was too simplified this year and much less clear. Lease explanations on the page. I preferred last years version.
“The potential for mistakes is considerable,” says Chapman. ( *director of tax for H&R Block)* Well he would say that wouldn't he.
Can your typical H&R block agent even do it correctly?
Not the one I saw this year. My 10 year old could have had a better crack at it.
"It would be such a shame if you decided not to use our fairly priced services to complete your tax return and you end up bankrupt and in jail with a husband named Big Bubba."
Apparently I’ve been looking for a husband in all the wrong places
You should be doing publicity for the Mafia😃
I guess I'll finally have a husband at the very least. And meals I don't have to make myself. Shit, jail is sounding good right about now
Honestly, why do people make this comment? Like yes. He would say that because that’s his job. But is he wrong?
they give you a form with the numbers to put in... I dont see why I need to pay someone to do that for me
Have you seen the flood of basic tax questions being asked on this sub during every tax time?? You’re right, it’s not rocket science but people still don’t understand how to do it year after year. And this is on a finance sub where people are more inclined to get it right. Can you imagine what’s happening out there amongst the people who couldn’t give a crap? There’s people in this thread alone commenting who don’t know the difference between distributions and dividends and which tax year they relate to, and also etfs can also distribute capitals gains even if the holders of the etf haven’t sold any during the year.
Why do it when you can pay someone else and claim it?? Fukin no brainer for me.
I’m guessing the answer is that even if you do pay someone else to do it and claim the cost of it on your tax return, it’s still not free.
Cake > eat it too.
Because it's money out of your pocket, even if you get a bit back. My general philosophy is avoid paying someone else to do something you can do for yourself, or perhaps get a family member to do for you.
You dont understand time mate. My time is worth $200 per hours why slave away when i can pay someone $70 to do it
That is only if you use that saved time to earn more money and not watch footy (or whatever). For those on a typical salary extra work is rarely an easy option. Note that if you're self employed then some professional help does likely make sense. (PS you must be doing well if you clear $200 an hour after tax)
True. But you don't have to work every minute and pinch every dollar. I find my free time is worth so much more than money!
Maybe it's just that I've in general not been short of time.
Because tax gets confusing once your spread your income across multiple sources. If you’re confident in our on ability to do it congratulations but I’m not sure how your ability to do your personal tax is relevant?
As a person who fits into this box, I've been to H&R specifically and the first year I had an accountant who knew allll about managed funds and foreign income sources and etc. The next year she had gone private, and I got someone else at H&R block. I basically had to do it all myself, they just read the questions out for me, and I had to do all the capital gains calcs and number fields. This is AFTER I handed them all the stuff I got from the broker and registry. Last year I just did it myself. Anyway so my court hearing is coming up soon. ^^/s
If you can recognise that the statements and tax return are letter coded, you are 99% the way there... It really isn't all that confusing, people just give up too easily.
It is perhaps more an issue with a lack of journalistic skills. I'd expect better from the AFR. The reporter did not even poi t out the bias. PS he is wrong. If you're smart enough to have extra income to invest and read the AFR then you're smart enough to copy a number from a box that says 18A to a box that says 18A...or even just checking that the value matches if it's prefilled.
If you’re smart enough to have extra money to invest haha. Dude some people that make a lot of money have very little intelligence…
Truest statement ever. Not a lot of people realize this though.
They're the people who don't make a lot of money and don't have a lot of intelligence. Joking.
They do tend to lose it though: all those actors and singers ripped off by their managers.
This is a insanely huge over-generalisation. So no, I don’t agree. That’s just the ones you hear about.
There is that, fair point
ETF capital gains aren't that simple. Very often you will have AMIT cost base adjustments which you need to track year on year to factor into the final capital gain calc. Considering you can hold ETFs for decades that can easily be missed by most people.
I think it's simple, there is just a lot of data. You still need to keep records even if you pay someone to do the return.
I'd guess that 99% of investors wouldn't understand those cost base adjustments. It's easy if you know it but I'd say pretty hard for a casual investor. Especially if you buy and sell chunks at different points it's probably out of the question. I believe tax agents have software to easily access data for tax distribution history which would save a bunch of time as well.
To slightly diverge...it's a worry if 99% of investors don't understand how they will be taxed. One rule of investing is to understand what you're buying and how it makes you money, which does need to include how you'll be taxed.
Understanding that an ETF tracks the ASX200 is completely different from understanding AMIT tax rules. I have no idea why you need the latter to invest in an ETF as professional accountants exist exactly for this reason.
Lazy ETF holder here, DCAing into DHHF. is this saying there’s something else that needs to be done other than just keeping the statements come tax time? Assuming we’re only ever buying and not selling anything? Pretty sure this was all prefilled on my tax return last year, although i may be remembering incorrectly, my accountant did it. Difficult to tell if i’m one of the confused people being spoken about or if it’s other people doing something wrong.
The article may be referring to ETF investors who don’t register their TFN against each of their holdings on the share registries and so their tax return doesn’t pre-fill with the figures for the distributions
Yes. This whole article is a bit overblown. It states all the problems, but fails to point out that *most* of those problems disappear if people register their TFN.
I wasn’t even aware you could purchase shares without giving them your TFN
If you’re buying through a brokerage platform then you need to give the broker your TFN to begin trading. But it’s my understanding that once you purchase shares or an ETF on the brokerage platform, it’s up to you to register your holding when you get the CHESS holding statement and the share registry letter mailed to you
Ahh! right. Yeah that makes sense, nothing stopping you ignoring the book worth of paper they send you every time you purchase a new ETF.
Or, more likely for novices, just plain not knowing what to make of it and throwing it out out of ignorance
I hypothetically where would I go to give Chess my TFN , Just their website?
They give a link on the paperwork they send. If you've got vanguard or blackrock funds, they use computershare, and you want: http://computershare.com.au/easyupdate You do need you HIN to fill in the stuff and create an account. The ETF companies outsource the management to computershare or similar companies, who then track taht kind of data and pass it on to the ASX. Why the broker can't tell the ASX that data and pass it on to the company literally managing that asset is something I don't know the answer to, but the above is how it works today.
That's what I was trying to understand. It's all pre-filled leaving very little for the 'investor' to do? Why would you not want to provide a TFN so take all the hassle out of manually calculating income/dividends/franking credits/tax owed etc?
I'm holding VDHG. The tax details all got imported into mytax. As long as you've provided your TFN all the info should flow in. I did cross check with the statements as well.
Did you enter the GCT component though? That still seems to require manual entry (at least in mine it did). The pre-fill data is described as "pre-fill info only data".
I didn't sell. It was just the dividends being unfranked or international income.
No need to have sold; I didn't either. I still have a CGT component. I suspect this is what the article is talking about. I wonder how many people don't declare the GCT. This is from myTax (mine): https://i.imgur.com/OF5gL8S.jpg Says "pre-filled **info only** data", but they force you to manually declare it. I assume because they don't know what other GCT you have to roll into that, and don't want to leave you with the excuse that the ATO pre-filled the value incorrectly.
It should fill the capital gains section under managed fund distributions, but that does not count towards your taxable income. Hence you needing to also include it in the capital gains or losses section. I believe it does not prefill in that section as ATO can't be certain you didn't have any other CGT events or the calculation of them if you did
Right - there's still a manual step required. Had I not had additional capital gains I might not have noticed myself. I'm just wondering whether this is what the article is talking about. Seems like an easy mistake to make; people tend to rely on pre-fill. Maybe even accountants. I have met some sloppy ones in my time.
If your investment is an AMIT fund you will also need to adjust the cost base of your holdings annually. [https://www.ato.gov.au/general/trusts/in-detail/managed-investment-trusts/managed-investment-trusts---overview/?page=15](https://www.ato.gov.au/general/trusts/in-detail/managed-investment-trusts/managed-investment-trusts---overview/?page=15) The values appear on your annual Tax Statement as an excess or shortfall and will either increase or decrease the cost base of your holdings. This becomes important when selling as the cost base determines the capital gain. Your accountant can do this for you, but there is no harm in tracking this yourself or reminding them if it applies to your AMIT holdings.
Question on the AMIT cost base net increase/decrease. My ETF was purchased at $1,000. The ETF statement had an AMIT cost base net increase of $200. Does that mean that if I sell all my ETFs for $1,200, My Capital gains is $1200 - $1000 - $200 = 0? The AMIT net increase also equals the cash distribution of $200. Does this mean that I should declare $200 as my dividend income. ATO pre-filled $5 which doesn't quite make sense to me and I think that it is a mistake. Disclaimer: hypothetical scenario
* Did you sell share(s)? - Capital gain * Did you receive dividend(s) - Taxable income Since you didn't sell you only need to worry about the dividends/distributions. If you've connected your share registry (e.g. Computershare) with your TFN, then it should be all be pre-filled.
Just dividends, which you can either fill out yourself manually or wait for them to autofill when you do your tax return.
If you only started buying shares in 2020/1 and all dividends so far have been paid in 21/22 does that mean there’s no taxable events for this years tax return? And the dividends I got this year will be on next years?
An ETF distribution in early July (eg Vanguard) is actually taxable in your 2020-21 return. This is different to share dividends.
Up to June
No, the Vanguard distributions paid 16 July must be included in your 2020-2021 return. This is because the trust (ETF) itself received the dividends from the shares it owns during the 2020-2021 year.
Wow ok really, what a joke this is becoming
Yes, it's because it is called a distribution, not a dividend. Distributions are calculated in the calendar year that income was earned. So for FANG ETF or VAS that pays out a dividend on say 15 July 2021, that will be calculated in your 2020/21 Financial year. But for a dividend, say CBA that pays you on 1 July 2021, that goes in to the 21/22 FY tax return! Dividends = date it's paid = year you claim for Distributions (most ETFs) = year the gains were earned = year you claim for Edit\* - Sharesight tracks this accurately and is how I first found out about it before confirming with an accountant.
Sharesight does it correctly as long as you have marked the holding as a trust. I don't know that this is automatic.
Seems like the ATO weren't wrong about ETF investors being confused.
My ETF income pre-filled, but the capital gain component only pre-filled "FYI"; I still had to enter the data into the capital gains section. If it's under $10,000 it can all get lumped into one sum, which I assume is why the ATO says it cannot tell the numbers apart, but in my return I have to list the line items individually (on-line return), so they can't complain about that with mine.
What does DCA mean?
Dollar cost averaging I believe. My understanding of this is thar if, for instance, you buy three lots of one share (or ETF) at three different prices you instead average them out to a single cost and treat them as such.
Ohhh of course. Not sure why I didn’t realise that. Cheers
Very relevant for Vanguard shares which distribute in one financial year, but are taxable in the previous. E.g. if they distribute 2nd week July, but it relates to the previous FY. New players can't handle that level of complexity.
Paywall: ATO turns screws on ‘confused’ ETF investors Duncan Hughes Reporter Tax authorities are tightening scrutiny of increasingly popular exchange traded funds (ETFs) amid concerns about failure to report capital gains from share sales and income from dividends and distributions. The number of ETF investors has doubled to more than 1.3 million in the past 12 years, with holdings in Australian shares estimated at some $34 billion. Analysts say younger investors are attracted by the ease of trading ETFs online using micro-investing apps on their phones. Tim Loh, ATO assistant commissioner, says many investors, particularly those using the funds for the first time, are not aware of their obligations, fail to keep appropriate records and are more likely to make mistakes when lodging their tax returns. “ETFs generally do not pay their own tax,” Loh says. “This is the responsibility of each investor. Due to the way taxpayers report income from ETFs, we cannot differentiate which capital gains, income or dividend amounts were realised from ETF investments by looking at a tax return.” The ATO is helped in identifying transactions by registries, stockbrokers and managed funds reporting their data to the tax authority. Last year it received details on nearly 6 million transactions involving more than 600,000 taxpayers. More than 46,000 taxpayers “appeared to have a discrepancy” reporting their CGT liability from the sale of shares and were asked to review their return, Loh says. An ETF is a “basket” of shares rolled up into one security. “It can be a convenient way to spread risk and get access to stocks that the fund manager believes will be high performing,” says Mark Chapman, director of tax for H&R Block. “But while an ETF might look similar to an investment into an individual share, the tax implications are very different.” ETF distributions The return from an ETF is in the form of a distribution that incorporates different components including dividends, franking credits, interest, foreign income and capital gains. Each of the individual elements needs to be split out and entered into the correct boxes on a tax return. “The potential for mistakes is considerable,” says Chapman. Loh says ETFs are treated in the same way as a managed investment trust because they bundle up a range of securities into a single security which is then traded like a stock on the exchange. He says ETFs will provide investors with a standard distribution statement (SDS) that shows amounts such as foreign and Australian income that was earned, net capital gains and other non-assessable amounts. These statements will help taxpayers to report their income as they show which label on the tax return against which to report the income. When an investor disposes of shares, the SDS will show the capital gains or losses made from the sale of the shares which also need to be included in tax returns. “Make sure you look out for and keep your annual statement because without it, completing your tax return accurately can be almost impossible,” Chapman says. “Dealing with the tax implications of shares and ETFs can be very complex.” Most ETFs offer investors an opportunity to reinvest any distribution, which means instead of paying cash it offers shares. Anything received through a dividend or distribution reinvestment plan is considered income and for tax purposes is treated in the same way as receiving cash. “Generally speaking, taxpayers will typically need to declare distributions despite not withdrawing any money from their account,” Loh says. “Most people recognise that they must pay tax on any money earned from selling shares. But many don’t realise that tax also applies to dividends and distributions, even if they are automatically reinvested into a reinvestment plan.” Claiming losses Investors selling shares will also need to calculate capital losses or gains and record it in their tax return. “Capital losses only happen on the sale of the share,” adds Loh. “Investors cannot claim ‘paper losses’ on investments if the share price drops but they continue to own the share.” Any capital losses from selling shares can only be offset against capital gains and not income. Investors can “carry forward” any capital loss declared in their tax return to future years to offset against future capital gains. Loh says the ATO’s “sophisticated analytics” can spot any attempts to offset capital gains against income, such as salary and wages, or attempts to offset “paper losses” against actual income. Investors are encouraged to keep comprehensive records of their investment dealings. “That includes dates, prices, commissions and details of taxable events such as share splits, share consolidations, mergers and demergers. These are essential to avoiding trouble at tax time,” says Loh. Records an ETF investor needs to keep include: The date of purchase/reinvestment. The purchase amount/value. Details of any non-assessable payments that could affect the amount of any capital gain, or loss, when the fund is sold. The date and amount of any call options (if shares were partly paid). The date of sale and sale price (if you sell them). Any brokerage costs or commissions paid to brokers when you buy or sell. Details of events such as share splits, share consolidations, returns of capital, takeovers, mergers, demergers and bonus share issues. Details of capital losses made in previous years – you may be able to offset these losses against future capital gains. Dividend or managed investment distribution statements (standard distribution statements).
> When an investor disposes of shares, the SDS will show the capital gains or losses made from the sale of the shares which also need to be included in tax returns. News to me…I thought this had to be calculated manually. Is the “SDS” a different thing from the AMMA statement? Also interesting that cost base adjustments weren’t mentioned in the article. IMHO they’re the trickiest part of figuring out your ETF-related tax obligations.
Maybe they’re trying to say when the “fund” disposes of shares etc. If the investor themselves dispose of shares that’s a capital gain on top of any other capital gain distributed from the fund. I’ve never seen that turn up in the statement for you.
The article contains incorrect information.
What points are incorrect?
Exactly what is pointed out in the post above mine. They are the same points that I often see in this sub that are commonly misunderstood.
Thank you
Yeah, everything apart from the cost base adjustments are ok. They aren't mentioned at all when doing your tax return (at least what I could see), so not surprised ( and the ato shouldn't be either) if people get stuff wrong.
Cost base adjustments do not form part of your tax return
They need to be tracked over time and taken into account when calculating CGT for years in which you sell ETF units. So while there isn’t a “cost base adjustment” field on the tax form each year, they can affect your tax return indirectly. Which is why many people forget about them.
Thanks.
I thought most of this information was pre-filled into your tax return?
Yeah don't ever rely on that shit. Mine was completely wrong this year (like they just made up the numbers out of nowhere). Cross check with your annual statement at the very least.
I went through everything, adjusted some pre fills and also had an accountant look at everything. I have no idea if I've done everything correctly. I have 4 different ETFs, that I've bought and sold in various parcels over the last 5 years. For all I know, it's correct. Or not. I have no idea what I can do further to ensure accuracy. I'm not even 100% sure on the pre fill adjustments I made. If I didn't spent all the time going through the statements and updating the pre fills, for all I know that's just as correct. There's no instant feedback when you submit to say this looks wrong or right. I bet all the people saying its simple, just line up the numbers in the statements, blah blah blah probably have at least 1 or 2 things off and they wouldnt even know.
I went through my prefill and most of it was wrong. Easier for me to do up an excel and just do my own summary on it.
Out of curiosity, in which way was it wrong? I ask because my prefill information matched what I saw in the ETFs annual reports (and, also, what Sharesight showed me for capital gains and taxable income) - I did check because I am a "look both ways" kind of person, but there was nothing egregiously wrong.
Its dependent on what ETFS you have and when the data is available to the ATO (may be outdated or different from tax statement). Main thing I picked up for mine was the Capital Gains where the AMIT section seems to have messed up during the data transfer to their database. I also had to allocate capital gains against losses in the CGT section, so had to remove it from distribution side anyway but that is a different matter
Not if you file early.
Is Sharesight the solution?
You can enter the details from your AMIT statements in there but it's more complicated than it needs to be. It's also annoying that the ATO seems to have more data in the prefill than Vanguard gives directly to investors. You only get the full year's AMIT statement showing all the different categories; Sharesight tries to spread this out across the year's distributions as best it can, but the ATO prefill seems to have data for each distribution separately.
It is a solution, certainly. Their reports do give you most, if not all of the information you need to fill in your taxes correctly.
Yes, let’s investigate average Australian’s who are trying to self fund their retirement and not be a burden on the system by claiming the pension. Big corporations not paying millions oh that’s fine.
You know it’s possible to do both, right? It’s not an either/or situation. The ATO disseminating a message for individuals in a consumer-facing document doesn’t mean they are taking no action in relation to corporate tax evasion.
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Porque no los dos?
Individuals and small businesses not paying tax on things like investments is unfair on those people that do, and in the aggregate contributes equally to Australia's tax gap. Stop trying to pretend it isn't a problem.
It about focusing on the top priorities first. A few hundred million in lost tax due to shitty individual investors or many billions in tax from corporate tax dodgers. I’m know what I care about.
The ATO are underarmed. By design, they will always go after the low hanging fruit
Sure but by that statement they should be focusing their efforts into the areas that are likely to have the most effect. Having to hunt down thousands of people for small amounts of money or large organisations for lots of money. I know what I’d be focusing on.
Prosecuting big corps is not easy or quick, and rarely a slam dunk even after its delayed and appealed a thousand times. In contrast, going after ill-resourced individuals is quick and easy.
I don’t think that’s true. They first have to prove it on a case by case basis. They have to highlight and communicate the deficiencies and remediation actions required by each party. Than that party has to work out what when wrong with their accountant and how to remediate or challenge it further. No doubt the big ones are a lot harder to win but they are much more valuable to spend man power on.
Those large organizations also have large teams of lawyers and accountants to fight the ATO at every turn. It’s not exactly picking the low hanging fruit. Yes the end result may be a big pot of gold if they ever get to it, but there will be constant appeals and counter-appeals to draw out the process as long as they can. Ask any govt that have gone after Apple, google, Facebook, etc.
The tax gap for individuals (not in business) is greater than the tax gap for large businesses per ATO sources.
That seems unlikely but I’d be open to being convinced.
https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings
It is a problem, but should it be a big priority for ATO resources? I think it should be more carrot than stick if it's genuinely confusing. Much progress has been made by the ATO in making filing accurate tax returns easy, and they should figure out how to make paying taxes on your ETF holdings easy and accurate rather than penalising investors in the main.
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They're not as far as I know, but if they were to slap penalties on taxpayers for making errors in their returns I think that would be a poor use of ATO resources.
It's remarkable how cheap it is to jog the memory of a million investors by talking to a journalist. This is essentially a press release. Duncan Hughes probably got a nice steak dinner too!
Just because they are an 'average Australian' doesn't justify them evading tax. The ATO should very much investigate them just as they should any other entity evading tax.
There is always the standard 'stop going after the average aussie' obligatory comment on every ATO post. The reality is the tax gap (essentially estimating the tax that should have been collected that wasn't) is larger for individuals (and even larger again for small businesses) than it is for large corporates. The tax gap estimated for individuals was $8.4 billion (6.4% of tax paid) compared with $2 billion (4% of tax paid) for large corporate groups. (ato source - [https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings] Regardless the ATO still dedicates immense resources to conducting compliance activities on corporations and is not soley focussing on everyday aussies.
There's a difference between tax avoidance and tax evasion. Big corporations are avoiding tax using legal "loopholes." Whereas confused investors are evading tax by lying to the ATO.
Absolutely spot on - that’s why the tax gap is as low as it is for corporations in the comment above. They’re ‘legally’ avoiding the tax.
Heres an idea lets give already profitable business *checks notes* Billions of taxpayers money.
I never understand this. It'd the same way that Crntrelink chases those paid a couple of hundred too much and ask for complex income evidence- but the government is more than happy to give former Premkers.$400k a year indefinitely. Thr whole system is fucked.
Are you serious? Please kindly educate yourself before making the most cliché claim.
Damn it, I'm too late to say this!
Literally in one hand and out the other. And I've already paid tax on that investment money once already as employed earnings.
Easier and cheaper to investigate the average Australians than to try fight corporations with a well funded legal team and accountants.
I assume the ATO will now turn the turn the screws on large corporations who were confused about their estimates for job keeper?
Of course not. The government likes to pick on us little people - not the big corporations and rich people.
How does this work with Interactive Brokers? They do not provide tax component information for Australian ETFs; neither IBKR nor Computershare nor Vanguard will help me (they just pass me to each other). My accountant recommended that I just declare everything as income as I cannot underpay tax this way, but surely this isn't how it's supposed to work?
Only way with interactive brokers(and other brokers like superhero, sharesies who don’t provide tax component information) is to use sharesight to get the tax component breakdown on the distributions made by the etf during the year. Sign up for a free account with sharesight(free for up to 10 holdings), enter your purchases/sales information in there until your holdings match and the “taxable income report” should spit out the right numbers(should be the same as the annual tax statement information provided by the share registries). Note that every year you’ll have to wait till sharesight announce that they’ve gotten the information to do the tax component breakdown accurately from the registries, this usually happens in September. Not every accountant knows about sharesight as a product so the way they’re recommending is kinda like taking a sledgehammer to the problem, a very blunt answer that’s not at all accurate.
The small time ETF investors aren’t the people the ATO should be worried about not paying tax
Typical ATO - 'going after people' instead of simplifying tax rules and creating better reporting systems.
Meh, I set up my TFN with CHESS and have an accountant to do my taxes. I’m fine
The sites you use like etoro etc require you to input your TFN when you sign up - why would they do this if they didn't automatically report the tax for you?
They collect your TFN for compliance. If you want this added service, find a broker or other service who will provide it.
Don’t they have better things to do
Than cracking down on tax fraud?
How about going after bigger fish like those in the pandora papers
Why are you assuming they can't do both? The ATO employs 16,000 people.
Oh yeah I absolutely support them looking into individuals and small businesses as well. But it seems like the ultra rich get away with more things
Can they not do both?
The big fish are too smart for them. This is why the ato go after the little fish. Easier to catch. An example. How many big business were let off the hook recently by centrelink when claiming jobkeeper payments when the businesses profits didn't drop but went the opposite direction. Centrelink instead went after the employees for over payments they allegedly received whilst on job keeper.
Centerlink != ATO
Are we ever going to hold the people who wrote and passed the law that allows this to happen accountable? I may be wrong but I don't remember reading any clawback provision in the jobkeeper law and the eligibility is based on the projected decline in turnovers. [It looks like ATO made submissions about this issue in mid 2020 but no action was taken.](https://www.theguardian.com/australia-news/2021/oct/05/incompetent-frydenberg-attacked-over-jobkeeper-after-profit-warnings-from-ato-revealed)
This way to /r/Australia.
I'm good. Just got annoyed with the same thing about Jobkeeper over and over whenever someone mentions ATO on an unrelated topic.
Centrelink does not administer jobkeeper. It's the ATO. Big businesses got away with claiming jobkeeper due to the way the law was written not because of a lack of compliance. Blame your government not the ATO.
Retail etf gains should be focused on but there’s plenty of other things are require attention or revision
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I have a crazy idea. Instead of turning the screws on individuals for filling out their admittedly complex tax returns out wrong, why not simplify the rules?
The rules are pretty simple, it's the investment vehicle that makes it more complex. If you try and change the tax rules for every investment vehicle you will only add complexity and likely loopholes into the tax system. If you don't understand the investment, then you shouldn't be investing in it.
They should work on making it easier for people to get right.
If your etf makes a capital gain as per the AMIT can that be offset by capital loss from selling shares? Reason for this question is you have to include the capital gain portion from distribution in the capital gain section on the ATO reporting... Hopefully this question makes sense
Your question makes sense, yes, and as far as I know the answer is yes, it can be offset as you describe. All caveats apply, I'm not a tax accountant etc. etc. (but I do hold ETFs).
Thanks. I guess it's only logical, if you're forced to add it to the CG section and pay tax on it, it's only fair it can be offset! Makes punting on a penny somewhat bearable 🤣
I have a bunch of ETFs through CommSec pocket. I have only ever bought, and have never sold any of them. I’ve always assumed I have to pay tax when I do eventually sell them, but is this saying I might not necessarily have enough information to accurately do my taxes?
My shares gave line codes items to put in. They were there on the my gov tax last year this year not. It was too simplified this year and much less clear. Lease explanations on the page. I preferred last years version.