With tax time near, investors will be looking to claim everything they are entitled to writes Mark Chapman, director of tax communications at H&R Block (NYSE:HRB) Australia.
Did you know that there is a whole selection of possible tax deductions available to investors? This includes:
Interest on borrowings
If you borrow money to buy shares or other investments from which you earn dividends or other assessable income, you can claim a deduction for the interest you pay.
Only interest expenses incurred for an income-producing purpose are deductible. If you use the money you borrow for both private and income-producing purposes, you must apportion the interest between each purpose.
You can't claim a deduction if you receive an exempt dividend or other exempt income.
Interest income expenses
You can claim a deduction for account-keeping fees you incur on an account held for investment purposes, such as bank accounts or income bonds. You will find these fees on your statements.
If you have a joint account, you can only claim your share of the fees, charges or taxes on the account. For example, if you hold an equal share in an account with your spouse, you can only claim half of any allowable account-keeping fees.
Dividend and share income expenses
You can claim a deduction for costs you incur to invest in shares, including:
- certain financial advice fees, for example, ongoing management fees or advice about changes in your investment mix
- the portion of your costs that are for managing your investments, for example
- some travel expenses, such as to attend the annual general meeting of a company you hold shares in
- the cost of specialist investment journals and subscriptions
- borrowing costs and interest expenses
You can't claim:
- financial advice fees about your proposed investments or future income earning structure or where there is no connection with your income earning activities
- brokerage fees and other transaction costs (but you can include these as part of the asset’s base cost to work out your capital gains tax when you sell the shares).
Costs of attending investment seminars
If you attend an investment seminar about an existing investment, you’re entitled to claim a deduction for the cost. However, you can't claim a deduction to attend a seminar about something you're considering investing in, even if you subsequently invest in it.
Home office expenses
You can claim deductions for the income-related portion of any home expenses you incur. So, the costs of managing your portfolio from your desk at home are claimable, including:
- Heating, cooling and lighting
- Cleaning costs
- Decline in value (depreciation) of home office furniture and fittings, office equipment and computers (for items over $300)
- Computer consumables, stationery, telephone and internet costs
- Items of capital equipment (such as furniture, computers and associated hardware and software) which cost less than $300 can be written off in full immediately
You can’t claim a deduction for tea, coffee, toilet paper, etc. You also can’t usually claim for items like a proportion of rent, mortgage interest, rates, insurance – which are only claimable if you run a home-based business.
You must keep all receipts/invoices, show how you’ve apportioned expenses between domestic use and income producing use and keep a four-week diary of your working from home, which you can then extrapolate over the whole tax year.
Alternatively, you can claim the ATO’s 70 cents per hour fixed rate deduction. You don’t need detailed substantiation, but you do need to have a complete record of all your hours worked from home for the entire tax year (eg, a diary).
Get help!
There’s a reason 70% of Australians use a tax agent to prepare their tax return; tax is complicated! Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.
Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their return, safe in the knowledge that the return will be accurate and complete. An experienced agent, like those at H&R Block, will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim so they can often pay for themselves several times over. Best of all, the tax agent’s fee is also tax deductible.