If you have a savings account, a few shares or money in a managed fund, the income those investments earn is generally taxable, and it needs to go on your tax return. The good news is that banks, share registries and fund managers report most of this straight to the ATO, so a lot of it is pre-filled for you. The catch is that pre-filled does not mean finished. The information can arrive late, be incomplete, or land in the wrong spot, and you are still the one who signs off on the return. Here is what each type of investment income looks like and how to declare it accurately.

Interest from your bank

Interest from everyday accounts, savings accounts and term deposits counts as income in the year you earn it, even if you never withdraw it. It does not matter how small the amounts are. A few dollars here and there across several accounts adds up, and because your bank reports the figures directly to the ATO using your tax file number, anything you leave out tends to show up quickly as a mismatch.

A few things worth knowing:

  • Joint accounts are usually split between the account holders, so declare your share.
  • If you did not give your bank your TFN, it may have withheld tax at the top rate. You can claim that back, but only if you declare the interest.
  • Interest on a tax refund from the ATO is also assessable income.

Dividends and franking credits

When you own shares, the company may pay you a dividend out of its profits. That dividend is income to you. Many Australian dividends are franked, which means the company has already paid tax on those profits at the company rate, and it passes on a franking credit (also called an imputation credit) to recognise that tax.

The way it works in brief:

  • You declare the dividend you received plus the franking credit attached to it. Together these are sometimes called your grossed-up dividend.
  • The franking credit is then treated as tax already paid on your behalf, so it reduces the tax payable on that income.
  • If your marginal rate is lower than the rate the company paid, the excess credit may reduce your overall tax or be refunded. If your rate is higher, you generally pay the difference.

Dividends can be fully franked, partly franked or unfranked. Your dividend statement or annual tax statement sets out the franked amount, the unfranked amount and the franking credit, so keep it handy. If you reinvest dividends through a dividend reinvestment plan, that still counts as income, even though you received shares rather than cash.

Managed fund distributions

Distributions from managed funds and many exchange traded funds (ETFs) are where people most often slip up, because a single distribution can be made up of several different components, each taxed differently. A managed fund distribution might include:

  • Interest and dividend income earned inside the fund
  • Franking credits passed through to you
  • Capital gains the fund realised, which may qualify for the 50% CGT discount if assets were held more than 12 months
  • Foreign income and any foreign tax credits
  • Returns of capital, which can affect the cost base of your units later on

Your fund sends an annual tax statement (often an AMIT or standard distribution statement) that breaks all of this down. Use it carefully and enter each part in the right label, rather than lumping the whole distribution together as one number. These statements often arrive later than your dividend and bank data, which is one reason it pays not to lodge too early.

Why you still need to check the pre-fill

The ATO pre-fills much of your investment income from third-party data, and that is genuinely helpful. But the responsibility for a correct return stays with you. Pre-fill can be missing a smaller holding, can show estimated figures, or can simply not be ready when you go to lodge. Lodging before everything is in is a common cause of having to amend later.

To keep things accurate:

  • Wait until your bank, registry and fund statements are available, then reconcile them against the pre-filled data.
  • Include income from every account and every holding, not just the big ones.
  • Keep your annual statements in one place so the components are easy to enter.
  • Remember that selling an investment can trigger a separate capital gain or loss, which is different from the income you earn while you hold it.

How we can help

Investment income looks simple until you have several accounts, a share portfolio and a couple of funds, each with its own statement and its own mix of income, credits and capital gains. We can reconcile your statements against the ATO data, make sure franking credits and fund components land in the right place, and check nothing has been missed before you lodge.

Book a chat at nebulaaccounting.au or call 0433 822 227.

This article is general information only and does not take account of your personal circumstances — it is not personal tax, financial or legal advice. Tax laws change and apply differently to different people. Nebula Accounting Pty Ltd is a registered tax agent (No. 26259377); please speak with us or check with the ATO before acting.

General Advice Disclaimer: The information in this article is general in nature and does not constitute financial product advice, tax advice specific to your circumstances, or a recommendation to take any particular action. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article, you should consider its appropriateness to your circumstances and seek independent professional advice.