Getting out of shares and working out taxes

AudioGuy · 13 April 2023

Hi everyone,

In late 2019 I started buying shares with the view of holding them till my retirement with all the dividends reinvested.
However, with the much higher interest rates now, and my accountant charging me much more because I have shares, it means I need to make 7% a year on my shares just to break even.

So I've decided to sell all my shares, but not sure how the taxes will be worked out due to the reinvestment.

Normally if I buy 100 x ABC shares for $X and I sell it for $Y. The difference in $X and $Y minus the fees is my profit and loss. That's easy and I understand that.

However in my case over the last 3 years my ABC shares have gone from 100 to 110 due to reinvestment. How can I tell if the dividends reinvested to buy the extra shares was already taxed or not?

It seems to me to be very complicated, have I misunderstood this, or is there a very easy way to work this out?

This will obviously something my accountant is for, but I would like to know.

TIA

tech/a · 13 April 2023

Find out if ABC pays fully Franked Dividends.
There is your answer. If they do then Tax is
already paid on the dividends.

UMike · 13 April 2023

Not sure why the Accountant charges that much extra.

All I do now is give the accountant the buy and sell dates and $$$.
The rest, by my understanding the Government knows about and is easily accessed by the Accountant.

Used to be so much more to it but now..... The system tracks it so thoroughly.

AudioGuy · 13 April 2023

tech/a said:
Find out if ABC pays fully Franked Dividends.
There is your answer. If they do then Tax is
already paid on the dividends.

How do I do this?
Assuming it is Franked, does that mean I only pay taxes on the original 100 shares?

UMike said:
Not sure why the Accountant charges that much extra.

All I do now is give the accountant the buy and sell dates and $$$.
The rest, by my understanding the Government knows about and is easily accessed by the Accountant.

Used to be so much more to it but now..... The system tracks it so thoroughly.

Sorry, I didn't make myself clear.
The extra the accountant charges for having shares is about 1% the value of my portfolio. However back in 2019 the interest rate on my mortgage was less than 2%, it is now over 6%. So not having this money in my mortgage offset means I'm losing 6%, plus the 1% for the accountant, so I need to make 7% just break even.
Hence I'm selling the shares

UMike · 13 April 2023

AudioGuy said:
Sorry, I didn't make myself clear.
The extra the accountant charges for having shares is about 1% the value of my portfolio. However back in 2019 the interest rate on my mortgage was less than 2%, it is now over 6%. So not having this money in my mortgage offset means I'm losing 6%, plus the 1% for the accountant, so I need to make 7% just break even.
Hence I'm selling the shares

Perfect explanation.
I'll be doing the same. Over the next short while.
My case taking the safer option of paying down all debt plus the builder. If I am right I can always pick up what I sold for less $ down the tract if recession fears are realised. If I am wrong I still relive myself of the interest payments on the borrowed funds.

Answer is the same. Just give the accountant the buy and sell dates and $$$. Dividends and Franking credits are on Government files.

tech/a · 13 April 2023

AudioGuy said:
How do I do this?
Assuming it is Franked, does that mean I only pay taxes on the original 100 shares?

You pay tax on the capital gain on all shares.

Dona Ferentes · 13 April 2023

UMike said:
Not sure why the Accountant charges that much extra..

Each transaction is treated as a line item, for CGT, by the accountant.

DRP is usually small bickies, but you'll be charged the same for each sale, when it comes to doing tax return.

One of the reasons, other than the complexity of record keeping, that saw me drop DRP as a wealth building strategy.

Belli · 13 April 2023

While the ATO is not your friend, it does provide some useful information.

Dividend reinvestment plans | Australian Taxation Office

How tax applies to your dividend if you use it to buy more shares from the same company.

www.ato.gov.au

And I hope you have been retaining appropriate records.

Records you need to keep | Australian Taxation Office

Records you need to show a payment or expense, the format to keep your records in, and how long to keep them.

www.ato.gov.au

The Income Tax Assessment Act places the onus on you to keep necessary records.

AudioGuy · 13 April 2023

I was hoping there would be an easy way to do it, but it seems complicated.

I think I will simply say to my accountant I bought ABC shares for $X and sold them for $Y and the fees were $Z.
I don't believe the accountant will take into account if the dividends were franked, how much taxes I had already paid etc.
But it seems me working out exactly what I got over the years and what I have and haven't paid tax on etc is much more complicated.
The profit is quite small, so the difference won't be worth the effort I don't think.

Thanks for the help everyone

Sir Burr · 13 April 2023

Join Sharesight for a month, add your dates, buys, sells, commission and spit out the capital gains tax and dividends report!

Check numbers in MyGov - tax and fix/add/update if necessary.

Belli · 13 April 2023

AudioGuy said:
I was hoping there would be an easy way to do it, but it seems complicated.

I think I will simply say to my accountant I bought ABC shares for $X and sold them for $Y and the fees were $Z.
I don't believe the accountant will take into account if the dividends were franked, how much taxes I had already paid etc.
But it seems me working out exactly what I got over the years and what I have and haven't paid tax on etc is much more complicated.
The profit is quite small, so the difference won't be worth the effort I don't think.

Thanks for the help everyone

Whoa there, bro. Just because you don't consider it worthwhile, don't think the ATO hasn't the ability to come the heavy if there is a deliberate omission in your tax return.

I'm not telling you what you should or should not do. I don't actually care. It is completely up to you. However, I don't think it is really a good idea to be flippant about the requirements and obligations on you which are in legislation.

AudioGuy · 13 April 2023

Belli said:
Whoa there, bro. Just because you don't consider it worthwhile, don't think the ATO hasn't the ability to come the heavy if there is a deliberate omission in your tax return.

I'm not telling you what you should or should not do. I don't actually care. It is completely up to you. However, I don't think it is really a good idea to be flippant about the requirements and obligations on you which are in legislation.

Sorry, I've once again not made myself clear.
I am no tax accountant, but I have all my tax details with my broker, Chess, ATO, and the share registry. Every share and transaction shows in my tax return automatically each year (70 pages I've been told) and I also use a tax accountant to do my taxes. From that point of view, I don't believe I have been flippant or anything like that.

I wanted to know how everything worked so I can check the numbers to make sure I'm not paying more taxes than I should. However it seems far too difficult for me, so I will leave it to my accountant.

Dona Ferentes · 13 April 2023

Flippant or not ....if you buy an asset, you need to

declare income each tax year (dividends in this case) , and
if you sell the asset(s), then a capital gains/ loss schedule needs to be provided for that FY.

You keep records as stipulated by ATO, and use them for calculations. These can be done by yrself or yr accountant (which incur a cost).

AudioGuy · 13 April 2023

Dona Ferentes said:
Flippant or not ....if you buy an asset, you need to

declare income each tax year (dividends in this case) , and

if you sell the asset(s), then a capital gains/ loss schedule needs to be provided for that FY.

You keep records as stipulated by ATO, and use them for calculations. These can be done by yrself or yr accountant (which incur a cost).

I'm not sure what I'm missing here.
I have kept all my records with all the shares I've bought and sold, and the dividends paid.
They've all been entered in my tax returns each year.
I've gone through each and everything with my accountant each year (and paid for it).
What am I missing?

tech/a · 13 April 2023

AudioGuy said:
What am I missing?

Probably the reason you've engaged an accountant.

Dona Ferentes · 13 April 2023

AudioGuy said:
I'm not sure what I'm missing here.
I have kept all my records with all the shares I've bought and sold, and the dividends paid.
They've all been entered in my tax returns each year.
I've gone through each and everything with my accountant each year (and paid for it).
What am I missing?

I think we're having trouble understanding what you're trying to say.

There's been a slow drip of conflicting info. And 70 pages of transactions!! (If I understand correctly.)

AudioGuy · 13 April 2023

Yes, I think this has run the end of it's course.

I will provide all the details to my accountant so they can work everything out

UMike · 13 April 2023

AudioGuy said:
Yes, I think this has run the end of it's course.

I will provide all the details to my accountant so they can work everything out

Seems to me you are on top of it so don't worry.
Pay off debts is the safest strategy so go with it.

All the best.

dyna · 13 April 2023

Thanks for starting this thread. Hopefully future members will find all these replies , helpful.
My 2 cents worth : It ain't that complicated ! It really isn't .If a dumb-ass ex tradie can do his own tax return , anyone can.
Start with the ATO website. Everything you need to be aware of , to calculate capital gains tax , to understand franked dividends and so on , is all there ,in plain english.
It's already been mentioned that Dividend Reinvestment C.G Tax calculations are a bit of a pain. That's why I prefer to take the cash dividend. However , for share issues and SPP's ( share purchase plans ) I still get caught .So I then have to go through the rigmarole of working out my cost base for each and every parcel when I sell , to determine profit ( or loss ) for the tax return. Therefore keep good records. Tedious it is , but complicated ? Hell no. Junior high school maths , is all I got !
Yes , taking advantage of a mortgage off-set account is a far better investment than mucking about with shares. A risk free 7 % return on your hard-earned wages.
The share market will always be here for you , later on, with the mortgage out of the way.

Belli · 13 April 2023

Dona Ferentes said:
Flippant or not ....if you buy an asset, you need to

declare income each tax year (dividends in this case) , and

if you sell the asset(s), then a capital gains/ loss schedule needs to be provided for that FY.

You keep records as stipulated by ATO, and use them for calculations. These can be done by yrself or yr accountant (which incur a cost).

Yeah. That supercomputer the ATO shares with ASIO, at least I think it's ASIO but could be another high security department, collects an enormous amount of data from share registries, bank transactions, AirBnB, State Governments and other sources, and does a lots and lots of data matching. Not perfect but close and they continue to work to improve it. As it does most of the work there is little additional cost overall to look at even the little fish like me.

Getting out of shares and working out taxes

AudioGuy

tech/a

No Ordinary Duck

UMike

Klutzing in Thai

AudioGuy

UMike

Klutzing in Thai

tech/a

No Ordinary Duck

Dona Ferentes

Pengurus pengatur

Belli

Dividend reinvestment plans | Australian Taxation Office

Records you need to keep | Australian Taxation Office

AudioGuy

Sir Burr

Belli

AudioGuy

Dona Ferentes

Pengurus pengatur

AudioGuy

tech/a

No Ordinary Duck

Dona Ferentes

Pengurus pengatur

AudioGuy

UMike

Klutzing in Thai

dyna

Belli

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