Investing in the stockmarket is a lot more common than it was years ago, with ordinary Australians having experience with shares and the stockmarket either directly or through managed funds or via their superannuation fund.

Recent research conducted by the Australian Securities Exchange (ASX) found that around 60% of Australians hold share investments outside of their institutional superannuation fund, and 31% directly own listed investments. Over the past five years the proportion of 18 to 24 year olds investing in shares has doubled from 10% to 20%, and over the same time the proportion for 25 to 34 year olds has increased from 24% to 39%.

From a simple taxable income point of view, owning shares means that the dividends these provide will form part of the shareholder’s assessable income. But there are other tax implications, which may derive from, but are not limited to:

Otherwise, the key tax issues most stockmarket investors need to be aware of are:

Dividends

A dividend is assessable income in the year it is paid or credited to you. Your dividend statement shows the relevant date – often referred to as the payment date or date paid. Most dividends you are paid or credited will be in the form of money, either by cheque or directly deposited into a bank account.

However, the company may give you the option of reinvesting your dividends in the form of new shares in the company – this is called a dividend reinvestment scheme. If you take this option, you must pay tax on your reinvested dividends. The amount of the dividend received will form part of the cost base of the shares you receive.

Keep a record of your reinvested dividends to help you work out any capital gains or capital losses you make when you dispose of the shares.

Bonus shares, inherited and gifted shares

Bonus shares are extra shares you receive for those you already hold in a company. If you dispose of bonus shares, you may:

If you acquire shares as part of a deceased estate, you have certain tax obligations and entitlements for these shares. If you inherit shares:

It can also be the case that shares are gifted. A family member may give shares to relatives – for example, a parent gives shares to their child.

Giving shares: If you give shares as a gift, you:

If you give shares as a gift, a capital gains tax event occurs and you must include any applicable capital gain or loss in your tax return for the year you gave away the shares.

Receiving shares: If you receive shares as a gift, you:

If you dispose of shares you received as a gift, you must use the market value on the day that you acquired the shares as the first element of your cost base.

Demergers

A demerger occurs when a company restructures by splitting its operations into two or more entities or groups. If you own shares in a company that demerges, you may:

Make sure you:

Trader or investor?

Share traders and share investors deal with income and expenses differently. A share trader conducts business activities for the purpose of earning income from buying and selling shares. A share investor invests in shares with the intention of earning income from dividends and capital growth, but does not carry on business activities.

Shares as business: A share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. For a share trader:

Shares as investment: A shareholder is a person who holds shares for the purpose of earning income from dividends and similar receipts. For a shareholder:

Disposing of shares

If you dispose of shares, you may make a capital gain or a capital loss, which must be reported in the income year you dispose of the shares. If you make a capital loss and you do not have other capital gains to offset it against in that financial year, you can carry it forward to later income years. To do this you will need to keep your taxation records.

If you dispose of shares you must:

Records you need to keep

You need to keep proper records, regardless of who prepares your tax returns. You must keep:

You will receive most of the records you need to keep from:

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