Exchange Traded Funds (ETFs) are a popular investment choice for individuals looking to grow their wealth. If you have downloaded the CommSec app or started using another investment platform, you probably have already noticed ETFs in your investment options. Although easy to buy and sell, ETF tax implications can be tricky, so this month we have broken down ETFs into simple terms so you understand what the ATO will be expecting from you at tax time.
What is an ETF?
An ETF is a type of managed fund that trades on stock exchanges like the Australian Stock Exchange. Instead of owning individual assets like shares or bonds, when you invest in an ETF, you own units in a trust that holds those assets.
Note: Not all managed funds are ETFs, for more information on tax implications for managed trusts, contact us to make an appointment with one of our tax advisors.
ETFs and ATO requirements
If you have invested in an ETF during the tax year, when submitting your tax return, the ATO requires you to declare:
- income from your ETF that comes as a distribution
- income from your ETF that you have opted to reinvest into a distribution reinvestment plan – this means you need to declare distributions even if you haven’t received money from the ETF
- any capital gains or losses when you sell or dispose of any ETF units for capital gains tax (CGT) purposes.
You can also claim franking credits and foreign tax offsets if your ETF invests in companies that have already paid tax.
The ATO has a great overview on ETFs, but it’s a little disjointed when it comes to finding what you need. The general overview of ETFs is here, and attribution managed investment trust (AMIT) taxation starts here.
How do I find ETF details for my tax return?
ETFs usually provide a tax statement, also known as a:
- year-end or annual statement
- member statement
- Standard Distribution Statement, or
- Attribution MIT Member Annual statement.
ETF tax statements are normally provided between August and September. These statements provide the amounts you need to report and shows where to include them in your income tax return. This may include interest, dividends, foreign income, franking credits, foreign income tax offsets, and capital gains distributed by the ETF.
If you don’t receive a statement, you can:
- contact your ETF and ask them to send it to you
- use your records and do some research to ensure you capture all taxable income (see below).
Important tips for ETF investors
Don’t rely on CommSec reports or transaction listings
Most ETFs in Australia are classified as AMITs. This structure simplifies tax reporting by allowing ETFs to “attribute” income to investors for the relevant financial year, even if the income hasn’t been physically paid out yet.
For example, you might see distributions announced in June but paid in July. These payments still belong to the previous tax year, thanks to AMIT rules. However, this means tools like CommSec or ATO prefill reports might not capture all ETF-related income correctly.
This is why we ask clients to provide the ETF tax statement even if they have provided us with the transaction listing or a CommSec report, and why these statements are crucial in preparing your income tax returns.
For specific information on AMIT reporting requirements visit the ATO website.
How to declare foreign ETFs
Foreign-domiciled ETFs don’t issue Australian tax statements. Instead, you’ll need to report income as foreign income and may be eligible for Foreign Income Tax Offsets.
Reinvestment plans and declaring distributions
ETFs can also have distribution Reinvestment Plans. If distributions are reinvested, they’re still taxable and need to be allocated to the relevant financial year (in accordance with AMIT taxation), not the year in which the reinvestment occurs.
Do your research first!
ETF taxation can get complex. Distributions, cost base adjustments, and AMIT rules mean it’s vital to stay informed. Failing to report correctly can lead to errors or the need to amend your tax return later.
If this still sounds overwhelming, don’t worry. We’re here to help you navigate your ETF investments and their tax implications. Whether you need assistance with tax statements or understanding distributions, feel free to reach out.
