Tax Time Tips for ETF Investors

Its everyone’s favourite time of year – tax time! We’ve collected a few helpful tips for exchange traded fund (ETF) investors.

What should Australian ETF investors expect this tax year compared with last?

While it may not seem like it from the headlines, FY25 is shaping up to be a strong year across multiple asset classes – at least at the time of writing! The Australian share market has delivered positive returns over the 11 months to the end of May 2025, with the S&P / ASX 200 up 8.6%, or up 12.2% including dividends. Year to date, dividends are not quite as strong as last year, but the overall results remain solid.

International investments have performed even better, thanks to a strong rebound since mid-April. At its low point, on 8 April 2025, developed equity markets were down approximately 7% since 30 June 2024. However, they have since rebounded to post an average total return of 9.6% at the end of May 2025. For many Australian investors, returns have been even stronger due to a declining Australian dollar, which has boosted the value of foreign investments. The MSCI World ex Australia Index is up 15.7% in AUD terms to the end of May 2025, including dividends. Dividends from international investments have been stronger than the equivalent 11-month period last financial year.

Emerging markets are also having a strong year, with the MSCI Emerging Markets Index up 12.9% for AUD-based investors, driven by a very strong rebound in China following two years of negative returns.

Most equity ETFs hold a broad portfolio of company shares that match an index. The SPDR® S&P®/ASX 200 ETF (ASX Code: STW) for example, holds around 200 Australian companies, while the SPDR® S&P® World ex Australia Carbon Aware ETF (ASX Code: WXOZ) holds over 700 global companies. When companies in the portfolio pay higher dividends, this typically flows through to higher distributions by the ETF. In other words, ETFs simply “pass through” the dividends they receive.¹

While we have seen dramatic price volatility over the last 8 weeks, earnings and dividends have not yet begun to decline. We expect full year dividends for global portfolios to be 5-8% higher over this financial year compared to last.² In Australia, dividends have been lower overall, with stronger payouts from from Industrials and Financials offset by weaker results from Energy and Materials.³

Many ETFs distribute income more than once a year, which makes forecasting year-end distributions more difficult. The amount distributed during the year often affects what remains to be distributed at financial year end.

Yields in fixed income markets have been volatile, impacting bond prices. Nonetheless, Australian core bonds have delivered stronger total returns so far (to 31 May 2025) than last financial year. Core bond returns have totalled around 6.1% over the first 11 months of this year, compared to 3.6% for the full year last year. Coupon income earned by an ETF – which is generally stable from year to year – is passed through to investors, while gains or losses during the year may also affect the ETF’s distribution.

Are dividends the only part of ETF distributions?

Dividends aren’t the only component of ETF distributions. ETFs can also distribute capital gains.

If you were managing a large portfolio containing hundreds of Australian or international shares, you’d need to perform extensive tax calculations each year – far beyond simply adding up the dividends. ETF issuers handle these tax calculations “behind the scenes”, and reflect the results in the year end distribution to investors.

The most common additional component is capital gains. If an ETF has traded shares during the year – such as for rebalancing –it may have generated capital gains. The ETF itself doesn’t pay tax on those gains; instead, it passes them on to investors through the year end distribution.

Just like other investments, these gains can be discounted or undiscounted for tax purposes. For investors, the tax reporting from owning a single ETF is typically much simpler than managing a widely diversified share portfolio.

ETFs that hold assets beyond shares may also distribute other types of income. For example, fixed income ETFs may distribute coupon payments or interest income received from their bond holdings. They may also distribute profits from trading bonds during the year.

How will the recent market moves impact ETF distributions this year?

Capital gains within an ETF typically arise when there has been a strong rise in share market prices and when the index tracked by the ETF requires rebalancing.

Many market capitalisation ETFs, like STW, track indices that require minimal rebalancing, so they rarely distribute significant realised gains. However, ETFs tracking indices with higher turnover are more likely to include realised capital gains in their year end distributions.

Capital returns have remained strong for most equity ETFs. As of the end of May 2025, average prices in the Australian share market are on track to be 28% higher⁴ than they were at the end of June 2022. However, these local gains are overshadowed by international shares, where the average increase since June 2022 exceeds 60%2 in AUD terms The exceptionally strong international performance has been driven by a robust US market and a weaker Australian dollar. As a result, some ETFs – particularly international equity ETFs – may have realised gains to distribute, although the exact amount can be difficult to predict.

Whether an ETF has realised gains to distribute this year will depend on factors, including:    

• The age of the ETF
• The sectors or markets it holds
• The portfolio turnover

In previous years, investor reactions to realised capital gains in distributions have been mixed. Some investors welcome the additional payments, while others would prefer that ETFs not distribute these amounts. It’s important to note that distributions of realised capital gains do not affect total returns. A distribution of realised gains increases the ETF’s “Income” return, but the ETF’s price typically drops by the same amount after the distribution, reducing the “Growth” return. The total return remains unchanged.

Finally, investors should be careful to distinguish between the cash distribution received and the taxable income attributed to them. If you want to understand these differences in more detail, consult your tax advisor or refer to your AMIT Member Annual Statement from your ETF issuer.

What about franking?

Most Australian-listed ETFs don’t pay tax – they simply pass income through to investors, who then pay tax on it. The same applies to franking credits.

Most Australian listed equity ETFs receive franking credits from the companies they hold, and these credits are passed on to investors at distribution time. Just like company shares, franking credits don’t form part of the cash distribution – they are tax credits that may be used to offset tax liabilities when completing your tax return.

Given that a significant proportion of dividends paid by Australian companies this year included franking credits, investors who held Australian equity ETFs at each distribution point during the financial year ended 30 June 2025 will likely be able to include franking credits in their tax return.

ETF Tax Statement

If you own ETFs directly, you should receive a ETF tax statement, also known as an AMIT Member Annual Statement, after the end of financial year. This will typically be accompanied by a guide to help you transfer the information from your tax statement into the relevant section of your tax return.

Your tax statement will include important details such as:

• Capital gains
• Dividend
• ranking credits
• Other income components

If your investments are held through a platform, the platform provider may issue a consolidated statement that summarises this information for all your holdings, making it easier to complete your tax return.

What are your top tips for a smooth EOFY?

Here are some tips to help you out with tax time:

1. Make sure you have supplied your Tax File Number (TFN)! For SPDR investors you can check that by logging on to MUFG Investor Center. Providing your TFN is important for two reasons. Firstly, you may not be paid the full distribution if you haven’t provided your TFN. If the issuer doesn’t have your TFN, they may be obliged to hold back some of your distribution and pay it to the Australian Taxation Office (ATO). You may be able to claim it back eventually, but it is usually easier to provide your TFN up front. Secondly, if the issuer has your TFN, most of the important tax information from your ETF investment will be passed automatically to the ATO, making it easy for you or your tax adviser to pull it into your tax return.
2. Make sure you have supplied an email address so you receive updates from your ETF issuer. For SPDR investors you can check that by logging on to MUFG Investor Center. If the issuer has your contact details, they can easily alert you to any special considerations at tax time for your particular ETF holdings.
3. Be careful about frequent trading close to the distribution date. If your ETF holds Australian shares, and if you have traded close to the distribution date, you may not be able to use all the franking credits distributed. The rules governing franking credits are complex, especially the “45 day rule”, and you should speak to your tax adviser before trading close to the distribution date.
4. Keep records of your ETF trades. Like when you sell an investment property or a regular company share, selling an ETF on the ASX can result in capital gains tax. That means you need to keep records of your purchases and sales. This is something the issuer can’t help you with, because most trades are done on the ASX and the issuer is not directly involved. You will need to get transaction details from your share trading or brokerage account. The good news is that a single ETF can give exposure to hundreds of companies, but you only need to keep trading records on one ETF.
5. Don’t submit your tax return until you have received all your ETF tax statements, known as AMIT Member Annual Statements. While you may know the cash distribution on 30 June, you won’t know some of the finer tax details linked to your ETF distributions until you receive this statement. So it’s best to wait until you receive your statements for all your investments.

How can I find out more information?

Most issuers provide a guide to your tax statement. The SPDR ETFs 2025 tax guide will be available at the same time as your SPDR ETF tax statement.