More and more Australians are investing as a means of creating wealth. This has been made easier for first time investors with the advent of Exchange Traded Funds (EFT’s) and similar type products.
While it is great to see Australians creating wealth and therefore needing less reliance on government support through financial independence, most are not aware of the tax laws surrounding these investments.
This particularly applies to long term investors and who’s investments may be subject to tax obligations relating to capital gains when it comes time to sell or will receive income in the current year through dividends (shares), interest (bonds, term deposits, banks) or distributions (EFT, managed funds) on which the investor will need to declare as income in the tax year.
One way of increasing wealth is through reinvesting the income earned on current investments through a dividend/distribution reinvestment plan where you physically don’t receive a dividend/distribution in the form of cash but rather through more shares/EFT’s instead.
But what many first-time investors don’t realise is that whether the dividend/distribution is received in cash or more shares/EFT’s, it is deemed income for tax purposes in the years it is received.
Furthermore, if your investment has increased in value over a period of time and you decide to draw down some of the gain to take a holiday, pay school fees, do an extension on the house etc, it may be subject to capital gains tax which is the difference between what you paid for the shares for example and what you sell them for, allowing for costs associated with the buying and selling of the shares.
A simple example might be as follows:
Buy $5,000 in shares on 1 January 2020 and sell for $10,000 on 1 January 2022. You are liable for capital gains and have access to the 50% general deduction for tax purposes and your current tax rate is 30% on your income.
In this case you would have a capital gain of $5,000 (difference between purchase price $5,000 and selling price $10,000). As you are entitled to the 50% general deduction you would need to pay tax on $2,500 at your tax rate of 30% ($750).
Congratulations on building your own wealth through investments. It is suggested you work with your accountant or investment advisor to ensure you are maximising your returns.
The above comments are general in nature and should not be acted on without seeking professional advice. Should you have any questions or want specific advice relation to your tax position contact Balanix Solutions on 3264 47783.
Write your own business bible
There is so much information out there about how to run your business. This is terrific but can be a bit overwhelming. Besides, who has the time to sift through it all.
Keep a notebook or your tablet near you at all times. Record the tips, advice, ideas and inspirations that resonates with you and your business – make the information fit your business rather than the other way around.
Shine in 60 seconds
In the 1st 10-15 seconds of your 1 minute elevator pitch – Introduce you & your business, where your business is located & operating days & hours.
In the next 30-40 seconds explain what you do, why you are better & your competitive advantage, tell an interesting story or example & identify your target clients.
In the last 10-15 seconds, ask for a referral (be very specific) or set-up a coffee/meeting to discuss further.
4 Staff recognition and rewards with NO budget
- Post a thank-you note on the team member’s computer, chair or workspace.
- Greet team members by name when you see them and ask about something in their life (eg, how was Jonny’s 1st day of school).
- Always thank team members for a job well done.
- When discussing a team member’s or a group’s ideas with other people, peers or higher management make sure you give credit.
Turn competition into inspiration!
Knowing your competition very well can inform and inspire you to do things differently to gain a competitive advantage.
For example, teachers and trades people are on holiday’s over Christmas and not all go away. If these two sectors are target clients of yours and your competitors tend to also be on holidays at this time, makes sense to consider opening your business whilst the competition is closed.