Allowable deductions from dividend income

Dated: March 2004

If you invest in shares, you may be able to claim as a deduction from assessable income certain expenditure incurred in deriving your income from those shares.

The following are examples of expenses that may be deductible.

Management fees

Where you pay ongoing management fees or retainers to investment advisers, you will be able to claim the expenditure as an allowable deduction. Only a proportion of the fee is deductible if the advice covers non-investment matters or relates in part to investments that do not produce assessable income. You cannot claim a deduction for a fee paid for drawing up an initial investment plan.

Interest

If you borrowed money to buy shares, you will be able to claim a deduction for the interest incurred on the loan, provided it is reasonable to expect that assessable dividends will be derived from your investment in the shares. Where the loan was also used for private purposes, you will be able to claim only interest incurred on that part of the loan used to acquire the shares.

Debits tax

State governments charge debits tax for operating certain types of accounts held with financial institutions such as banks, building societies and credit unions. You can claim a deduction for that part of any debits tax charged on debits from your account used to fund deductible expenses in relation to earning dividend income. If only a proportion of the debit was used to fund deductible expenses, only the same proportion of debits tax is deductible.

Travel expenses

You may be able to claim a deduction for travel expenses where you need to travel to service your investment portfolio—for example, to consult with a broker or to attend a stock exchange or company meeting. You can claim a deduction for the full amount of your expenses where the sole purpose of the travel relates to the share investment. Where the travel is predominantly of a private nature, only the expenses which relate directly to servicing your portfolio will be allowable.

Cost of newspapers and journals

You may be able to claim the cost of purchasing specialist investment journals and other publications or subscriptions which you use to manage your share portfolio.

Internet access and computers

You may be able to claim the cost of Internet access in managing your portfolio. For example, if you use an internet broker to buy and sell shares, the cost of internet access for this purpose will be deductible.

You can also claim a capital allowance (previously known as depreciation) for the decline in value of your computer equipment to the extent that it has been used for income-producing purposes. You cannot claim a capital allowance for the private use portion.

Borrowing expenses

You may be able to claim expenses you incurred directly in taking out a loan for purchasing shares which can reasonably be expected to produce assessable dividend income. The expenses may include establishment fees, legal expenses and stamp duty on the loan. If you incurred deductible expenses of this kind totaling $100 or more, they are apportioned over five years or the term of the loan, whichever is less. If your expenses are less than $100, they are fully deductible in the year you incur them.

Other deductions

Any other expenses that you incur which relate directly to maintaining your portfolio are also deductible. These could include bookkeeping expenses and postage.