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AFIC’s DSSP one of the options to build wealth
AFIC’s DSSP one of the options to build wealth

AFIC’s DSSP one of the options to build wealth

All investors seek to manage their tax obligations in the most efficient way ‒ it’s an essential piece in the plan to increase one’s wealth. AFIC offers a unique option to enable this: a Dividend Substitution Share Plan (DSSP).

What is the DSSP?

Like a Dividend Reinvestment Plan (DRP), the DSSP is a simple and convenient way for an investor to automatically reinvest their dividends and receive additional AFIC shares as an alternative to receiving cash dividends, and to increase their AFIC shareholding over time. DRP and DSSP participants receive extra shares at the same issue price.

The big difference between a DRP and a DSSP is the way they are taxed. Under a DRP, the Australian Taxation Office requires that the investor declares the extra shares as income, and the investor must pay tax on it. The investor still receives franking credits to offset the tax and can continue to obtain a tax deduction relating to LIC capital gains.

A DSSP differs from a DRP in that, for Australian resident taxpayers, no income tax is payable on DSSP shares at the time of receipt because the shares are not deemed to be a dividend. Tax is payable only when the shares are sold. Also, because the shares allotted under the DSSP are not considered to be a dividend, the investor does not receive franking credits or LIC capital gains tax deductions. The tax rules differ in New Zealand and other jurisdictions.

Investors should note that the receipt of the substitute shares will change the cost base of the AFIC shares that participate in the DSSP and therefore may alter any capital gains tax that must be paid when the shares are sold.

Why choose the DSSP?

The DSSP could be a good option for shareholders paying tax in Australia who want to defer any tax payable until they sell their AFIC shares. The DSSP also may be suitable for shareholders on a high marginal income tax rate. Shareholders who pay tax at a lower rate, such as a self-managed super fund, may find that the DRP is more suitable.

Shares allocated under the DSSP rank equally with all AFIC’s other fully paid ordinary shares.

Investors do not have to appoint a stockbroker or pay fees, brokerage, GST or other transaction costs for shares allocated under the DSSP.

Participation in the DSSP is voluntary, and investors can choose to contribute all, part or none of their dividend entitlement to the DSSP. Investors can withdraw their participation in the DSSP at any time.

It’s important that shareholders in all cases seek their own advice from their accountants and tax advisers on whether or not participation in the DSSP is appropriate for them.

DSSP statements are sent to shareholders shortly after the payment date of each dividend.

A copy of the DSSP booklet and the ATO Class Ruling of respect of the AFIC DSSP is available here or by request from the AFIC office.

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