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ATO focuses on novice investors


A key part of sound personal finance practice is to ensure you have at least a broad knowledge of ...

... how tax applies to your investments - and to understand the need to gain professional tax advice when necessary.

No doubt, some novice investors would not realise that shares must be held for at least 45 days (not counting the days of acquisition and disposal) to be eligible for franking credits. And some new investors would not know that an asset such as shares or property must be held for at least 12 months to be eligible for discount capital gains tax (CGT).

The list of what investors should understand about tax and their investments includes, of course, their obligations to report income and capital gains in their annual tax returns.

Even investors who rely heavily on professional tax advice should understand how tax impacts on their investments.

It is interesting that the ATO is focusing extra attention this year on novice investors - including those using tax agents.

The tax office is advising tax agents that it is sending letters this month directly to any of their clients who reported rental property or dividend income for the first time last financial year.

As reported in the Weekly Tax Bulletin, published by Thomson Reuters, the ATO letters will direct investors to information about how to avoid common mistakes when preparing their tax returns.

Common tax mistakes of shareholders involve such matters as dividend reinvestment schemes, bonus shares, inherited shares and tax obligations on the disposal of shares.

And common tax mistakes of property investors involve such matters as the difference between repairs and improvements, initial repairs to a newly bought rental property, capital works deductions, interest deductions (when part of a loan is used for private purposes) and private use of rental properties.

Although the tax office is writing to novice investors in this particular compliance exercise, many experienced investors would probably learn valuable lessons from understanding the common tax mistakes made by other investors.

By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
13th June 2012


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