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Help on Clarifying Tax Status of Distributions

Discussion in 'Accounting, Tax & Legal' started by Tim, 13th Mar, 2007.

  1. Tim

    Tim Well-Known Member

    Joined:
    27th Jun, 2006
    Posts:
    111
    Location:
    Lismore NSW
    Hello,

    I am trying to find out if distributions by way of dividends from both shares and managed funds are automatically reinvested (DRP), are they still treated as income for tax purposes for the applicable financial year, or are they considered as reinvested and therefore capital gain at the time that the asset is realised in the future.

    Thanks,

    Tim
     
  2. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Income.

    You are deemed to have received them. Any reinvestment is seen as new funds.

    Cheers,
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Simon is correct.

    This is one of the most common misconceptions I've seen about how dividends/distributions work ... having them automatically reinvested does not change the tax status - you are still liable for the tax on that income.
     
  4. masterjunko

    masterjunko Member

    Joined:
    21st Dec, 2006
    Posts:
    16
    Location:
    Sydney, NSW
    Biggest headache is when you sell them. Because all these re-invested units are of different price and time try to work out the amount of CGT payable is a pain...
     
  5. Tim

    Tim Well-Known Member

    Joined:
    27th Jun, 2006
    Posts:
    111
    Location:
    Lismore NSW
    Thanks everyone for the replies,

    that clarifies the situation and I thought it would be the case but wasn't sure.

    Luckily the shares and managed funds statements provide annual tax statements otherwise it would be a nightmare to work out.

    Thanks very much,

    Tim