With EOFY upon us, you need to be fully up to speed in understanding the deductions you can claim for your share portfolio and H&R Block (NYSE:HRB) provides the following guide.
- You can claim various deductions against your tax liability for costs related to earning your investment income including:
- Interest on funds borrowed to finance your investment portfolio.
- Borrowing costs incurred in arranging finance, such as legal expenses, loan establishment fees, etc (deductible over five years or the term of the loan, whichever is shorter, unless the amount is $100 or less in which case it’s immediately deductible).
- Bank charges for bank accounts to manage your investment income and expenses.
- Management fees or retainers paid to a financial planner (but not the initial costs of drawing up an investment plan).
- The cost of running a home office to manage your investments.
- The cost of investment-related journals and subscriptions.
- Costs of tax advice.
- Travel costs associated with your investments, such as trips to see your financial planner or stockbroker, or the cost of attending AGMs.
You can also claim depreciation on any assets used to manage your portfolio, such as computers, laptops, etc, with the deduction apportioned between private/domestic use and use in your investment activity.
Most importantly, the cost of the shares themselves can be deducted from the sales proceeds on disposal to reduce the resulting capital gain (or increase a capital loss).
What paperwork do I need to keep?
Take some time out to gather together all the information you will need to help you prepare your tax returns, including invoices and receipts for expenses you want to claim and any bank/credit card statements that contain details of expenses that you no longer have (or never had) receipts or invoices for.
If you’re not sure if it’s claimable, collect the receipt or invoice anyway and discuss it with your tax agent. If you don’t have the paperwork, you can’t claim a deduction so it makes sense to set aside this time in advance of the end of the financial year to spare yourself a stressful document hunt whilst you’re actually in the process of getting your return prepared!
In addition, if you’re claiming any expenses that have a private element (such as for the use of a personal mobile phone) set some time aside to work out what a reasonable apportionment is for the bit that relates to your investment activities.
Don’t forget also that you need to keep records of your underlying investments. In practice, that means you’ll need to keep your share acquisition and disposal statements (your 'buy' and 'sell' contracts). Keep these records for five years from the date you dispose of your shares.
Get help
Remember that tax on shares is complicated and to avoid ATO penalties and possible audit, it pays to have a good tax accountant like H&R Block to make sure you report your share transactions accurately and fully.