Smart Tax Moves
Why ETFs Shine Bright in the Investment Landscape
As we navigate closer to Tax Time, At DP Wealth, we think it's pivotal to spotlight Exchange-Traded Funds (ETFs).
Including ETFs in your portfolio is a strategy that savvy investors are increasingly embracing, recognising the dual benefit of enhanced returns and the potential tax advantages that they offer.
Here are three ways ETFs can potentially serve as tools for managing your tax obligations more efficiently:
1.ETFs offer Lower Capital Gains Tax Liabilities
Understanding the tax efficiency of ETFs and managed funds is crucial for your investment decisions.
Tax efficiency for both investments are mainly affected by trading volume. ETFs, which often follow an index, require less trading — only needed when the index changes. This results in fewer trades compared to actively managed funds, where managers frequently adjust portfolios to pursue higher returns.
For investors, it's important to know that active management can potentially lead to higher capital gains taxes. In contrast, with ETFs, you only face capital gains taxes when you sell your shares. This difference can significantly enhance the long-term appeal of ETFs due to the more favorable tax treatment.
2.Streaming of Capital Gains Tax Liabilities
ETF streaming emerges as an advanced tactic for efficient capital gains tax management. Unlike traditional unlisted funds, ETFs traded on platforms like the ASX streamline tax liabilities for remaining investors when units are sold, transferring tax gains to ‘Authorised Participants’ upon redemption. This structure ensures a potentially smoother, less taxing experience for ETF investors.
3.Franked Dividends
In the landscape of Australian investing, franked dividends shine as a tax-saving beacon. Accompanied by franking credits, they serve to prevent the double taxation of the same income, and in scenarios where your personal tax rate falls below the corporate rate, they can even potentially catalyse tax refunds, increasing your after-tax income.
If you're curious about how ETFs can fit into your tax strategy, let's start a conversation.
At DP Wealth, we’ve experienced firsthand the difference that a well-considered ETF strategy can make come tax time. For us, it’s about working with your accountant and solicitor to leverage every tool at your disposal to meet your financial goals.
Your financial growth is our priority. So, call our office on 4690 2588 for an obligation-free conversation about how ETFs could enhance your investment portfolio and save you at tax time.
This blog is for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any securities. Investing involves risks, including the potential loss of principal. Before investing in any Exchange Traded Fund (ETF), investors should carefully consider the investment objectives, risks and expenses of the ETF and its investment strategy. Past performance is no guarantee of future results, and investment returns and principal value may fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The ETF's Product Disclosure Statement and Target Market Determination contains this and other information about the ETF and should be read carefully before investing. It is general advice only, no consideration has been made for your current circumstances, attitude to risk or goals and objectives. Investors should consult their own financial advisor before making any investment decisions. Andrew Wielandt may hold positions in any ETFs mentioned.
