Using your money to try to make more money or gain assets is called investing. Understanding how tax works in relation to your investment helps ensure you don't pay more tax than you need to. Australian residents are taxed on their worldwide income, so whether you have investments in Australia or overseas there are tax aspects to obtaining, owning and disposing of them.
Profits or returns you make on your investments usually become part of your income for tax purposes.
It is in your own interest to plan your investments so they are 'tax-effective' and you don't pay more tax than you need to. Tax planning might mean reducing your taxable income (for example, by negatively gearing an investment property or through 'salary sacrifice' arrangements) or increasing your claimable deductions (for example, by donating to a charity).
You are entitled to claim deductions for some expenses that are directly related to earning income from your investment. Many expenses relating to your investment are tax deductible - for example, interest on money you borrow to buy shares. Keeping good records is essential to ensuring you claim all the deductions you are entitled to and don't pay more tax than you need to.
Be wary of 'opportunities' to hide your investment income or artificially inflate your deductions.
Challenger Care Annuity - December 2014
On 18 December 2014, the Department of Social Security and Challenger Ltd resolved their dispute regarding the uncertainty surrounding the treatment of the Challenger Care Annuity in its current form under social security legislation. We also understand that Challenger Ltd have decided to discontinue marketing this annuity.
To reduce uncertainty for investors, the ATO confirms that Product Ruling PR 2014/2 will continue to apply to investors who have already invested in the Challenger Care Annuity. This means existing investors will not experience any change in the tax treatment of their investment.
Find out more
For information on how keeping good records can minimise your tax bill, how you can avoid high interest charges on your term investments, what you can claim as deductions against share dividends and income from managed investment trusts, and how you can offset capital losses against capital gains, refer to Guide to investment.