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More dividends = more tax?

Dividends and Tax

I am work full-time and I am an aggressive saver, and regularly invest in exchange traded funds listed on the ASX. The dividend distributions are getting bigger, which I am happy about, but I am also paying extra tax on this passive income, always receiving a tax bill each year. Any ideas on how I can reduce my tax liability?

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Sam Bagnall

Asked on 16 July 2025

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David Horton

Investor

Wed, 27th August 2025

US companies rather than AUS or UK. The only reasoning for this is that US have a tax system that taxes dividends more than capital gains, so US companies are much more aggressive towards growth and pay piddling dividends. Australian companies pay relatively bigger dividends and also don’t have double taxation of company profits, hence franking credits. UK I understand also tends to have higher dividends. Make sure you are claiming your franking credits. I don’t know the deal on other countries.
While I haven’t used them, I believe investment bonds may be useful. My understanding is you buy in through this structure and after 10 years there is no CGT and tax has been paid (at a rate of 30% within the fund). Each year you can top up the investment with up to 125% of what you put in last year but keep the 10 year start point. Probably only useful if on higher income and can continue to invest every year. Investment bonds are not the «bonds» where you lend money to the government or banks and they pay you interest on the loan and eventually return your capital to you.
Super is taxed at 15%, so much less than your investments in your own name but much less accessible. Super and investment bonds are essentially inaccessible until retirement (super) or 10 years (investment bonds).
These questions should be asked of a financial planner, at least why they aren’t applicable to you rather than they have a better product for you. (Sorry I’m a bit cynical of financial planners).

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