It’s Almost Tax Return Season: Key Insights from Investment Expert Marco Mellado on ABC Radio
As tax return season approaches, the Australian Taxation Office (ATO) has outlined three primary areas of focus this year: rental property deductions, work-related expenses, and capital gains tax. On ABC Radio Melbourne and Victoria, investment expert Marco Mellado shared timely advice on navigating these issues and making the most of this financial period. Here’s a summary of the insights discussed during the program:
1. ATO Focus Areas: What You Need to Know
The ATO routinely highlights areas of concern, and this year is no exception. Key points included:
- Crypto and Capital Gains Tax: Cryptocurrency transactions are taxable and fall under capital gains tax (CGT). Many, especially younger investors, may mistakenly believe crypto operates outside the ATO’s purview. Mellado reminded listeners that the ATO’s data collection systems are highly advanced.
- Work-Related Deductions: Rules for deductions have evolved, particularly for those working from home. The ATO encourages taxpayers to review updated guidelines on their website instead of copying the previous year’s claims.
2. Year-End Portfolio “Weeding”
Mellado introduced the concept of “year-end weeding” to help investors tidy up their financial portfolios:
- Assess Your Portfolio Performance: The global markets have performed exceptionally well this year, with Australian and U.S. markets both up by 15%, and Japan surging by 30%.
- Sell Underperformers: Identify and consider selling underperforming stocks. While it may be emotionally difficult to admit mistakes, selling losers can free up funds for reinvestment and potentially trigger a tax loss to offset gains.
- Avoid Emotional Traps: Investors often sell winners to lock in profits but hold onto losers due to a psychological bias (sunk cost fallacy). Mellado advises reversing this tendency—retaining strong performers and reconsidering underperformers.
3. Strategic Tax Planning: Capital Losses and Wash Sales
When selling investments at a loss, timing is crucial for tax purposes:
- Capital Losses: Selling loss-making shares can offset capital gains. If losses can’t be used this year, they can carry forward for future tax years.
- Wash Sales Warning: Avoid the temptation to sell and repurchase the same stock within a short timeframe to claim a tax loss. The ATO views this as tax avoidance and may impose penalties.
4. Evaluating Specific Investments
Listeners asked about specific stocks and financial strategies:
- CSL’s Performance: While CSL shares dropped recently due to higher costs and currency fluctuations, Mellado emphasized the company’s solid long-term fundamentals. He advised careful consideration before making decisions.
- Retail Sector Dynamics: Companies like Myer are seeing increased turnover, potentially benefiting from consumer budget-conscious behaviour. Mellado noted that inventory improvements and customer service enhancements could further bolster their performance.
- High-Risk Investments: For those seeking higher returns, Mellado suggested allocating a portion of funds to mid-cap or small-cap stocks. These carry more risk but also greater growth potential.
5. Div 7A Loans and Small Businesses
Listeners also raised concerns about Division 7A loans, which regulate shareholder loans in private companies. Mellado stressed the importance of working closely with accountants to ensure compliance and avoid potential tax issues.
Key Takeaways for Tax Season Success
- Stay informed about ATO’s guidelines and focus areas, especially for crypto, work-from-home expenses, and CGT.
- Perform an honest assessment of your portfolio and consider selling underperforming assets to optimize returns and tax outcomes.
- Be cautious with strategies like wash sales, and always seek professional advice when dealing with complex tax scenarios like Div 7A loans.
- Align investment strategies with your risk tolerance, balancing growth potential with financial security.
Tax return season is an excellent opportunity to reassess your financial health and take steps to position yourself for long-term success. Whether it’s tidying up your portfolio, making strategic decisions on tax losses, or exploring new investment opportunities, preparation and informed advice are the keys to staying ahead.
As we navigate the ever-changing financial landscape, there are more questions than ever from everyday investors about their next steps. On ABC Radio Melbourne, Lisa Leong and Remo Greco continue to provide insights into investment choices, financial strategies, and the occasional humorous reflection on their own predictions. Here’s a continuation of the conversation, touching on critical themes from risk management to the enduring challenge of predicting market movements.
ETFs vs. Managed Funds: Know What Works for You
One of the standout questions came from Sarah in Ballarat about ETFs. Exchange-traded funds have revolutionized the way we think about diversification, making it accessible to those without the time or resources to pick individual stocks. As Remo explained, ETFs often replicate indices like the ASX300, meaning you own a small piece of hundreds of companies. The simplicity of ETFs—two dividend checks and minimal paperwork—contrasts starkly with managed funds, where active decisions by fund managers can lead to unpredictable outcomes.
The takeaway? If simplicity, cost-efficiency, and diversification are your goals, ETFs could be a no-brainer. But remember, not all ETFs are created equal. Always check the index they track, their fee structure, and their historical performance.
Selling Stocks for Tax Loss: A Simple Yet Strategic Move
Dina’s question about tax-loss selling highlighted an essential part of tax planning. As Remo pointed out, selling underperforming stocks to offset capital gains is straightforward: you only need the sale and purchase notes to report the loss during tax time. However, timing is crucial. Selling purely to claim a tax loss without considering the stock’s future potential might mean you’re walking away from a rebound opportunity.
If you’re considering this strategy, evaluate whether the stock still aligns with your long-term goals. A tax benefit today might not outweigh the gains you could forfeit tomorrow.
Timing the Market vs. Time in the Market
Greta’s concern about when to reallocate her superannuation funds from cash back into a balanced portfolio underscored a universal truth in investing: predicting market cycles is almost impossible. As Remo aptly put it, trying to guess the timing of a recession—or the next market rally—is a fool’s errand. The better strategy? Focus on asset allocation that aligns with your risk tolerance and long-term objectives.
By staying partially invested in both cash and shares, you can weather the storms of market volatility while benefiting from growth in good years. Missing out on a year of exceptional returns, like the recent 15% market rally, could set you back significantly in achieving your financial goals.
The Tesla Conundrum: Story or Strategy?
Michael’s query about Tesla touched on a broader investment debate: do you invest in a compelling story, or do you stick to fundamentals? Tesla embodies the EV revolution and boasts a first-mover advantage, but it also carries risks associated with overvaluation and competition.
As Remo pointed out, investing in Tesla—or any narrative-driven stock—requires a clear understanding of your beliefs about the future. Do you see Tesla as the long-term winner in the EV space, or are you cautious of its volatility and high expectations? Whichever side you choose, ensure it fits your broader portfolio strategy.
Balancing Risk and Peace of Mind
The recurring theme throughout the program was the balance between risk and peace of mind. Whether discussing ETFs, superannuation, or individual stocks, the message was clear: build a portfolio that lets you sleep at night. That might mean holding a mix of assets, accepting moderate returns, or diversifying through simple instruments like ETFs.
As tax return season approaches, it’s the perfect time to review your financial setup. Are your investments aligned with your goals? Are there underperforming assets you could part with for tax benefits? And most importantly, does your current strategy give you confidence in an unpredictable market?
Stay tuned for more conversations with Lisa Leong and Remo Greco as they delve deeper into the financial topics that matter most. And remember, no matter the advice, always tailor it to your unique circumstances.
