Tax on Investment Income in Australia: Shares, Property & Interest

Dividends from Australian shares are included in your taxable income and taxed at your marginal rate. However, Australia's imputation system means that tax already paid by the company (the corporate tax rate of 30% or 25% for small companies) is passed to shareholders as franking credits.

A fully franked dividend of $700 carries franking credits of $300 (at the 30% rate), meaning you include $1,000 in your taxable income but receive a $300 tax offset. If your marginal rate is 30%, no additional tax is payable. If your rate is above 30%, you pay the difference.

If your rate is below 30% (or zero, for low-income earners), you receive a refund of the excess franking credits. This makes Australian shares particularly tax-effective for low-income earners, retirees, and self-managed super funds in pension phase — who can receive franking credit refunds that effectively result in tax-free dividend income.

Here's the thing. When you sell shares, ETFs, managed funds, cryptocurrency, or other CGT assets for a profit, the capital gain is added to your taxable income. If you held the asset for at least 12 months, you receive the 50% CGT discount — only half the gain is taxable.

For example, selling shares for a $10,000 profit after holding them for two years means only $5,000 is added to your taxable income. At a 37% marginal rate, the tax would be $1,850 (effective rate of 18.5% on the full gain). Capital losses can be offset against capital gains in the same year, and any excess losses can be carried forward indefinitely.

You can't offset capital losses against ordinary income. The timing of selling assets can significantly affect your tax — if you've both gains and losses, strategically realising them in the same year reduces your overall CGT liability. Share investors should keep detailed records of buy prices, dates, and brokerage costs.

Rental income from investment properties is included in your taxable income at your marginal rate. You must declare all rental income including bond money retained, insurance payouts for lost rent, and any non-monetary benefits received.

Against this income, you can deduct all costs of earning the rent: mortgage interest, property management fees, council and water rates, insurance, repairs and maintenance, depreciation, advertising for tenants, and body corporate fees. If your deductions exceed your rental income (negative gearing), the loss reduces your other taxable income. When you eventually sell the property, you pay CGT on the capital gain with the 50% discount if held for at least 12 months.

Let's break this down. The combination of annual deductions during the holding period and the discounted CGT on sale makes investment property one of the most tax-effective investment structures in Australia.

Interest earned on savings accounts, term deposits, and bonds is fully taxable at your marginal rate with no concessions or discounts. Banks report your interest income directly to the ATO, so it's automatically pre-filled in your tax return.

For someone earning $90,000 in salary and $3,000 in bank interest, the interest is taxed at the 30% marginal rate plus 2% Medicare levy, resulting in approximately $960 in tax on the interest. This is why high-interest savings accounts are tax-inefficient for higher-income earners compared to other investments. After tax, a 5% savings rate becomes approximately 3.2% for someone in the 37% bracket.

Mortgage offset accounts avoid this problem entirely — the interest saving on your mortgage is not considered taxable income, making offset effectively a tax-free return. This is one reason financial advisers often recommend paying down mortgage debt before building large savings account balances.

The ATO treats cryptocurrency (Bitcoin, Ethereum, and all other digital assets) as property, not currency, for tax purposes. This means every disposal — selling for fiat currency, trading one crypto for another, spending crypto to buy goods or services, and gifting crypto — is a CGT event.

Quick reality check. You must calculate the capital gain or loss on each transaction. The 50% CGT discount applies if you held the crypto for at least 12 months. Mining and staking rewards are treated as ordinary income at the time they're received, valued at the market price on the date of receipt.

DeFi transactions (lending, liquidity providing) can trigger complex tax events. The ATO has sophisticated data matching with Australian crypto exchanges and has publicly stated it's focusing on crypto tax compliance. Use dedicated crypto tax software (like Koinly or CryptoTaxCalculator) to track your transactions and generate tax reports.

Most investment income is pre-filled in your tax return through ATO data matching — banks report interest, share registries report dividends, and super funds report contributions. However, you should always verify the pre-filled amounts against your own records, as errors can occur.

Capital gains from share sales are not pre-filled and must be calculated and reported manually. You need to report each CGT event, the cost base, the sale proceeds, and apply the discount if applicable. Rental income and expenses are reported on the rental property schedule.

If you've multiple investment types, consider using a tax agent who specialises in investment tax — the cost of the agent is tax-deductible and their expertise can identify deductions and strategies you might miss. Use our Tax Calculator to estimate how your investment income affects your overall tax position. Simple as that.