3 Tax Deductions you can make as an investor

Bryce: [00:00:31] Welcome back to another episode of Get Started Investing, a podcast where we attempt to answer the most common money and investing questions from the community. Now, if you're joining us for the first time, a huge welcome. We do strongly recommend that you scroll up and started episode one to get you up to speed, give you all the basics that you need. Now, while we are licensed, we are not aware of your personal circumstances. All information on this show is for entertainment and education purposes only. Any advice is general, particularly in this episode. With that said, let's crack on. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:01:06] I'm good, Bryce. Not as good as you. 

Bryce: [00:01:09] Why is that?

Alec: [00:01:09] Because you love this time of year. 

Bryce: [00:01:13] Textile. 

Alec: [00:01:13] You and Simon. You guys get so excited for people who are unfamiliar. Simon works outside our Equity Mates. 

Bryce: [00:01:21] You would have heard him on the show.

Alec: [00:01:22] Yeah, And Bryce and Simon just get giddy over tax time, deductions and franking credits and spreadsheets. Deals. 

Bryce: [00:01:35] It's all happening deals. Speaking of deals. How's the process going for you moving your savings account? 

Alec: [00:01:41] Oh, Done. 

Bryce: [00:01:42] Nice. Yeah. Tick it off. 

Alec: [00:01:43] So as part of the $100 challenge this month, I was going to move my savings from my poultry. Poultry, poultry.

Bryce: [00:01:57] Like, small. Small. I know. Yeah, yeah, yeah. 

Alec: [00:01:59] 1.95%. CommBank, save up to a juicy 5.5% interest with ING. Done it. Got the orange card.

Bryce: [00:02:11] Well. So nice. You got that wandering around the. It's just got a digital. 

Alec: [00:02:18] I've got both. Okay. One thing that I've noticed is you. If everyone's got a card recently, they now make them vertical.

Bryce: [00:02:25] So they're back on the phone. 

Alec: [00:02:26] They've obviously realised that horizontal wallets aren't a thing anymore. Yeah. And they make them portrait rather than landscape. Fascinating. 

Bryce: [00:02:34] Well, we'll. I can't wait to. Fascinating. I actually had this conversation at the pub with my wife and I showed it and she was largely unimpressed. Honestly unimpressed. I did think it was interesting, though. So we will pick it. Pick that up next week when we revisit the hundred dollar challenge with Sophie and Vic from the Curve. So make sure you tune in to find out how that is all played out. But today, Ren, as you said, we're getting close to the end of the tax year and the financial year 2023, and we get plenty of questions from the get started investing community around tax deductions that you could consider as an investor. It is important to consider because you must speak with a tax professional. Everyone's tax situation is different. So anything that we discuss today should be considered through that lens. 

Alec: [00:03:26] Yeah, I think it's also important to stress that speaking to a tax professional is tax deductible. Yeah, well, preparing your tax return is tax deductible. 

Bryce: [00:03:35] Yeah. And fortunately, if it's the first time you don't get to claim it until the next year. Yeah. Well, if you, if you finish the tax year and then you pay them in July, you don't get to claim it on that tax year and they can't really do it until the financial year end. 

Alec: [00:03:52] So you've got to remember. 

Bryce: [00:03:54] You've got to remember. 

Alec: [00:03:55] Oh, you just go back to the same. 

Bryce: [00:03:56] Yeah, they should be able to do it if you go to the second year. So this episode was triggered by a response to our get started investing email. The link to sign up to that will be in our show notes. Cathy responded with a question she wanted to know as a new investor, it would be great to know all the basics for tax time now. Cathy There are lots of things to consider when it comes to tax time. We're going to focus today on the deductions that you can look at when it comes to investing. 

Alec: [00:04:25] If there's a real groundswell of support, maybe in reply to the next get started investing email or maybe just in our Instagram DMS, I'll let Simon and Brice do a full hour on tax. I will not be involved, but for this episode we're going to narrow the scope, increase the focus, and just look at deductions. 

Bryce: [00:04:44] Yes, deduction. 

Alec: [00:04:45] Deduction you can make as an investor, yes. 

Bryce: [00:04:47] So now we've consulted the ATO website for this. Again, we'll provide the link in the show notes to the website specifically to do with deductions and investments, because it's important that you, you know, take this information from ATO and consider and speak to a tax professional. But the first question, Ren we always get is, is brokerage tax deductible? 

Alec: [00:05:13] Yeah. So yeah, so the answer to the question is no, that is confusing. No, brokerage is not tax deductible. 

Bryce: [00:05:26] Geez you got to be careful. Yeah. 

Alec: [00:05:28] Do not selectively. Important to distress. So you can't deduct what you paid in brokerage from your taxable income. But it does form part of the cost base. It's included in the amount that you spent to acquire the shares. And then when you're figuring out how much capital gain or capital loss you made, you deduct what you receive when you sell the shares from the amount that you spent to acquire the shares, which includes your brokerage cost. And so like really rough back of the envelope maths. If you buy shares for $1,000 and then pay $10 brokerage and then you sell them for $1,100 because the brokerage is included in your cost, you've made a profit of $90, not $100. 

Bryce: [00:06:19] Okay. So Ren we can't we can't do brokerage, but it does kind of come out in the wash when it's factored into your cost base. We're not going to come and just. 

Alec: [00:06:28] Kind of come out of the wash is not the level of specificity we're looking for at this time of year. 

Bryce: [00:06:35] That's true. 

Alec: [00:06:36] It does fall out of your cost base is probably what they would want you to say.

Bryce: [00:06:40] But that's so what's the fun part is understanding what is deductible. So let's go through some of the key tax deductions that you can consider from your share investments. 

Alec: [00:06:53] Yeah. Now this list is from the ATO website, So if you want to read along and the link is in the show notes, but the first one tax deduction from share investments is interest payments. Yeah. So if you borrow money to buy shares or related investments from which you earn dividends or other assessable income, you can claim a deduction for the interest you pay. Now, the principle with a lot of this stuff that the ATO are looking for, you can claim interest expenses that you incur for income producing purposes. So if you get a personal loan and you go on a holiday that's not producing income and so that interest isn't deductible. Yeah, but if you borrow money to buy a house to buy shares, then that is producing income and is deductible. 

Bryce: [00:07:44] A real life example for this Ren is both you and I have or had the NAB equity builder, which was a loan specifically through NAB to go out and buy stocks. And and we did it and there was obviously an interest payment component to that. That interest payment component was tax deductible because the stocks that we'd invested in were income producing. So we were able to claim those interest payments as a deduction from our taxable overall taxable income for that year. So yes, interest payments, if it is for an income producing purposes, they are deductible. 

Alec: [00:08:26] But one more that I came across on the ATO website that I had no idea about and then I found quite interesting quote If you attend an investment seminar about an existing investment, you may be entitled to claim a deduction for the portion of your expenses that relate to earning investment income. So a couple of key caveats there. The important one being about an existing investment. So if you go to a FinFest 2024 and learn about a new stock, I guess that's not deductible. But what if you went to FinFest 2024 and you heard from an expert about a stock you already on

Bryce: [00:09:11] Without giving it advice, it feels like it falls into the bucket of a tax deduction. 

Alec: [00:09:17] Luckily, this is all hypothetical because FinFest 2024 hasn't happened, but it is an intriguing angle for us to explore as we plan FinFest 2024. 

Bryce: [00:09:27] I think it's the same with online courses as well. Like if you're taking a valuation course or courses that add to the management of existing investments, then that can fall in. Yeah, but again, speak to a tax professional because there are obviously nuances with this. 

Alec: [00:09:41] But yeah, it's one of the

Bryce: [00:09:42] Advantages of speaking to someone.

Alec: [00:09:44] It's important to stress that there is that criteria about an existing investment and then there's also a proportion, the proportion of your expenses that relate to earning investment income. Like I don't know how you would apportion like I went to a seminar for a day, I learnt about 20 stocks, four of which I own. Does that mean that 20% of the cost? But it's like, what if I didn't really listen to the other six? 

Bryce: [00:10:08] Anyway, that's why we have a tax professional. Anyway, so we're going to take a quick break. On the other side, we're going to importantly talk about what is not a tax deduction when it comes to your investments. So stick around. We'll be right back. We're talking about tax deductions to consider as an investor. But it is also important tax deductions that you shouldn't consider or that you just cannot do as an investor. We've already spoken about brokerage fees. That's number one. But other transaction costs go into that.

Alec: [00:10:39] That would be things like on your brokerage account, like the.

Bryce: [00:10:43] Holding fee.

Alec: [00:10:44] The monthly inactivity fee that converts it to US dollars. What are the fees to those doing you with. What about like if you were with just two. Yeah. Yeah. That's what it's going to cost like steak off a steak block. Yeah. 

Bryce: [00:10:58] I'm actually not sure about that one.

Alec: [00:11:00] They're on the side of caution. 

Bryce: [00:11:01] on the side of caution. Yeah. 

Alec: [00:11:03] No, just straight to tax profits. 

Bryce: [00:11:05] I spoke to a tax professional. 

Alec: [00:11:07] One thing, I think from the ATO's website that was quite interesting, and I think it's worth pointing out that earlier you said what is deductible? Fees for advice about changes in your investment mix. Here's what's not deductible. Fees for drawing up an investment plan. 

Bryce: [00:11:25] Do the work. You come up with it and then go and speak to someone and they can help you change. 

Alec: [00:11:29] Well, no, but like the assumption in the language of fees you incur for drawing up an investment plan is that you're paying someone to do it. Yeah. So, like in creating the original plan. Yeah. No deductible. Yeah. In changing the plan to deductible. Yeah. And that's why we speak to a professional. 

Bryce: [00:11:45] A rate on that is by, by changing it. You have the investment, you have the assets that are that incurring income at the point of drawing it up. You don't have the assets and you don't have the income. 

Alec: [00:11:57] This is why you are the tax guide. Bryce. Let's leave it on that high note. You are just showing us why you and Simon, the resident tax experts, but not tax professionals. I should be very clear, no self-described tax experts in the equity markets office. Anything else you want to leave the listeners with when it comes to tax time for and. 

Bryce: [00:12:19] Nothing else to leave you guys with in terms of tax. But we do have a couple of online courses available if you're interested in upskilling so you can take a free course if you're a part of the get started investing community. We have a get started investing course or you can become part of the highly rated value Investor program, our VIP course. Register now to take advantage of the current end of financial year promotion, which is $100 off the VIP course. Use code EOFY until the end of June or just sign up for the free get started investing. Plenty of information. We'll put it in the show notes. 

Alec: [00:12:59] Bryce, before we go, we had another question come in on the get started investing email. This one from Denise. She was asking if subscriptions to investment publications are deductible.

Bryce: [00:13:08] Yeah, a common question, I think, one that we answer most years. The short answer is yes, they are deductible. If you're, your income from stocks and investments contributes to obviously your taxable income.

Alec: [00:13:21] And to just quote the ATO website. Yeah. Subscriptions to newspapers and magazines are deductible, provided the subscriptions relate to the production of your assessable income, which is what you said. Quoting the ATO. 

Bryce: [00:13:40] Yes. There you go. Anyway, I think the moral of the story here is make sure that you do speak to a tax professional. It is certainly well worth it. And you can find some pretty good value ones out there. So just do a bit of research and make sure you do take advantage of speaking to a professional. But Ren, we'll leave it there next week. As I said, we continue with the $100 challenge. We've got some guests from the Curve, Victoria and Sophie to help us with some ideas for the month in July. If you have any ideas for the hundred dollar challenge, hit us up on Instagram or reply to the get started investing email, which you can sign up to in our show notes, but we'll leave it there.

Alec: [00:14:20] Sounds good.