Tax time can be stressful, especially if you invest in ETFs. While ETFs are known for being low-cost and tax-efficient, there’s still tax on ETFs and a few common traps that can catch investors out.
From missing income to forgetting cost base adjustments, here are the five most common ETF tax mistakes and how to steer clear of them. Plus, how Stockspot makes completing your ETF tax return simpler with one consolidated tax report.
1. Forgetting to include capital gains distributed by your ETF
Many investors assume that if they didn’t sell any ETF units during the year, they won’t owe any capital gains tax. But that’s not always true.
ETFs can pass on capital gains to investors when the fund manager sells shares or other assets within the fund. These gains are distributed to you and need to be included in your tax return, even if you didn’t receive the income as cash.
Your annual tax statement from each ETF shows any capital gains you need to report. If you miss them, you could underreport your income and run into trouble with the ATO.
If you’re with Stockspot, we make this easy by combining all your ETF holdings and giving you one total capital gains figure to include in your return.
2. Not claiming franking credits from ETFs
If you invest in Australian shares through an ETF, some of your distributions may include franking credits. These are tax credits from company profits that have already been taxed, and they can reduce your tax or even result in a refund.
To claim them, you need to include both the dividend income and the franking credit amount in your tax return.
Your ETF tax statement will usually show this breakdown, but it’s your responsibility to enter it correctly.
With Stockspot, we do the work for you. We combine all your ETF franking credit information and present it as one simple figure in your annual tax statement.
3. Overlooking capital losses from past years
Capital losses from previous years can be carried forward and used to offset capital gains. This can help reduce your tax bill, but many investors forget about losses they’ve recorded in past years or don’t realise they’re still eligible to use them.
You can usually check your carried-forward capital losses through your myGov account, but it’s smart to keep your own records too.
That way, when you sell ETFs or receive a capital gain distribution, you can apply those past losses and reduce the tax you need to pay.
4. Ignoring AMIT cost base adjustments
Most Australian ETFs are structured as Attribution Managed Investment Trusts (AMITs). Under this structure, there may be cost base adjustments each year if the income attributed to you doesn’t match the cash you received.
If the attributed income is more than the cash received, your cost base increases. If it’s less, your cost base goes down. These adjustments affect how much capital gain or loss you declare when you sell.
Your annual tax statement will show any cost base adjustments, but you’ll need to update your records to reflect them.
At Stockspot, we take care of this for you. We track all cost base adjustments and include them in your consolidated tax report, so you don’t need to dig through old statements.
5. Forgetting to include reinvested distributions
If you’re enrolled in a Distribution Reinvestment Plan (DRP), your ETF uses your distributions to automatically buy more units. You don’t receive cash, but the amount reinvested still counts as income and must be included in your tax return.
These reinvestments also increase your cost base, which helps reduce any capital gains when you sell.
Many investors forget to include reinvested income or don’t record the adjusted cost base, which can lead to tax errors.
Stockspot keeps track of this for you and includes both the income and the adjusted cost base in your annual statement.
ETF tax calculation made easy with Stockspot
ETFs are one of the easiest and most efficient ways to grow your wealth. But when it comes to tax, they can still be complicated if you’re managing it all yourself. From hidden capital gains to franking credits and AMIT adjustments, it’s easy to make mistakes or miss important details.
Each year, we give you a single, easy-to-read tax statement with everything you need to complete your return. No logging into Link Market Services, Computershare, or digging through emails for old PDF statements. No spreadsheets or manual calculations.
Just one clean report with all your income, franking credits, capital gains, cost base adjustments, and reinvested distributions. So you can spend less time stressing at tax time… and more time growing your wealth.
