Investment Income and Tax in Australia 2025–26: What Every Investor Needs to Declare
If you hold shares, a savings account, term deposits, or managed funds, the ATO expects you to declare every dollar of investment income on your 2025–26 tax return. With tax lodgement season in full swing, now is the time to understand what counts as investment income, how it’s taxed, and what you can do to make sure you’re not paying more than you should.
This guide covers the key investment income types — dividends and franking credits, interest, managed fund and ETF distributions, and capital gains — and explains how to report them correctly.
Dividends and Franking Credits: How the Imputation System Works
Australia’s dividend imputation system is one of the most investor-friendly in the world — but it only works in your favour if you understand the rules.
When an Australian company pays a franked dividend, it attaches a franking credit representing the company tax already paid on those profits. As a shareholder, you must include both the cash dividend and the franking credit in your assessable income — but you then claim the credit as a tax offset, which reduces your tax bill dollar for dollar. If your franking credits exceed your total tax liability, the excess may be refunded to you.
Example: Your dividend statement shows a $700 franked dividend with a $300 franking credit. You declare $1,000 of dividend income and claim a $300 tax offset. You don’t receive the $300 as extra cash — it offsets tax you’d otherwise owe.
Unfranked dividends carry no credit and are simply included in your income at face value.
The 45-Day Holding Rule
You must be a “qualified person” to claim franking credits. The main requirement is that you hold your shares at risk for at least 45 days (or 90 days for certain preference shares), not counting the days of acquisition and disposal. Days when you’ve hedged or reduced your exposure to price movements may not count.
Good news for smaller investors: If your total franking credits for the year are less than $5,000, you’re generally exempt from the 45-day rule. However, the related-payments rule can still deny credits if you’ve passed the dividend benefit to someone else.
Dividend washing — buying shares just before a dividend to capture the franking credit, then selling immediately — is an integrity rule the ATO actively monitors. Don’t do it.
Reporting Dividends on Your Return
Your dividend statement will show unfranked dividends, franked dividends, franking credits, and any TFN amounts withheld. Report each component in the correct field. Joint shareholders report only their own share.
Important: ETF and managed fund distributions that include franked income are not reported in the Dividends section — they go under Managed Funds using your annual statement.
Interest Income: Savings Accounts and Term Deposits
All gross interest from savings accounts, term deposits, and fixed-interest securities must be declared at item 10 of your tax return. The ATO receives this data directly from financial institutions and pre-fills it in myTax — but pre-fill is an aid, not a guarantee.
Pre-filled data can be incomplete if your bank hasn’t yet reported, if data failed quality checks, or if the ATO couldn’t match it to your record. Always reconcile your bank statements against what’s pre-filled before lodging.
Joint Accounts
For jointly held accounts, the ATO generally pre-fills amounts based on the ownership split reported by your bank. If the split is wrong, you can adjust it in myTax — and you should also contact your bank to correct their records.
Deductions Against Interest Income
You may be able to claim eligible expenses incurred in earning interest income — such as account-keeping fees or interest on money borrowed to invest. These are claimed at question D7 of your return.
Note for 2025–26: ATO General Interest Charge (GIC) and Shortfall Interest Charge (SIC) incurred on or after 1 July 2025 are no longer tax-deductible. This is a new rule that affects investors who’ve had tax debts.
Managed Funds and ETFs: Two Separate Tax Events
Investing in managed funds or exchange-traded funds (ETFs) creates two distinct tax obligations that many investors confuse:
- Annual distributions — the income components attributed or distributed to you each year
- Capital gains or losses — when you sell, gift, or otherwise dispose of your units
Reporting Distributions: Use Your Annual Statement
Your fund or ETF will issue either an AMMA statement (for AMITs) or a Standard Distribution Statement (for non-AMITs). These statements break down your distribution into tax components — interest, dividends, franking credits, foreign income, capital gains, and deductions — and map them to specific labels on your tax return.
Critical rule: Report the components from your statement, not just the cash you received. A distribution reinvestment plan (DRP) doesn’t defer tax — if your distribution was reinvested in new units, you still declare the full distribution amount. Record the reinvested amount as part of the cost base of your new units for future CGT purposes.
ETF and managed fund distributions are assessable in the income year to which they relate, even if the cash arrives after 30 June.
Capital Gains on Disposal of Units
When you sell ETF units or managed fund units, you calculate a capital gain or loss separately from your distributions. A paper loss — where the market value has fallen but you haven’t sold — cannot be claimed.
If you held the units for at least 12 months before disposal, you may be eligible for the 50% CGT discount, which halves your taxable capital gain.
Capital Gains Tax: The Basics for Share Investors
Selling shares or ETF units triggers a CGT event. The gain or loss is reported in the income year of disposal.
The Correct Order of Calculation
- Calculate all capital gains and losses for the year
- Apply current-year capital losses against current-year gains
- Apply any carried-forward net capital losses from prior years
- Apply the 50% CGT discount to remaining eligible gains (assets held 12+ months)
Tip: If you have both discountable and non-discountable gains, apply your losses against the non-discountable gains first — this maximises the benefit of the CGT discount.
Capital losses cannot offset ordinary income like salary, interest, or dividends. Unused losses carry forward indefinitely and must be used in the order they were incurred.
ATO Pre-Fill and Data Matching: Don’t Rely on It Blindly
The ATO receives investment data from banks, share registries, and managed funds — and pre-fills much of this into myTax. But managed fund and trust data may not appear until the fund has lodged its own return and the ATO has matched it to your record.
If the ATO detects a discrepancy through data matching, you may receive a letter asking you to confirm your investment income. You’ll generally have 28 days to respond with supporting records. If the fund reported incorrectly, ask the fund manager to issue an amended statement.
Always keep your own records: dividend statements, bank statements, AMMA statements, and transaction records for at least five years after your return is processed.
Smart (and Legal) Ways to Manage Investment Tax
Tax planning around investments is legitimate — but it should never override sound investment decisions. Here are some lawful strategies worth discussing with your tax adviser:
- Timing disposals: The year you sell determines when the gain or loss is reported. Timing a genuine sale before or after 30 June can shift it to a different tax year.
- The 12-month rule: Holding an asset for at least 12 months before selling makes you eligible for the 50% CGT discount — a significant saving.
- Using capital losses: Realised losses can offset current or future capital gains. Consider whether crystallising a loss before year-end makes sense.
- Franking credit eligibility: Be aware of the 45-day holding rule before trading around dividend dates.
- Investment deductions: Keep records of eligible expenses — account fees, borrowing costs — that can be claimed against your investment income.
2025–26 Tax Rates at a Glance
Investment income is added to your other income and taxed at your marginal rate:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
Plus 2% Medicare levy. The 16% rate drops to 15% from 1 July 2026 — but that doesn’t apply to your 2025–26 return.
Sources
- ATO — Refund of franking credits for individuals
- ATO — Dividends 2026 (myTax instructions)
- ATO — Exchange traded funds
- ATO — Managed fund or trust distributions (myTax 2026)
- ATO — CGT discount
- ATO — Using capital losses to reduce capital gains
- ATO — Tax rates — Australian residents 2025–26
- ATO — Interest income deductions (D7)
Get Expert Help with Your Investment Tax Return
Investment income can be surprisingly complex — especially when you’re juggling dividends, ETF distributions, capital gains, and franking credits across multiple accounts. Getting it wrong can mean paying too much tax, or attracting unwanted ATO attention.
TaxServe Australia’s registered tax agents are here to help. Whether you’re a first-time investor or managing a substantial portfolio, we’ll make sure your investment income is reported correctly and that you’re claiming every deduction and offset you’re entitled to.
Contact TaxServe Australia today to book a consultation or get started on your 2025–26 tax return.