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Leveraged Investment Interest & Dividend Received and Paid - CGT or Income/Expense?

Newbie

Views 159

Replies 7

Hi all,

 

My questions are regarding interest and dividends both received and paid in a leveraged investment account, and whether they should be reported under CGT or Interest/Dividends/Deductions. In the EoFY statement summary of the account, they provide the sums of:

  1. trading profit (CGT)
  2. trading loss (CGT)
  3. interest received (?)
  4. dividends received (?)
  5. interest paid (?)
  6. dividends paid (?)

 

I know that 1 and 2 are considered CGT. But I don't know if 3-6 are considered CGT events or not. In leveraged accounts, usually they charge or pay an overnight interest/dividends for any open position(s). Techincally, the interest/dividends paid (5 and 6) are paid for holding the leveraged position(s) overnight.

 

So the questions are:

  • For 5 and 6, are they considered as part of the cost base in the CGT calculation, or something else? If something else, what would it be (e.g. interest/dividends deductions)?
  • For 3 and 4, are they considered as part of CGT, or something else? If something else, what would it be (e.g. interest/dividends income)?

 

Thank you in advance for your assistance!

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Community Support

Replies 6

Hi @alanwsh

 

Just remember that CGT events are the different types of transactions or events that may result in a capital gain or loss.

A capital gain or loss is the difference between what you paid for an asset and what you sold it for. This takes into account any incidental costs on the purchase and sale.

 

CGT wouldn't apply to 3 to 6.

 

Interest and dividends are ordinary income and you can claim a deduction for interest charged on money borrowed to buy investments that you derive assessable interest or dividend income from.

 

Let us know if you have further questions.

 

Ari

7 REPLIES 7

Most helpful response

ATO Community Support

Replies 6

Hi @alanwsh

 

Just remember that CGT events are the different types of transactions or events that may result in a capital gain or loss.

A capital gain or loss is the difference between what you paid for an asset and what you sold it for. This takes into account any incidental costs on the purchase and sale.

 

CGT wouldn't apply to 3 to 6.

 

Interest and dividends are ordinary income and you can claim a deduction for interest charged on money borrowed to buy investments that you derive assessable interest or dividend income from.

 

Let us know if you have further questions.

 

Ari

Newbie

Replies 5

Hi @AriH,

 

Thank you very much for your explanation. 

 

Just to clarify the point about "investments that derive assessable interest or dividend income", what about Short positions that require me to pay dividends to the broker (i.e. 6 - dividends paid)? Can I include this (6) in deductions? 

 

Regards

 

Alan

Newbie

Replies 4

To clarify the above statement, I have no dividend income, but I have "dividends paid" due to short positions. How would that work?

 

Alan

ATO Community Support

Replies 3

Hi @alanwsh

 

Costs involved with acquiring the assets form part of the cost base as the second element. This means the dividends that you pay to your broker form the cost base of the asset.

 

If you receive dividends, how they're reported depends on the type of dividend they are. If they're paid as cash, they're still dividend income.

 

You can read about elements of the cost base on our website.

Newbie

Replies 2

Hi @BlakeATO,

Thanks for your advice.

I assume you are referring to this point under the second element:

  • borrowing expenses (such as loan application fees and mortgage discharge fees)

Doesn't this also mean that interests paid should also be considered as part of the cost base of the asset?

Or should interests paid be claimed under deduction per AriH's advice?

ATO Community Support

Replies 0

Hi @alanwsh

 

We will look into this further and get clarification for you

Community Moderator

Replies 0

Hi @alanwsh 

 

We got some advice about your last question.

 

You can claim a deduction for interest charged on money borrowed to buy investments that you derive assessable interest or dividend income from. You generally only include in your cost base non-deductible interest on loans used to finance the acquisition of a CGT asset.

You don't include interest costs in your cost base if you acquired the asset before 21 August 1991.

 

Hope this helps.