ATO turns screw on ‘confused’ ETF investors
The Australian Taxation Office (ATO) is taking a stricter approach towards ETF investors, urging them to properly report capital gains, dividends, and distributions from their investments. With the increasing popularity of ETFs and their complex tax implications, the ATO has identified that many investors have failed to accurately report their taxable income from ETFs.
The ATO is cracking down on the everyday ETF investor.
Exchange-traded funds (ETF) are a form of investment distribution that incorporates different components including dividends, franking credits, interest, foreign income, and capital gains. Unlike traditional investment methods such as shares, which are restricted to an investment in one company, ETFs allow an investor to diversify their investments in multiple forms. As the number of ETF investors has continued to rise exponentially (with more than 1.3 million ETF investors over the past 12 years) concerns have arisen over the possible tax implications attached to such investments.
Much of the appeal of ETF investments is their diversification. However, with this comes more complex tax implications and obligations that fall solely on the ETF investor. The Australian Taxation Office (ATO) has highlighted that more than 46,000 Australian taxpayers over the last financial year failed to report capital gains from share sales and income from dividends and distributions from ETF investments. Most ETFs do not pay their own tax. Consequently, it is the responsibility of each investor to adequately determine their taxable income from the different ETF investments. The way in which to correctly do this is to ensure that each individual element of the ETF, for example, dividends, foreign income investment or interest, needs to be separately identified and entered into the correct section on a tax return. Without this, Australian investors run the risk of incorrectly reporting their income to the ATO.
For more information please refer to Duncan Hughes’s article ATO turns screws on ‘confused’ ETF investors ATO turns screws on ‘confused’ ETF investors (afr.com)
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