Use ETFs prudently with EOFY timing

SMSFs looking to trade their exchange-traded funds (ETF) at this time of the year should carefully consider the tax implications for the fund, according to State Street Global Advisors (SSGA).

During the latest SPDR Bites briefing, SSGA Asia-Pacific global portfolio strategist Thomas Reif said SMSFs needed to ensure they alleviated or avoided end of financial year tax burdens.

“Coming into the end of the financial year, if you’re going to sell an ETF at this time of year, you may want to consider timing, and there are two aspects to timing,” Reif noted.

“Firstly, the long-term versus short-term gains: if you’ve held any shares, including ETFs, for less than a year, you’ll pay double the tax rate you would if you held them for more than a year, and that’s called a long-term capital gains tax cap.

“The impact of that is significant.

“For an SMSF investor, the capital gains tax rate for a short-term gain is 15 per cent and for a long-term gain it’s 10 per cent.”

Secondly, SMSFs needed to consider when exactly the ETF will be sold.

“Are you going to sell it this financial year, with benefits to realise a gain, or might it be more beneficial if you sell it next financial year?” Reif said.

“That’s certainly something SMSF investors need to talk about with their advisers.

“Then, also watch out for the holding period because also at this time of year, it’s the distribution periods for certain ETFs, so you need to make sure you’ve held the ETF for 45 days [in order to be eligible for franking credits].

“They’re the main considerations for SMSF investors.”

He said SSGA suggested taking on long-term investment outlooks.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital