Powered by MOMENTUM MEDIA
subscribe to our newsletter sign up

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

The tax perks of listed investment companies

tax perks of listed investment companies paper pen looking analysing

Much like ETFs, listed investment companies are a way for investors to access a diversified portfolio of assets while offering a number of tax benefits.

Speaking to Nest Egg, Australian Foundation Investment Company general manager of business development and investor relations, Geoff Driver, explained that listed investment companies (LICs) are no different from other companies available through a stock exchange.

“A listed investment company is like any other company that’s listed on the ASX. It’s a company structure in the context of it has capital to invest, but unlike a business like BHP that invests that capital in mines and equipment, we invest our capital into other shares on the exchange,” Mr Driver said.

“Like a company, we report every six months in terms of our profit and declare a dividend, and when we want to raise additional capital, we do so by issuing more shares, through dividend reinvestment plans, share purchase plans or rights issues.”

Advertisement
Advertisement

Given LICs operate exactly the way other companies do, they are taxed at the same 30 per cent rate as large companies, but also offer franking credits to their investors, Mr Driver said.

Additionally, LICs will manage the tax for their underlying investments and pass only an after-tax return, thereby simplifying the tax process.

Where LICs pay tax on capital gains, further deductions are sometimes available to that LIC’s shareholders, Mr Driver said.

When an LIC pays a dividend which includes an LIC capital gain amount, investors are entitled to a deduction of 50 per cent of the dividend amount that is attributed to the LIC’s capital gains, according to the ATO’s rules.

“That’s really trying to place the shareholder in the same basis as if they owned the shares themselves,” Mr Driver said.

“The only wrinkle to that is that it’s not offset against a person’s other capital gains within their own portfolio.”

Mr Driver did note, however, that investors who sell their shares in an LIC will still need to pay tax on those shares’ capital gains.

The tax perks of listed investment companies
tax perks of listed investment companies paper pen looking analysing
nestegg logo
subscribe to our newsletter sign up
FROM THE WEB
Recommended by Spike Native Network
Anonymous - This is nonsense. The dividend imputation and CGT changes will have pervasive effects.....
Peter Stewart - Perhaps the above statement about wealth tied up in the family home may lead to greater use of the Pension Loan Scheme post the 1st July new launch....
TRC - So as Shortons Nett wealth is 61 million, I would imagine he would not be happy about this either as it will hit him too being the top end of town and all......
Anonymous - My 94 y.o. mother is a self funded retiree and never has had any superannuation. Fully franked dividends account for 99% of her $41,000 taxable.......