Investing in company shares can earn you dividends, which are a share of the company’s profits. These dividends are considered assessable income and must be reported on your tax return. To reduce this assessable income, you can claim deductions for expenses incurred in earning it.
In this article, we walk you through everything you need to know about dividend deductions including, what they are, what deductions you can declare, and how to declare them.
Many businesses and individuals know they can deduct expenses to lower their tax bills. However, many overlook dividend deductions that can their after tax return on investment by claiming related expenses. These deductions primarily benefit individuals, trusts, and businesses that invest in shares or managed funds.
So, if you receive income from shares you hold in a company and you dividends coming in, keep reading. The information below could help you save hundreds to even thousands of dollars.
What are Dividend Deductions?
Dividend deductions are tax deductions that apply to expenses directly related to the income that investors earn as a a shareholder. Examples of these may include subscriptions and borrowing costs.
Below are a list of expenses you can claim as dividend deductions as these expenses may directly relate to dividend and share income.
1) Investment Management Fees
Ongoing management fees paid to investment advisers and financial planners may be deductible.
This is the case where the advice relates directly to an investments that is a source of assessable income. Where financial advice includes matters that do not directly relate to investments that generate assessable income, only part of the fee may be deductible.
2) Interest Expenses
Interest on loans used to purchase shares is deductible where you receive assessable income for instance, dividends. If the loan also for private purposes, only the interest relating to the share purchase would be deductible. Please also note that interest on loans for personal tax debt aren’t considered deductible.
3) Travel Expenses
You can deduct travel expenses related to managing your investment portfolio. These deductible travel costs include costs for accommodation, transportation, etc when you travel to consult a broker or attend company meetings such an an AGM.
If the trip is solely for investment purposes, you can claim the full amount. For trips that include private travel, only the expenses directly related to your investment portfolio are deductible.
4) Journals and Publication Subscriptions
You can claim a deduction for costs associated with purchasing specialist investment journals, publications, subscriptions, or share market information services used to manage your portfolio where they directly relate to an investment that generates assessable income.
5) Internet and Computer Expenses
You can claim a portion of your internet expenses that relate to the use of online brokers/trading platforms or managing your investments. Personal internet use is not deductible.
Another expense you can claim under this category is the depreciation (capital allowance) on computers used for income-generating activities. Personal use is excluded.
6) Borrowing Expenses
Expenses such as establishment fees, legal costs, and stamp duty related to loans for buying shares that generate dividends are deductible.
If these expenses exceed $100, they are apportioned over five years or the loan term, whichever is shorter. Expenses under $100 can be fully deducted in the year you incur them.
7) Dividends with LIC Capital Gain Amounts
If your dividend from a Listed Investment Company (LIC) includes a capital gain amount, you can claim a 50% deduction if:
- You are an individual Australian resident when the dividend is paid (after 1 July 2001).
- The capital gain comes from a CGT event involving an asset held by the LIC for at least 12 months.
The LIC capital gain amount will be listed separately on your dividend statement. Do not report the LIC capital gain amount in the Capital Gains section of your tax return.
8) Investment Seminars
You can deduct expenses from attending investment seminars related to your current investments, but only for the part that relates to you earning investment income. You cannot claim deductions for seminars relating to potential investments, even if you decide to invest in them later.
For a deeper dive into these included deductions, check out the Australian Taxation Office‘s official list of dividend deductions.
How Do Dividend Deductions Differ from Other Tax Deductions?
Dividend deductions specifically relate to costs associated with receiving dividends. This also means that the tax legislation covering dividend deductions is not relevant when calculating the capital gains tax implications of disposing an investment. Unlike general tax deductions, which might cover broad business or personal expenses, dividend deductions focus exclusively on investment-related expenses.
Much like many other tax deductions, only interest expenses tied to income-producing activities are deductible. This means that where a loan results in interest expenses incurred as a result of private expenditure only the interest relating to income-producing activities will be deductible.
Maximise Your Tax Deductions with the Help of a Trustworthy Tax Agent
It would be almost impossible for a taxpayer to be aware of every possible tax deduction available to them. Chances are, you weren’t aware of some of the deductions mentioned above. That’s why working with a reliable and knowledgeable accounting firm like Samnite Accounting and Advisory makes all the difference.
Our experienced team will help you with the following:
- Ensure your income tax assessment takes into account all the expenses relating to your investment portfolio
- Identify all applicable deductions to reduce your taxable income
- Provide personalised advice tailored to your financial situation
Don’t pay any more tax than you need to. Contact Samnite Accounting today to learn how you can optimise your tax returns and keep more of your hard-earned money.
How to Claim Dividend Deductions
Claiming dividend deductions is quite straightforward. Here’s what it takes to file and claim them the right way:
Step 1. Keep Records of Your Expenses
To claim a deduction, keep accurate records that show you incurred the expense.
Step 2. Use the myDeductions Tool
You can use the myDeductions tool in the ATO app can help you track your deductible expenses throughout the year.
Step 3. Upload and Share Records at Tax Time
At tax time, upload your expense records from the app or share them with your tax agent for a smoother process.
Final Words
Claiming deductions for expenses tied to earning dividends can significantly reduce your tax burden.
In any case, it’s important to avoid common mistakes like overestimating costs or overlooking some of the small allowable deductions. These may include account keeping fees, memberships or technology used for managing investments, and always keep detailed records of expenses to ensure you stay compliant.
For the best outcomes, consult a professional that can help ensure you make use of every eligible tax deduction. Dividend deductions are just the beginning. There are so many other deductions that can help you reduce your tax obligations.
If you need a tax professional to take a look at your expenses and potentially help you save hundreds or thousands of dollars on tax, we’re here for you. Book a no-obligation call, and we’ll see what we can do to do help you keep more of your money in the bank.
Frequently Asked Questions (FAQs)
Can small businesses claim dividend deductions?
Dividend deductions typically don’t apply to small businesses unless they are in the business of investing. These deductions are primarily for individuals, trusts, and companies investing in shares or managed funds.
How can I make sure I’m claiming the correct deductions?
To ensure you claim the right deductions, keep detailed records of all dividend income and any associated expenses. Consult a tax professional for guidance. They can help you recognise any eligible expenses and guarantee you stay compliant with the tax legislation.
Are there any restrictions on claiming dividend deductions?
Yes, you cannot claim a deduction for expenses that are capital in nature or personal expenses. Additionally, some income, such as exempt dividends or other exempt income may not give rise to eligible deductions
What happens if I forget to claim dividend deductions?
If you miss a dividend deduction on your tax return, you could end up paying more taxes than necessary.
Nonetheless, you may be able to amend your tax return form after it has been lodged to include any missed deductions depending on when your tax return was lodged and which financial year it relates to. Frequent consultation with a tax advisor can guarantee you’re making the use of any allowable deductions.
