Klevah™ - How to Own Shares

How to Own Shares

Know what you want? Here is how to own it.

There may be many steps, but each is small.

All of us were at this stage back in the day.

Back to Home Buy in Finding a Platform
Getting a HIN Using a TFN Share Trades
Fat Fingers Paperwork Share Registeries
Records ATO Children Baby Strategy

Buy in

₱ So, you’ve decided to buy. There are a number of details you will need to get right. Once you are on top of them it will be easy to maintain your portfolio. You can set and forget except for tax time. A larger portfolio is no more difficult to manage than a small one. The only major issue for a growing portfolio is a potentially growing tax bill to account for. Paying more tax should be regarded as a good thing if it flows from greater success.

₱ Once you have decided what to buy, when and how much, you will need to find a platform to buy your shares on. You can sell your shares in the same place.

Finding a Platform

₱ A share trading platform provides access to buying and selling shares on the stock exchange. This allows you to trade in shares without have a licenced financial advisor doing so on your behalf. It leaves you on your own, without tailored advice, but it is far cheaper. Take note of the brokerage costs of various platforms before opening a share trading account with one. Some examples of share trading platform providers are CommSec, IG, NABtrade, CMC, and Westpac Share Trading. There are many others. CommSec is the most popular share trading platform in Australia. You open an account with them and then deposit enough money to buy what you want.

₱ More on buying and selling shares below. There is a lot of information available on the platforms’ websites that may assist you once you have made an account. Some platforms may provide useful summaries of your investments after the end of the financial year to help you do your taxes. You also need to learn how to use their site and make trades. There is no urgency to make a purchase right away before you are comfortable.

Getting a HIN (Holder Identification Number)

₱ It is important that you decide whether to choose a platform that allows your holdings to be held in your own name, or in the platform’s. This distinction is referred to as being CHESS-Sponsored or not. If you are CHESS-Sponsored then you own the shares directly in your name and you get a HIN to apply to your shareholdings. This is a number that the Australian Stock Exchange uses to attach your holding to your name so that you solely own them. It has an X in front of it. Check whether your preferred platform uses HINs before joining them and, if it does, make sure that you have it in place before buying shares.

₱ Your HIN allows you to switch between platforms easily, should you wish to, because the shares are entirely yours. That includes switching to a profession Financial Advisor if you wish to down the track. Some people feel more secure about direct ownership of such important assets. Otherwise, you may have an arrangement where the platform owns the shares on your behalf. That gives them a bit more control. Keep your HIN handy for shares paperwork. The platforms that do not offer direct ownership may provide other benefits such as better tax information for tax time.

Using a TFN (Tax File Number)

₱ Giving your Tax File Number to your platform from the very start allows them the transfer it to the entities in which you buy shares. You can check that it has gone through on the Share Registry - click here.

₱Submitting your TFN allows information about your dividends, distributions, capital gains and any other tax events to be automatically sent through to the Tax Office. These details should be checked for accuracy on your Tax Return but it is very convenient to already have them there. It does take some time for these items to appear in the portal.

Share Trades (Buying and Selling)

₱ Trading can only occur on the ASX between 10am and 4pm on business days. You can put the trade order on at current market prices to complete the transaction whatever the current price is. It is possible to set up a trade to happen at the start of the trading day if you are too busy working to do so in those hours. There are other options but it is best to keep it simple. The price may change significantly between trading days, especially if there have been major financial headlines in the USA overnight. Obviously be careful when making trades.

₱ Your platform should have educational material on how to use their system. Ensure you have the right ASX code for the investment. When investing a dollar amount, divide the amount by the current price per share of what you are investing in to find out how many shares you wish to buy. When selling a dollar amount, do the same calculation to see how many shares to sell to raise the right amount of money. Make sure you are on the right screen in terms of whether you are buying or selling. Factor in brokerage to the calculations. Note that prices for shares will be 20 minutes delayed in most places you can easily find them including the ASX website itself. Your platform may have live prices that you should use. Be aware that prices can fluctuate a lot. You will need to transact in each type of share individually.

Fat Fingers

₱ If you make a mistake, you cannot undo the trade if it has been completed, but you can reverse it by making the opposite trade at cost to you. If you are extremely fast you might be able to cancel it immediately after putting it on but that is unlikely. Try not to stress too much if you make an error and carefully calculate how to put it right. Remember that you will not end up with as much as you wanted due to the extra brokerage for the second trade to fix it. Also remember that the market prices can move between the two trades being completed. This could change the numbers in your favour or against you.

Paperwork

₱ The paperwork involved in owning share investments is very simple but some details may initially be fiddly for a new D.I.Y. investor. Overall, you need to keep a record of your purchases and sales, get Capital Gains Tax calculations right and put the correct dividend and distribution numbers into your tax returns.

₱ There are a number of ways that this is made easier for you. Your platform will provide a lot of information and may provide a detailed report to help you with your taxes. It can take a number of months after the end of the financial year for this to be made available. If you have provided your TFN, then some information will be provided to the Tax Office automatically, again after a delay. Read as much as possible about shares on the ATO website - click here.

Share Registeries

₱ The other main resource is the share registries. These are services that manage the relationship between shareholders and what they are invested in. You can look up the website of a company or fund to see which registry they use. The main ones in Australia are MUFG and Computershare. You can set up your account with them by using your HIN. You use them to keep your details up to date such as address and bank account. They also keep you TFN. They keep a record of any dividend or distribution information for you that will help with your tax return.

₱ Be aware that Capital Gains Tax consequences may arise from Dividend or Distribution payouts to you and not just from selling shares.

Records

₱ It is a good idea to keep you own spreadsheets for your holdings. This will help you to calculate your Capital Gains Taxes if you sell any shares. This only takes a second if you do it as you go. The basic details are when you purchased or sold shares, how many you bought or sold, what you received or paid in cash for the shares and what the price was per share. This tells you the ‘Cost base’ of your holdings. The difference between the Cost base and the sale price of shares, if the shares are later sold, determines the Capital Gain for shareholders.

₱ There is a 50% Capital Gains Discount for selling shares that have been held for over one year. You can choose which particular shares you are selling for tax purposes and that will determine your capital gain. You can sell the ones you have made the largest profit on or the biggest loss or anywhere in between. You can sell the ones that you have held for over a year to be eligible for the CGT Discount if you have a profit on them. It is optional to record dividend and distribution information unless it affects the cost base. This information is found on the share registry but may appear there, and on your tax return, with a delay from when it applies.

₱ It is a good idea to wait until September or later to do your tax return if you have shares. This allows all the relevant info to become available.

ATO (Australian Taxation Office)

₱ Look up as much information as possible about shares on the ATO website - click here.

₱Once you have a significant holding you will be receiving substantial income from your shares. The Tax Office may begin requesting Pay As You Go payments on that income tax just as it does for your salary. This can be helpful to avoid paying all at once at tax time. If your circumstances change, such as if you sell most of your shares, then you can vary your PAYG bill to reflect that your income from shares will be less than the ATO is expecting that financial year.

Children

₱ There are a couple of extra details when investing for children. Firstly, children cannot own money or financial assets. This means that the investments must be held in a structure, such as an account in their parents’ names, that is designated for the child. For information on the topic please visit the ATO website while being prepared for a little confusion. ATO website - click here.

₱ The ATO have been making changes to the advice they give about children’s investments and it is hard to discern what they expect you to do. There are some important points to make, however. When the child reaches eighteen, it is expected that the shares will be transferred from the parents’ control (that was for the benefit of the child) into the direct ownership of the now adult beneficiary. When this happens there are two possibilities regarding Capital Gains Tax. If the child was the sole beneficiary of the investments all along (by the ATO’s definition) then there is no Capital gains Tax applied at that time and the holdings remain as before. If the parents are regarded to have benefitted themselves from the investments, then Capital Gains Tax will have to be paid on all of the shares when they are transferred. This makes it crucial to ensure that the child is always the only beneficiary of their shares. Letting dividends be paid into the parents’ bank account runs the risk of breaking this rule unless those funds are very carefully accounted for and not spent. Spending kids’ income on things that parents usually pay for, such as clothing and education, breaks the rule.

Baby Strategy

₱ The same investments as discussed elsewhere on this site can work for kids. Setting up dividend reinvestment on the share registry websites can prevent the question arising of who benefits from the investments. It does mean a little extra paperwork to track all of the little reinvested share parcels. Having a bank account for the child that their payments flow into might be easiest, even if it costs a little extra return from leaving the money in cash. Children pay the highest marginal tax rate for investment income above a certain level, so it is best to keep their investments to just a few thousand dollars maximum if they are a small child. Their investments will grow and so will their income from it. Eventually they will start paying that high rate of tax if it grows to a certain size. Paying the extra tax is not a major issue but it is there to stop adults from using children to pay less tax on investment dollars.

₱ Older children can hold larger amounts without eventually needing to pay tax. That is because there is less time until they are adults for the investment to grow too much. If children have enough money so that they will need to pay tax at some point, it is still better to invest in shares than any other use. It may, however, be better for any generous adult to invest for themselves instead for the time being. There is always the opportunity to be generous later down the track. Older children’s income from work is taxed separately to their investments.

₱ Read about investing for children on the ATO website. The best part of investing for kids is the education that you can provide them with along the way about the value of investing. Another great reason to educate yourself and begin your investment journey first. (If investing ends up buying your child a car then they may think of that as the best bit).

₱ Click Here to read about the Advice Gap that drives people to share trading platforms or away from investing entirely. Click Here

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