IN discussions about residential property the talk often turns to how generous the government is with tax breaks and other incentives for this asset class and how this has helped fuel property prices in Australia.
But we often forget shares' generous tax treatment, especially compared with other countries, The Australian reported.
A study released by Russell Investments shows that for the past 20 years at the top marginal tax rate, Australian shares had the lowest effective tax rate of 20 per cent on investment returns, due to the dividend imputation system, compared with residential investment property at 26 per cent (owner-occupied property attracts no tax, but you can only have one of those at a time).
Cash and bonds had the highest effective tax rates, both at 49 per cent.
On a before-tax basis, residential investment property still comes out the winner over 20 years with a return of 9.8 per cent per annum, versus Australian shares at 9.7 per cent and Australian bonds a very respectable 8.9 per cent.
But Russell found that, after tax, Australian shares come out on top with a 9.9 per cent annual return at the top marginal tax rate and 7.8 per cent at the lowest tax rate. It is even more tax effective when the shares are held within superannuation.
It's an important reminder of the long-term value of shares as we go through more market volatility.
- By Geoffrey Newman
- From: The Australian
- June 02, 2010
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