Australian Tax Rules Do Not Treat All Income Equally

australian income tax rules

If you’ve ever completed your own tax return, you know that the Australian income tax rules treat different types of income differently.

Bank interest is recorded in one section, dividends from shares in another, and managed fund distributions somewhere else.

And unless you are taking a pension or lump sum from your super, you don’t need to include your earnings on those funds at all.

Taking Advantage of Tax Benefits

Returns from investing in shares and property, in particular, come with some real tax benefits. The trick is to make sure you take advantage of them.

Understand The Rules

The most common tax benefits are:

  • Franked dividends from Australian shares. These represent a tax credit of up to 30% for tax already paid by the company. But beware, the shares must have been held for at least 45 days if your franking credit entitlement is over $5,000.
  • A 50% discount on the capital gain made from the sale of a personally held asset. Superannuation funds can qualify for a one-third discount – but this only applies where the asset has been held for at least 12 months.
  • Capital losses can be offset against capital gains and the net gain is only payable when the asset is sold. The tax can be deferred for a long time.

Choose Who Owns The Assets

The best tax outcome can be achieved with a low-income earner holding investment assets.  They could:

  • earn up to $20,5421 tax-free (tax-free threshold of $18,200 and taking into account the Low Income Tax Offset)
  • receive a refund of all imputation credits
  • and pay less tax on capital gains.

For instance, if an investor on the top marginal tax rate of 47% had a $100,000 capital gain they would pay $23,500 in tax and Medicare. If an investor with no other income had a $100,000 capital gain they would pay $8,797 – a savings of $14,703.

Choose The Structure

Superannuation funds have the most generous tax arrangements. If you manage a share portfolio in a super fund, capital gains will be taxed at 10% or 15%. Whereas if you held them privately they would be taxed up to 23.5% or 47%.

Imputation credits are especially valuable in a super fund because the fund pays a flat 15% tax and the 30% tax credit can be used to offset tax on other income.

Be Smart About Timing

To maximise tax benefits, the 45-day and 12-month rules are important. Capital gains are only incurred when an asset is sold and capital gains tax (CGT) can be deferred indefinitely. No CGT would be payable if an investment asset is passed through your estate to future generations.

To avoid CGT altogether, Superannuation provides special opportunities. In the accumulation stage of superannuation, the fund pays tax at 15%. But once a pension is started, the fund pays no tax at all. A share portfolio or a property can be sold once the pension has started and no CGT would be payable.

The opportunity to tax-effectively invest using some of these methods will vary from one person to the next so please make sure you seek advice about how they relate to your own situation. Contact one of our specialist financial advisors for tailored advice on tax benefits you may be eligible for.


This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs. Speak with a tax accounting specialist (such as TBFG) who is up-to-date with applicable deductions, tax law, and business structuring to get you the biggest return on your EOFY tax assessment.