Investment Income and Deductions: The Basics
If you earn income from investments — shares, managed funds, or rental property — you can also claim the expenses you incur in earning that income. The key principle: the expense must have been incurred to produce assessable income.
Shares and Managed Funds
Dividends and Franking Credits
Australian companies pay tax at 30% (or 25% for base rate entities) before distributing dividends. The tax already paid becomes a franking credit that you can use to offset your personal tax liability.
How it works:
- You receive a $700 dividend with $300 franking credits attached
- Your gross dividend is $1,000 (the cash + franking credit)
- You include $1,000 in your income and claim the $300 franking credit as a tax offset
- If your tax rate is below 30%, you may receive a refund of the excess franking credit
This is why Australian shares are particularly tax-effective for lower-income earners.
Deductions for Share Investors
You can claim:
- Interest on investment loans (borrowings used to purchase shares)
- Margin loan interest (fully deductible if used to purchase income-producing investments)
- Investment advice fees that relate to managing existing investments (not for initial financial planning)
- Subscription fees for investment data services (e.g., stock screeners, research platforms)
- Safe custody fees and account-keeping fees charged by brokers
You cannot claim:
- Brokerage commissions (these are added to your cost base for CGT purposes)
- Costs related to getting tax-exempt income
Capital Gains and Losses
When you sell shares for more than you paid, you have a capital gain. When you sell for less, you have a capital loss.
Key rules:
- Capital losses can only offset capital gains, not other income
- Net capital losses carry forward to future years (they do not expire)
- Assets held for more than 12 months qualify for the 50% CGT discount (residents only)
Example:
- Buy 1,000 shares at $5.00 = $5,000 cost base (+ brokerage)
- Sell at $8.00 after 18 months = $8,000 proceeds
- Capital gain = $3,000; after 50% discount = $1,500 included in income
Rental Property Deductions
Rental property investors can claim a wide range of expenses:
Immediately Deductible (same year)
| Expense | Notes |
|---|---|
| Advertising for tenants | Full cost |
| Property management fees | Typically 7–10% of rent |
| Council rates | Only for periods property is rented |
| Water charges | If you pay them (not the tenant) |
| Landlord insurance | Full cost |
| Repairs and maintenance | Must be repairs, not improvements |
| Interest on investment loan | Only the investment portion |
| Accounting fees | For managing the rental |
| Travel to inspect property | Limited from 1 July 2017 — no longer deductible for most investors |
Depreciated Over Time
- Building depreciation (Division 43): 2.5%/year for residential buildings built after 16 September 1987
- Plant and equipment (Division 40): Carpet, blinds, hot water systems — depreciated over effective life
Important: For properties purchased after 7:30pm 9 May 2017, you can only claim depreciation on new plant and equipment you install yourself — not second-hand items.
Negative Gearing
If your rental expenses exceed your rental income, you have a rental loss. This loss can offset your other income (e.g., your salary), reducing your overall tax.
Example: $20,000 rent received, $28,000 in expenses (including loan interest) = $8,000 loss × your marginal rate in tax savings.
Interest on Investment Loans
Interest is one of the largest deductions for leveraged investors. Rules:
- Fully deductible if the loan purpose was to purchase income-producing investments
- Not deductible for the portion used to buy vacant land or assets not earning income
- Mixed-use loans (partly investment, partly personal): apportion the interest
Keep detailed records of loan purpose, especially if you redrew from your mortgage.
Common Mistakes for Investors
*This guide provides general information based on ATO guidelines for FY2025–26. Capital gains tax and investment deductions can be complex — consult a registered Tax Agent for your specific situation.*
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*Disclaimer: This is general information only and does not constitute personal tax advice. Consult a registered tax agent for advice tailored to your specific situation. Always verify against the latest ATO guidelines at ato.gov.au.*\n\n