Is VDHG really that complicated for tax returns?

Hi Ethan.

Basically yes. If you’re doing your own tax returns, those ETF statements are pretty damn confusing.

The plus side is that if you wait until October (now), the info is typically pre-filled for you, which makes it a lot easier. And the accuracy of it has improved every year too, so it just requires a simple check.

But if giving to an accountant then even less to worry about :)

Understanding the tax implications of investing in funds like Vanguard’s Diversified High Growth Index Fund (VDHG) can indeed seem complex, especially for those new to investing. VDHG is a popular choice among investors for its diversified portfolio, which automatically rebalances and is designed to provide long-term growth. However, the tax considerations arise from its structure and the distributions it makes.

VDHG, like any other managed fund, distributes income to its investors that can include dividends, capital gains, and foreign income. Each of these components may be taxed differently:

1. Dividends: These may come with franking credits which need to be included in your tax return.
   
2. Capital Gains: Distributed capital gains must be reported and are subject to capital gains tax.
   
3. Foreign Income: Since VDHG invests in international assets, there may be foreign income which could have tax withheld in foreign jurisdictions.
   

For those doing their own tax returns, this means you need to carefully report each type of income and claim any applicable credits or deductions. This can be more complicated than dealing with straightforward domestic shares that might only distribute regular dividends with franking credits.

If you use a tax accountant, you typically would provide them with the annual tax statement from Vanguard, which breaks down these components, along with the records from your Pearler account showing your transactions. Your accountant would use this information to accurately complete your tax return.

For those managing their own tax affairs, it’s crucial to understand how to interpret these statements and apply the relevant sections in your tax return. This might involve more detailed knowledge of tax laws, especially concerning foreign income and capital gains.

Pearler aims to simplify the investing process and provides general resources to help you understa

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For ETFs, my accountant tells me it is more complicated than the end of year statement. Because ETFs buy and sell shares through the year, those are capital gains events, and that means your cost base (what you paid plus the brokerage) needs to be tweaked by these small amounts and carried forward until you sell. Open up one of your ETF end of year statements, search down for the «AMIT cost base» this is what you need for the adjustment. Here we reach the end of my understanding.
Maybe sharesight or navexa will track it for you, but I’m on my fourth tool promising to do that, until it was economic for them to keep doing it, so keep your originals as backup.