New to investing? The ATO wants a word

woman-looking-anxiously-at-laptop

While tax season may be well underway, it seems as though not everyone is lodging their returns correctly, as the Australian Taxation Office (ATO) has released some advice for Australians new to share trading and investing.

Interest in investing has skyrocketed during the pandemic, with a recent report from research firm Investment Trends revealing that close to 150,000 Australians traded shares, ETFs and other securities for the first time between November 2020 and May 2021 alone.

According to ATO, new investors often misunderstand their tax obligations when it comes to capital gains though, leading to lodgement errors and ultimately to delays in getting their tax returns.

“Unfortunately, first-time investors often don’t understand their taxation obligations, don’t keep appropriate records and are more likely to make mistakes when lodging their tax returns,” said assistant commissioner, Tim Loh.

So what do newcomers to investing need to be aware of? The ATO has laid out three key areas.

Micro investing

In recent years micro investment platforms like Raiz and Spaceship have become popular among investors wanting to invest relatively small sums of money regularly over time, with both platforms offering various ‘portfolios’ (which are generally made up of different ETFs).

The ATO has reminded investors using these platforms that they may still need to declare these investments in their tax returns though, especially if they have sold anything which may have caused a capital gain or loss.

Reinvestment plans

A dividend reinvestment plan for shares or a distribution reinvestment plan for ETFs allows investors to automatically re-invest any cash dividend or distribution into new units in the investment. According to the ATO, investors need to be mindful that they still need to declare these distributions though - even if they aren't withdrawn.

“Most people recognise that they must pay tax on any money earned from selling shares. But many don’t realise that tax also applies to dividends and distributions, even if they are automatically reinvested into a reinvestment plan,” said Loh. 

Offsetting losses 

While most people are aware that they may be able to offset some of the losses made by investing, the ATO says there are misconceptions about how this works. For example, investors aren’t able to offset ‘paper losses’ - they need to be real losses made after shares are actually sold.

“Each year we see some enterprising entrepreneurs trying to offset their capital losses against income tax applied to other income, such as salary and wages. Others attempt to offset a ‘paper loss’ against actual income,” Loh said.

“Our sophisticated data analytics are able to spot this and we may apply penalties for investors that have intentionally done the wrong thing.”

While the latest advice is targeted at Australians who have invested in shares and ETFs, the ATO already laid down a warning to cryptocurrency investors earlier in the year. 

The ATO expressed ‘concerns’ over what it said was a belief held by many investors that gains made from cryptocurrency were not subject to tax - a belief that is untrue. As a result, the agency said that it would be writing to around 100,000 taxpayers with crypto assets in order to remind them of their tax obligations.   

RELATED: Sharesies: The platform levelling the playing field for a new generation of investors

For more information relating to your tax obligations as an investor, check out the ATO’s run through on investment income. Or if you're looking to start your own investing journey, head on over to our dedicated share trading hub to compare share trading accounts or read through our handy guides.

Compare share trading accounts - rates updated daily

Search promoted share trading below. Advertiser disclosure.
  • placeholder
    Live Account

    Small trade brokerage
    Monthly fee
    $5.00
    $0.00

    Superhero Live Account is trading for everybody. Zero brokerage when purchase ETFs and $5 when you sell, plus traders can get started with a minimum investment of just $100.

    Details
  • placeholder
    Share Trading

    Small trade brokerage
    Monthly fee
    $8.00
    $0.00

    ThinkMarkets offer an $8 flat fee share trading account with HIN ownership (CHESS sponsored) so you control your own shares plus free live price data and market depth.

    Details
  • placeholder
    Trading Account

    Small trade brokerage
    Monthly fee
    $10.00
    $0.00

    Insights, recommendations and support for just $10 per trade under $1000. Get access to over 25 international markets. (See the CommSec page for details)

    Details
  • placeholder
    Mozo Experts Choice 2022
    Tiger Account

    Small trade brokerage
    Monthly fee
    $6.49
    $0.00

    Tiger Brokers is an online broker listed on NASDAQ. It offers access to US, ASX & HK stocks, ETFs and US options trading. Enjoy $0 brokerage on US Stocks trading and ASX Stocks trading for 90 days with no minimum deposit required. (T&Cs apply - see website for full details. Limited time offer).

    Details
  • placeholder
    Standard

    Small trade brokerage
    Monthly fee
    $0.00
    $0.00

    CMC Markets Invest makes it easy to trade with a handy web and mobile platform, competitive pricing and thousands of securities. Buy Aussie and US shares from $0 brokerage (T&Cs apply - see website for full details).

    Details
  • placeholder
    Share Trading

    Small trade brokerage
    Monthly fee
    $8.00
    $16.67

    IG is part of a major FTSE 250 company with over 185,000 clients worldwide. Commission from just $5 for customers making 3+ trades per month.

    Details

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.