Tax Treatment

Capital Gains Tax

CGT applies to interest rate securities just as it does to equities. As the majority of fixed income products are tradeable securities, profits or losses arise upon the sale of the product. As with equities, capital gains tax is payable on profits.

The long-awaited release of "The Ralph Report" resulted in a significant change in the treatment of capital gains tax in the hands of the individual.

As of 30 September 1999 indexation for CPI in the calculation of the capital gain no longer applies, nor does capital gains tax averaging. Instead the capital gain is calculated at the individual’s marginal tax rate; however, if the asset is held for more than 12 months only half the capital gain will be subject to tax.

If the asset was held as at 30 September 1999 the investor has the option of the "old" or "new" method in calculating the capital gain.

Different rules apply for superannuation funds and incorporated entities.

Income Tax

Coupons from fixed income investments are treated as income if the investor is an Australian resident for taxation purposes. Income tax is payable at the individual’s marginal tax rate on income received during the year.

Retail investors should be careful to only declare the income they have received net of the accrued portion of the purchase price.

Dividend imputation does not apply to fixed income.

Please consult your tax adviser to ascertain your specific tax situation.