Q: How Much Tax Do I Pay On Share Dividend Income?
Kyle’s Answer:
I’ll just focus on investment income and ignore capital gains (profit from selling an investment at a higher price).
In Australia, the higher your income the more tax you pay and the higher the % you pay.
Everyone has what’s called a “marginal tax rate” which is the “tax bracket” you’re in and determines what rate your next dollar earned will be taxed at.
For example, if you have earned $18,200 so this tax year and you earn $1 tomorrow, that extra dollar will be taxed at 21 cents (21%).
| Income/tax bracket | Marginal tax rate |
| $0 – $18,200 | 0% |
| $18,201 – $37,000 | 21% |
| $37,001 – $90,000 | 34.5% |
| $90,001 – $180,000 | 39% |
| $180,000 + | 47% |
The rates above are applicable for most people and include the Medicare Levy but it doesn’t include additional “tax” to repay HECS (student debt). Depending on your situation, your rate may be slightly different due to these and tax offsets that you may get.
So why is tax relevant to you?
Let’s say you earn $70,000 in income from your job and have no tax deductions. This means you have a marginal tax rate of 34.5% (see above). So, you pay this rate on every additional dollar earned until you hit the next tax bracket.
If you have a share portfolio or cash account and earn dividends or interest of $1,000 you will pay tax of $345 ($1,000 x 34.5%) and keep the rest $655 ($1,000 – $345).
Sometimes, if you’re really close to a tax bracket your investment income could push you into the next tax bracket. For example, if you earn $89,500 and earn $1,000 in investment income, $500 will be taxed at 34.5% and $500 will be taxed at 39%.
Additional income is always good and although you pay a higher tax rate, you will be better off in 99% of cases. I won’t go into detail today but there are a few exceptions to this rule that comes about from things like HECs repayments and Medicare Levy Surcharge, which may impact your tax bill if you have a high income and don’t have private health insurance.
This also assumes dividend income is unfranked, which I explained here: What’s The BIG Deal With Franking Credits?
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