If you've been active in the market throughout the 2023/2024 financial year you might need to pay capital gains tax or you may be able to claim a deduction.
Depending on how often you trade shares and how the Australian Tax Office (ATO) classifies you, you could be eligible to claim tax benefits such as franking credit rebates and deductions on trading-related costs.
Whether you're a trader or investor, this guide explains how much tax you need pay and whether you're eligible for benefits.
First, what is capital gains tax?
Capital gains refer to selling an investment for more than the cost you spent to acquire it. So, when your shares increase in value and you decide to sell them, you make a capital gain.
It's important that you include your capital gains in your tax return because it will affect your taxes. However, it will depend on how long you have held your shares. For example, if you've held them for longer than 12 months, you will only be taxed on half of the capital gain.
Do I need to pay tax on shares?
Yes, any transaction made can be counted as a separate tax event. As such you will need to pay taxes on any profits made from trading including dividends and selling shares. This is known as capital gains tax (CGT).
Any profits that you make are added to your total taxable income for the year.
So, if you're paid a salary of $49,000 and you make $1,000 from trading shares – your total taxable income becomes $50,000.
Finder survey: Without looking, do Australians know whether their investment portfolios are net positive or negative?
Response
Yes
50.1%
No
49.9%
Source: Finder survey by Pure Profile of 1004 Australians, December 2023
What about dividends?
Dividends are also included in your total taxable income – in fact, the ATO will already have a record of the dividends you've earned throughout the year and will have automatically added this to your income.
Profits aren't taxable until you actually sell your shares. If you sell before 30 June, your profits will be included as your taxable income this financial year and if you sell after 30 June, it's added to the following tax return.
Note: If you're classified as a "share trader" for business purposes, the tax implications are a little different because you can claim any losses accrued from trading shares as a tax deduction (see below).
How to calculate tax on shares sold
Any profit you make from share trading is added to your total taxable income. The tax you pay on your shares will depend on which tax bracket you fit into based on this total income.
If you're a casual investor, your profits are calculated as total profits minus total losses. As an example let's say you bought 1,000 shares in lithium miner Lake Resources (LKE) for 70 cents and later in the financial year sold them for 80 cents. Your taxable profit is $100.
On the flip side, you might've bought 1,000 shares in the miner but it fell from 70 cents to 50 cents and you sold it. In this situation, you could claim a loss of $200.
Dividends are also included. So say you bought CBA shares this financial year and decided not to sell. Then CBA paid a dividend and you made $100 in dividend profits. Assuming the first scenario where you sold LKE at 80 cents, your total taxable income is $1,100.
There are also tax benefits to long-term investing over short-term investing. If you hold shares for longer than 12 months before selling, you're only taxed on 50% of the profits you make from those shares. If you buy and sell within the same financial year, your total profits are included as taxable income.
You can work out how much CGT you may owe the ATO by using our calculator below.
Capital gains tax calculator for shares and ETFs
To use Finder's capital gains tax on shares calculator:
First, you need to state whether you've owned the stock or ETF (asset) for more than 12 months. If you've owned a stock or ETF for more than 12 months, a 50% capital gains tax discount applies.
Then you enter the purchase price (the price you paid for the stock) and then the price you sold it for.
Finally, enter your taxable income for the current year. That's your income before tax.
The capital gains Tax (CGT) is calculated by first determining if there is a capital gain, which is calculated by subtracting the purchase price of the asset, the purchase costs and the sale costs from the sale price of the asset. If there is a capital gain, the individual's total tax payable is then calculated by applying their marginal tax rate for the current financial year to their total taxable income including the capital gain (which may include a discount if held for over 12 months). The figure provided by the calculator relates to the portion of tax payable as a result of the capital gain.
Assumptions and limitations
The calculator assumes the following:
the individual is a permanent resident of Australia for the entire current financial year
the asset:
was purchased after 21 September 1991
is owned by the individual and not a business entity
is not an owner-occupied home
is not part of a super fund
is not otherwise exempt from the CGT rules
the Medicare Levy Surcharge rate is not payable.
Disclaimer: The information provided by this calculator is only intended to provide an approximate estimate of the CGT you may need to pay. It is general in nature and does not constitute professional advice. The rules relating to CGT are complex and you should always seek professional advice in relation to your particular circumstances.
How do I lodge a tax return for shares?
Your tax return for shares is included as part of your regular tax return after 30 June.
When you lodge your annual tax return, you'll need to report any capital gains you've made on buying and selling shares throughout the financial year. Any dividends you earn will have already been added to your taxable income by the ATO.
At the end of the financial year, your broker or online share trading platform will send you a tax statement with the total profits you've earned. If you're lodging your own tax return, you'll need to include this number in your report. In the case of using a tax accountant, send the tax statements to them to work out.
If you use multiple brokers, it's a good idea to use a portfolio tracker to track total capital gains across all platforms.
How do I pay tax on robo-advice and micro-investment apps?
If you use a robo-advice or micro-investment platform such as Raiz Invest or Spaceship, you are taxed on any profits you make from your portfolio.
Like regular share trading, your profits (minus losses) are added to your total taxable income. Your platform will typically send a tax statement each year. If you've been given dividend payments, these are automatically filed with the ATO.
What are franking credits?
Franking credits can be used by Australian shareholders as a tax break on share dividend payments. Franking credits stop dividend payments from being taxed twice and can be claimed as a tax refund by shareholders depending on the shareholder’s marginal tax rate.
You need to pay capital gains tax (profits minus losses) on US shares in the same way you do Australian shares, though currency conversions add another element to the equation.
When buying and selling US stocks, the capital gains is calculated immediately at the moment the trade occurs, not when you convert your currency back into AUD from USD.
The CGT calculation is made by converting USD to an AUD amount at the time of the transaction.
So say you purchased US$1,000 of Tesla shares, then sold those shares for US$1,000 a few months later – your capital gains in USD may appear to be $0, but in AUD amounts you may have either profited or lost income.
How does the ATO classify share traders and share investors?
There are different tax implications depending on how often you trade shares and whether you can be classified a "share trader" for business purposes.
The ATO defines a business for tax purposes as any money-making venture where you’re not an employee. Share trading fits this definition. However, there are no black and white rules about who is a share trader and who isn’t. The ATO gives some guidelines but ultimately makes decisions on a case-by-case basis.
The ATO assesses the nature of your trading activities and your business or trading plan when deciding. This information includes how often you trade, why you make certain trade decisions and an assessment of potential investments.
What are the tax implications of share trading?
If you can satisfy the ATO’s definition of being a share trader, you can claim any gains from the share market as your personal income and any losses as a tax deduction. If you’re a regular investor, your losses are deducted from your capital gains only.
Casual investors can't claim on any losses and need to pay attention to capital gains tax (CGT) and the timing of the sale of shares. Any profits made after 30 June won’t be taxed until the following year.
How does the tax office define a trader?
Tax implications are different for traders and investors. The ATO will classify you as a trader if you can answer yes to the following:
You purchase shares on a regular basis in a routine way. The ATO will also look at the volume of shares traded and the size of the investment(s).
You have a trading plan. The ATO will look at whether you have a registered business and whether you have business premises and all the relevant qualifications and licences.
You make use of share trading techniques, such as market analyses.
You have a plan B in case your shares run at a loss.
Tax deductions
Share traders
Money from the sale of shares and share dividends are included in assessable income.
The costs of buying and selling shares can be claimed as a tax deduction.
Share traders can claim the costs of items such as computers, as they are necessary to making trades and keeping records. You can also claim depreciation on items costing more than $300.
Share investors
Can’t claim the purchase price of shares as a tax deduction.
Capital losses are subtracted from capital gains.
Any net profit is subject to CGT.
Can claim deductions on the prepayment of expenses such as Internet fees, seminars or subscriptions for up to 12 months in advance.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
IG Share Trading
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian and international shares, plus get access to 24-hour customer support.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Kylie Purcell is the senior investments editor and analyst at Finder. She has completed a Certificate of Securities and Managed Investments (RG146) and specialises in investment products including online brokers, robo-advisors, stocks and ETFs.
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