Make time for your tax check-up

Careful attention to the after-tax outcome of our investments can make as much difference as 1 to 2 per cent a year.

Careful attention to the after-tax outcome of our investments can make as much difference as 1 to 2 per cent a year.

It may not sound like much, but when the risk-free rate of return is close to zero and expected investment return ranges are in single digits, 1 to 2 per cent is very meaningful indeed. Here’s a checklist for this year:

Tax Credits

Some important tax data has already been available to investors throughout the tax year.

All franked dividends are paid with the attached franking credits shown on the distribution statement. But for stapled securities (a combined share in a company with a unit in a trust) and managed funds, it is more often the annual tax statement which will disclose the franking credits as well as other tax components such as deferred income.

In addition, distributions that have had foreign tax credits or withholding tax applied also clearly state those amounts in the distribution statements and/or AMMA statements for inclusion by tax preparers and these should not be overlooked.

To avoid having to wait until the end of the year to claim these credits, investors need to be diligent in advising share registries of entity tax file numbers and in completing and submitting numerous forms such as the FATCA (Foreign Account Tax Compliance Act) and the US W-8 BEN forms. This might involve annoying administration but it is worth it.

Don’t overlook other potential tax benefits such as early stage venture capital limited partnerships incentives where investors receive a 10 per cent non-refundable carry-forward tax offset on investments made.

Realised gains and losses

 The timing of realised gains and losses in investment portfolios is also at the discretion of the investor who is making the decisions about the retention and re-sizing of their investments regularly.

Alert investors understand the disadvantages of realising capital gains in the first 12 months of their asset ownership. Careful investors and good advisers are also well aware of the cumulative capital gains position as each tax year progresses.

Asset ownership

Central to the ultimate after-tax returns of our investment portfolios is matching asset types to asset ownership entities. Careful attention to the change of tax status in a self-managed super fund from accumulation to pension phase can also materially impact after-tax returns.

Sue Dahn is a partner at Pitcher Partners and a member of the Barron’s Australia’s Top Financial Advisers List for three years.