This entry is a personal account of my forays into investing and is not intended to be professional advice in any measure. This year has been a year of many firsts. One thing that I tried out is investing in shares and ETFs. I honestly had no idea where to begin, so I had to do my own research. I am still very much a novice, but over the year I have gained an (elementary) understanding of the ins and outs of starting off. So here is an explanation that I wish my past self had known before starting out.

Buying shares is basically about buying and selling at a particular price which indicates how a company is going. For example, if I buy one Westpac share for $20, and Westpac performs well over the next few months and the value increases to $21, and then I sell it, I will make $1.

Buying Shares

  • I opened a CommSec account, which has brokerage fees (buying or selling) of $10 for up to $1000. Each brokerage platform will create a HIN number for you. CommSec will create a ‘CDIA’ account for you, which you can add and subtract money from. Money used to buy shares will be deducted from this account.
  • There is a minimum $500 per transaction for CommSec, so if a WBC share is $20, I would have to buy at least around 25 of those shares.
  • Prices are ‘fixed’ outside of market hours, so if you place an order outside 10am to 4pm, it will process the next morning.
  • Westpac then proceeded to communicate with me (through letter - I find that I have received so many physical letters in the email), advising me to signup to the share registry called ‘LinktMarketServices’. This platform is ‘hired’ by Westpac (and many other companies) to help individuals manage their shares. On this website, I can provide my TFN for tax purposes (eg so that tax is not withheld).

Buying ETFs

  • ETFs are ‘exchange-traded funds’, which is where funds have selected a particular bundle of shares to diversify your investments.
  • ETFs I have bought include those from Vanguard and on the CommSec Pocket app, which is a great way to start out without spending that much money. For example, the brokerage fee is only $2

Tax time

Investing in shares means I have to fill out more things on my form, rather than just employment income. If I sold my shares and made a profit on them, then that money would contribute to my income tax, and if I crossed the tax-free threshold, I would have to pay tax. I have to individually declare these on my tax return.

Dividends are basically ‘rewards’ that a company pays, from the profits it makes over the year. Distributions are the equivalent for funds.

Now, you might be wondering, do we need to pay tax on dividends?

What are franking credits

In Australia, we have a system called the ‘Australian dividend imputation system’.

When a company makes a profit, it can choose to distribute part of that to shareholders. For example, in 2022-2023, ANZ’s was $46.29.

Now, companies generally pay a fixed 30% on their profits. That means, for he $46.29 per share that ANZ wishes to divide among its shareholders, 30% of that, ie $13.89, has been paid to the government. So I am paid $32.40 (70% of the full untaxed dividend).

This value, being the ‘tax free fraction’ of the dividend is not taxed, if the company has paid its 30% tax on it, to avoid the value being doubly taxed. This is called the franked amount.

However, if my tax rate, for example if I earn less than the tax-free threshold and pay 0% tax, is less than the company tax rate of 30%, given that this section of ANZ’s profit has been given away freely to me, then that dividend shouldn’t really have been taxed at all. Therefore, the remaining amount, $13.89, can be refunded to me in the form of a franking credit. This credit can also be used to deduct from tax if tax is payable.