The Australian Taxation Office (ATO) may not be one of the most-loved government agencies, but I'd say it is very useful for investors.
We may think of tax time as a burdensome task, but the ATO (and government policies) have made doing a tax return something I (mostly) look forward to.
There are a number of reasons to like working with the ATO (and perhaps a tax agent/accountant). Let me explain why I'm such a fan of doing my tax return.
Tax refunds from the Australian Taxation Office
I like receiving money I hadn't accounted for in my personal finances. Tax refunds are a great cash flow boost which can be saved, invested or spent.
According to H&R Block, over 14 million people lodge a tax return annually in Australia.
Around two-thirds of Aussies receive a refund when they lodge a tax return.
In 2022, people who used a tax agent received an average refund of $3,550, while people who prepared the tax return themselves received an average refund of $2,576.
For many people, receiving a tax return is a substantial boost to their finances.
Investor-friendly benefits
There are a couple of very useful benefits that Aussie investors can receive in their tax return.
The first is franking credits. When Australian companies pay income tax to the ATO on franked dividends, they generate franking credits. Those credits can be attached to dividends paid to shareholders, which are reported to the Australian Taxation Office.
Franking credits either reduce how much tax someone pays or some/all of the franking credits can be refunded if the taxpayer is in a lower tax bracket (or doesn't pay tax at all).
The other pleasing aspect for investors is the capital gains tax discount. If an investor sells an asset for a gain they've held for at least 12 months, they can halve the taxable gain (after utilising any tax losses first).
This essentially means that investors who have made a gain can essentially halve the tax they owe to the ATO for that asset sale. That's very useful compared to other forms of taxable income.
Pre-fill
The ATO is trying to make it as easy as possible for Australians to lodge their tax returns.
While the Australian Taxation Office doesn't know all of our expenses, it's getting increasingly good at knowing our income and helps us out by pre-filling our tax return with as much information as it's aware of.
That can include things like wages, bank interest, dividends and the knowledge of an asset sale.
Some investors may receive dividends from a lot of different sources, such as BHP Group Ltd (ASX: BHP), Vanguard Australian Shares Index ETF (ASX: VAS) and many more, so having all of that information pre-filled is very useful. But, just be aware that it can take a few weeks/months for all of the dividend and distribution information from the smaller companies to be available on the pre-fill report.
The less time we need to spend on administration, the more time we can devote life (and researching investments) instead.
