Yes. In Australia the income and capital gains your investments produce are taxable, and they are taxed at your marginal rate, the same rate as your wages. The account itself, whether it is a share trading account, an ETF or managed fund account, or a broker platform, is not taxed as a thing. What is taxed is what happens inside it: the dividends and distributions you receive while you hold the investments, and the capital gain you make when you sell them for more than you paid. There is no tax-free investment account in Australia. The one place investments are taxed more lightly is super, which is taxed at 15% rather than your full marginal rate.
Is the account taxed, or the investments in it?
This is the key thing to understand. Unlike some countries, Australia has no special tax-sheltered investment account for everyday investing. Your investment account is simply a place your assets are held. You, the owner, are the taxpayer, and you are taxed on the income and gains those assets generate. So the real question is not whether the account is taxed, but how the shares, ETFs, or funds inside it are taxed, and that comes down to two things: income while you hold them, and capital gains when you sell.
The two ways investments are taxed
Every investment is taxed in up to two ways. First, on the income it pays you while you own it, such as dividends from shares or distributions from a managed fund or ETF. This income is added to your other income each year and taxed at your marginal rate. Second, on the capital gain when you sell, which is the profit between what you paid and what you sold it for. That gain is also added to your income, but only in the year you sell. You are not taxed on gains you have not realised, so an investment that has risen in value but that you still hold is not taxed until you sell it.
How the different types of investment income are taxed
| Type | What it is | How it is taxed |
|---|---|---|
| Dividends | Paid by shares | Added to income at your marginal rate, usually with franking credits attached |
| Distributions | Paid by ETFs and managed funds | Added to income; can include dividends, interest, foreign income and capital gains, each taxed accordingly |
| Interest | From cash or bonds in the account | Added to income at your marginal rate |
| Capital gains | Profit when you sell | Added to income when sold, with a 50% discount if held over 12 months |
A couple of points catch people out. Dividends often come with franking credits, which represent company tax already paid, so you declare the dividend plus the credit and claim the credit against your own tax. And if you reinvest dividends through a dividend reinvestment plan instead of taking the cash, they are still taxable, because you have earned the income even though you did not pocket it.
Capital gains tax when you sell
When you sell an investment for more than it cost, the difference is a capital gain, and it is added to your taxable income for that year. If you held the investment for more than 12 months, individuals get a 50% capital gains tax discount, so only half the gain is taxed. If you sold within 12 months, the whole gain is taxed.
Capital losses, from investments sold for less than you paid, can be offset against gains to reduce the tax, and any unused losses can be carried forward to future years. Keeping records of what you paid, including brokerage, is essential, because that is what your accountant uses to work out the gain.
What about overseas shares and crypto?
The same principles apply, with a few extras. Income and gains from overseas shares are taxable in Australia, and you may get a foreign income tax offset for tax already paid overseas, so you are not taxed twice on the same income. Cryptocurrency is treated as a capital gains tax asset, not as a currency, so selling, swapping, or even spending it can trigger a capital gain the same way selling shares does. Both are areas the ATO watches closely through data matching, so they need to be declared even if no Australian institution reported them for you.
How the structure changes the tax
Who or what owns the investment changes the rate. Held in your own name, the income and gains are taxed at your marginal rate. Held through a company, they are taxed at the company rate. Held in a self managed super fund, they are taxed at just 15%, or nil once the fund is in pension phase, which is why super is such a tax-effective place to invest for the long term.
Held in a trust, the income is distributed to beneficiaries and taxed in their hands. Choosing the right structure is a real decision with lasting tax consequences, so our business advisers can talk through what suits your goals. This is general information, not personal financial advice.
When and how do you declare it?
You declare investment income and capital gains in your tax return each year. Your broker and the funds you invest in report to the ATO, and much of it is pre-filled, but investment data often arrives later than your wage details, sometimes not until well into the new financial year.
Annual tax statements from managed funds and ETFs in particular can take until September or later. It is usually worth waiting for those statements before you lodge, rather than rushing in July and having to amend the return afterwards. Give your investment provider your tax file number too, because without it they must withhold tax at the top rate of 47%. Our tax planning checklist is a good way to make sure you have everything ready before you lodge.
