If you hold shares as an investor, two main tax events usually arise. Dividends, and similar receipts, are included in your assessable income in the year you receive them, together with any franking credits you are entitled to. When you sell the shares, or they are otherwise disposed of, a capital gain or capital loss is generally calculated under the capital gains tax (CGT) rules.

If you are carrying on a business of trading shares, the ATO treats the shares more like trading stock. Gains can be ordinary income, and losses and costs can be deductible in the year they are incurred. That is a different outcome, and you cannot choose it only because it would be convenient in a year you made a loss.

This explainer follows the ATO's pages on dividends, the CGT discount, and share investing versus share trading, last updated 22 June 2026. It sits with the Never Lose Interest CGT calculator, the 2027 CGT rule changes, and the ETFs versus managed funds guide, because fund distributions are often taxed in a similar way to dividends and capital gains.

This is general information only. It is not personal tax advice.

Dividends and franking credits

Dividends from Australian companies, and some New Zealand companies, are taxed under the imputation system. Your statement may show franked and unfranked amounts, franking credits, and tax file number amounts withheld from unfranked dividends.

The myTax 2026 instructions say you include as assessable income both the dividend or distribution and the franking credits allocated to you. You also receive a tax offset equal to those franking credits, if you are entitled to them. Excess credits can be refunded after your tax and Medicare levy are met. The integrity rules, including the 45-day holding period once credits reach $5,000, are explained in the franking credits guide.

Unfranked dividends are still income. If tax was withheld because you did not quote a tax file number, that withholding can be credited in your return, and the ATO requires you to add the withheld amount to the unfranked dividend you declare.

Interest on money borrowed to buy shares held to produce dividend income can be deductible in the year it is incurred, for both investors and traders, on the ATO's investing-versus-trading table. The usual tests for interest deductibility still apply, including the use of the funds. See also debt recycling if the borrowings sit behind a home loan.

Managed fund and ETF distributions can include dividends, franking credits, foreign income, tax-deferred amounts and capital gains. Use the annual tax statement. Do not assume that a cash distribution is the same figure you declare, or that an ETF is tax-free because you have not sold any units.

Selling shares: the investor rules

If you hold shares as an investor, the ATO says:

  • the shares are assets and are subject to CGT when you sell them
  • your costs are taken into account at the time you sell
  • a capital loss can offset capital gains, and unused losses can be carried forward, but a capital loss cannot offset income from other sources, such as salary or dividends
  • income from dividends and similar receipts is still included in assessable income

The cost base generally includes the purchase price and incidental costs of buying and selling, such as brokerage, as taken into account when you sell. Keep contract notes and holding statements.

If you are an Australian resident and you have held the shares for at least 12 months, the CGT discount can reduce a capital gain by 50%, after you first apply any capital losses. The official order is important: losses come off the gain before the discount is applied. The CGT calculator follows that current-law method, and also shows a labelled estimate of the rules legislated to apply from 1 July 2027, including indexation and a 30% minimum tax for some gains. Read the old versus new CGT rules if you are thinking about a sale around that date.

A share you inherited, received in a demerger, or acquired before 20 September 1985 can have special cost-base rules. Those are beyond a short general explainer. The ATO's personal investors guide to CGT, and a registered tax agent, are the right places to take those facts.

When the ATO may treat you as a share trader

The ATO's investing-versus-trading page, last updated 22 June 2026, sets out a different treatment if you are a share trader:

  • shares are treated like trading stock in the ordinary course of a business
  • gains are ordinary income
  • losses and costs, including the purchase price, are deductible in the year they are incurred

Dividends remain assessable in either case.

Whether you are a trader is the same kind of question as whether you are carrying on a business. The ATO lists factors that have been taken into account in court cases: the nature and purpose of your activities; repetition, volume and regularity; whether the activities are organised in a business-like way; and the amount of capital invested. An intention to make a profit is not, on its own, enough. A person who invests as a shareholder, to earn dividend income, is not carrying on a share-trading business merely because some shares are later sold at a profit.

The official George example makes that point. George is an accountant with 200,000 shares in 20 companies and a $1.5 million portfolio, bought largely for consistently high dividends. He monitors the portfolio daily, uses financial newspapers and stock-market reports, and subscribes to online analyst news. In one year he sells 20,000 shares over a number of occasions for a $50,000 gain, and he does not sell unless the price has appreciated markedly. The ATO's conclusion is that he is not carrying on a business of share trading, even though the gain and the capital are large, because he purchased the shares to earn dividend income rather than to profit from buying and selling.

If the ATO later decides you have incorrectly claimed trading losses, penalties can apply. If your activities change from investor to trader, or the other way, the treatment of the holdings changes, and a CGT event can occur when assets start being treated as trading stock. Get advice before you relabel a portfolio in a return.

Records worth keeping

  • dividend and distribution statements, including franking credits and any TFN withholding
  • contract notes for buys and sells, with dates, quantities, prices and brokerage
  • annual tax statements for funds and ETFs
  • interest statements if you borrowed to invest
  • a record of corporate actions, such as splits, consolidations and demergers

The dates matter for the 12-month CGT discount and for the 45-day franking rule.

Frequently asked questions

Do I pay tax when I buy shares?

Usually no, apart from any brokerage you pay, which generally sits in the cost base until you sell if you are an investor. There is no stamp duty on ordinary ASX share transfers in the way there is on property, but you should still check any specific product or off-market transfer.

What if I reinvest the dividend?

A dividend reinvestment is still a dividend you need to declare. The shares you acquire generally have a cost base equal to the amount of the dividend applied, subject to the details on the statement. You do not avoid tax by ticking the reinvestment plan.

Are crypto and shares taxed the same way?

Crypto sold by an investor is also generally subject to CGT, and the 2027 changes can apply. The CGT calculator can include crypto, and the crypto tax guide covers the extra events, such as swaps, that shares do not usually involve.

General information warning

This article is general information only. It is not personal financial product advice or tax advice, and it is not a recommendation to buy, sell or hold shares. It does not take into account your objectives, financial situation or needs. The investor and trader tests, franking integrity rules and CGT calculations depend on your facts, and the law from 1 July 2027 will change some CGT outcomes. Consider speaking with a registered tax agent, and confirm the current ATO pages, before you lodge or sell.

Sources

Last reviewed: November 2026.