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Exchange traded funds ETFs can be a simple and low-cost way exchange traded options taxation and finance get investment returns similar to a share index or another underlying asset. However, some ETFs are more complex and risky than others. Here we explain the risks and what you need to know before you invest. An ETF is a type of investment fund that can be bought and sold on exchange traded options taxation and finance securities exchange market.

They generally do not try to outperform the market and will go up or down in value in line with the index they are tracking. If an exchange traded options taxation and finance is called an Active ETF then the fund manager is actively trying to outperform the market or index to achieve a different investment objective.

See other exchange traded products for information on Active ETFs. ETFs are available for a broad range of assets including Australian shares, international shares, fixed income products, foreign currencies, exchange traded options taxation and finance metals and commodities.

Standard or 'physical ETFs' buy the underlying investments such as shares and other assets on the reference index that the ETF is seeking to track. Your main investment risk is the performance of the underlying shares or other assets. Other risks are discussed below. Synthetic ETFs have a material exposure to derivatives as well as the underlying assets that the ETF is seeking to track. Find out more about synthetic ETFs. Products labeled 'exchange traded commodities', 'exchange traded notes', 'exchange traded certificates', and 'exchange traded securities' are not Exchange traded options taxation and finance.

The risks of these products can be different and sometimes much higher than the exchange traded options taxation and finance of ETFs.

See other exchange traded products for more information. The value of a physical ETF investment can rise and fall daily, usually in line with the index it is tracking. If the offer price you are quoted by a broker is significantly above the NAV, there is a risk you might pay far more for an ETF than it's worth. If the bid price is significantly below NAV, there is a risk you could sell for less than the value of the underlying investments.

This is called a tracking error. This helps create a more liquid ETF market. To receive an ETF price that is closer to the value of the underlying assets, place orders to buy or sell units at least 30 minutes after the share market opens. This may reduce price discrepancies between the ETF and the price of the shares that it holds. While ETFs may have lower fees compared with other managed investments, management fees can vary and may be higher than the fees of an equivalent unlisted or unquoted index fund.

You will also pay brokerage fees when you buy or sell ETF units. If you want to make a small regular investment in a product that tracks an index, you might be better off using an unlisted managed investment such as an index fund where broker fees won't apply to each contribution, although other fees may apply. The 'buy-sell spread' the exchange traded options taxation and finance between the prices that exchange traded options taxation and finance can buy and sell ETF units at could be considered a cost for you when you buy or sell ETF units, although market makers usually ensure the spread remains relatively small.

If you're selling you can work out the 'buy-sell spread' by subtracting the bid price from the NAV to calculate a 'dollar spread' and then dividing the 'dollar spread' by the 'bid price' to get the exchange traded options taxation and finance spread'. If you're buying you can calculate the 'dollar spread' by subtracting the NAV from the offer price, and then calculate 'percentage spread' by dividing the 'dollar spread' by the offer price.

Some ETFs offer exposure to investments such as small companies, emerging markets or commodities that may be harder to sell in certain circumstances, or more complex and volatile than ordinary company shares. This could increase risks for investors.

If the ETF tracks overseas assets, changes in the value of the Australian dollar may also affect the value of your investment. Some funds may be 'currency hedged' to reduce this risk. When you buy units in an ETF located in another country but also traded on an Australian market foreign taxes may apply. Read the PDS to understand how your investment will be taxed, and if you're not sure contact the ETF provider or a tax adviser.

Fixed income ETFs aim to replicate the performance of assets such as bonds and debentures. The Australian Securities Exchange ASX has restrictions on what indices or non-exchange traded bonds or debentures can underlie an ETF, however the value of the underlying assets may rise and fall, which means the price of the ETF can also rise and fall.

The secondary market for corporate bonds may be less active than the market for ordinary shares, making it harder for the ETF issuer to sell its bond investments. See ASIC's investing in corporate bonds for more information about fixed income investments.

Exchange traded options taxation and finance you invest in ETFs do your homework. Read the PDS and consider getting advice from a licensed financial adviser. Diversifying your investments between asset classes and product issuers can help control your risks.

What is an ETF? What are the risks? The difference between physical and synthetic ETFs ETFs are available for a broad range of assets including Australian shares, international shares, fixed income products, foreign currencies, precious metals and commodities. How to buy and sell ETFs The value of a physical ETF investment can rise and fall daily, usually in line with the index it is tracking. Here are some tips on what to look for before you invest.

What will your investment cost? Buy-sell spread The 'buy-sell spread' the difference between the prices that you can buy and sell ETF units at could be considered a cost for you when you buy or sell ETF units, exchange traded options taxation and finance market makers usually ensure the spread remains relatively small. Market liquidity Some ETFs offer exposure to investments such as small companies, emerging markets or commodities that may be harder to sell in certain circumstances, or more complex and volatile than ordinary company shares.

Currency risk If the ETF tracks overseas assets, changes in the value of the Australian dollar may also affect the value of your investment. International taxes When you buy units in an ETF located in another country but also traded on an Australian market foreign taxes may apply.

Liquidity - Is there an active market for the underlying investments? You may be more likely to get a fair price for your ETF exchange traded options taxation and finance if the underlying assets are traded regularly.

Tax - How will the ETF returns be taxed? Market - Are you buying a product on an Australian market? If you're not sure consider getting advice from your financial adviser or stockbroker. Quick links Unclaimed money Publications Financial advisers register Financial counselling Payday loans Unlicensed companies list Report a scam How to complain Other languages eNewsletter.

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UK uses cookies to make the site simpler. Find out more about cookies. This publication is licensed under the terms of the Open Government Licence v3. To view this licence, visit nationalarchives. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. This publication is available at https: Details of any changes to the previous version can be found in paragraph 1.

You will find this notice useful in determining whether:. The notice has been updated to reflect changes in paragraph 4. Financial services have relevance to every business and are not confined to banks, building societies, other financial institutions or financial intermediaries. If you are a business and you supply or receive financial services this notice will be relevant to you.

You can access details of any changes to this notice since June either on our website or by phoning our Helpline on Telephone: Relevant extracts from the VAT Act can be found in section In general, financial services are exempt from VAT. However, the following list contains examples of services that, although connected to financial services, are not themselves exempt:. Where these services merely form one element of the service being provided, it will be necessary to look at the whole service being provided in order to determine the correct supply position and the liability of that supply or those supplies.

In order to establish the correct liability of such packaged services you may need to apply certain tests to ascertain the overall liability of your supply. It does not become exempt simply because your customer uses your service in making its own exempt supplies.

You must determine the exact nature of your supply. For it to be exempt, it must, when viewed broadly, form a distinct whole, fulfilling the essential functions of a supply described within the finance exemption set out in the VAT Act, Schedule 9, Group 5 see paragraph If you are acting as an intermediary you should read section 9 of this notice.

If you are providing outsourced services to a loan provider you should read paragraph 4. You are entitled to deduct the input tax incurred that you use or intend to use in making taxable supplies. You cannot normally deduct input tax where this relates to exempt supplies although special rules apply to supplies of financial services made to persons located outside the EU - see paragraphs 1.

If your input tax relates to both taxable and exempt supplies, you can normally deduct only the amount of input tax that relates to your taxable supplies. You can find further information in Notice Partial exemption. If you purchase capital items for business use you may need to make adjustments of input tax in subsequent years. Capital items are assets that are capable of being used in your business over a period of years.

The items concerned for which adjustments may be necessary include computer equipment, land, buildings and refurbishments. If you make financial services to or receive them from people who belong outside the UK you should read Notice and A Place of Supply of Services. It explains when you can treat services that are supplied to a person belonging outside the UK as outside the scope of VAT.

It also explains how you should account for VAT on the receipt of certain financial services from outside the UK reverse charge. You should note that not all the finance related services mentioned in Notice Place of Supply of Services are exempt from VAT when supplied within the UK see paragraph 1. References to money in this notice include currency, bank notes and coins, in sterling or any other currency used as legal tender in a financial transaction, but not, with effect from 1 July , platinum nobles.

Dealing with money includes financial transactions of a kind routinely, but not necessarily, carried out by banks, building societies, bureaux de change and similar institutions. To be dealing with money you must be carrying out a financial transaction.

Financial transactions that involve dealing with money include:. This is because the services being applied to the money are the same as those that could be applied to any type of goods that can be counted, packed, delivered, collected and reconciled. Services that include an element of making payments or transfers between bank accounts are exempt.

Where a supply has a mixture of taxable and exempt elements, its overall character will determine the liability. The first issue, by the bank of issue, of Bank of England, Scottish and Northern Irish banknotes is zero-rated.

This provision overrides the exemption allowed for dealings with legal tender banknotes. Preparatory services that are carried out separately, before an exempt financial transaction concerning money, are taxable. An example is the preparation and delivery of data such as a wages roll, which is then put into effect by someone else. Preparatory services carried out by an intermediary as part of their overall exempt supply are exempt see paragraph 9.

If you accept over-the-counter payments for household bills and charge for the service, your supply is exempt. Sales in some gold coins are exempt as investment gold. Foreign exchange transactions are normally exempt supplies. If you act as principal, then the consideration is the net result of your transactions over a given period of time plus any fees or commission charged. However circumstances may arise where you enter into a foreign exchange contract that does not provide for a consideration in any form.

In this instance there may not be a supply for VAT purposes. If you act as an intermediary in a foreign exchange transaction you should refer to section 9. A service supplied by a clearing-house for settling indebtedness between members is an exempt supply. Services provided in connection with the routine operation of an ATM, including filling with cash, maintenance and repair, are taxable supplies.

ATM providers sometimes make charges that are described as convenience fees, interchange fees or reciprocity fees. Where the charge is for:. The granting of a right to permanently attach an ATM to the ground, or for its incorporation into the fabric of a building, is an exempt supply unless the grantor has elected to waive exemption.

Further guidance can be found at section 2 of Notice Land and property. Many of the charges made by banks, building societies or similar organisations in connection with the operation of a current, deposit or savings account will be exempt. Exceptions include charges made for:. If you are a supplier making such a charge to your customer, the charge will be outside the scope of VAT.

Electronic banking services including account management are supplied by banks to customers both businesses and individuals , as an addition or alternative to conventional banking services. To determine the liability of an electronic banking service it should first be established whether it is provided as a supply in its own right or as part of a package of services see paragraph 1.

In principle, services which would have been treated as exempt under the VAT Act, Schedule 9, Group 5 if they had been provided by the bank by conventional means should be treated as exempt when provided within the framework of electronic banking services; other finance related services which are not covered by Group 5 should be treated as liable to VAT at the standard rate.

If you charge for the deduction from the pay of an employee in compliance with an attachment of earnings order, this is seen as reimbursement for expenses incurred in carrying out a statutory duty and is outside the scope of VAT. A security for money can be described as a document under seal or under hand for consideration containing a covenant, promise or undertaking to pay a sum of money. Securities for money are not restricted to a specific type of document: If you deal with securities for money as an intermediary or broker you should read section 9.

Face value vouchers that give a right to goods or services are not seen as securities for money. For example, where the voucher is presented to a retailer as payment for goods or services it is not a security for money, but when the retailer presents the voucher to a third party to be exchanged for money, it becomes a security for money at that point if the voucher had been issued to the redeemer under a credit arrangement or initial grant of credit.

The VAT liability of these types of products depends on the precise nature of the arrangements in place. In order to qualify for exemption, they must be financial instruments that are securities for money as defined in paragraph 3. This means that an exempt guarantee or surety will involve a third party providing a guarantee or security for payments to be made under a contract. The finance exemption will not apply to the supply of warranties or contracts for the supply, repair or maintenance of goods even though these are sometimes referred to as guarantees.

The charge you make for a loan, advance or credit facility is usually described as interest. The value of the exempt supply in the grant of credit or loan is the gross interest or other sum received, but not the repayment of capital loaned.

This type of credit is usually advanced in connection with the supply of goods, and may be under a hire purchase, conditional sale or credit sale agreement see paragraph 4. The provision of instalment credit in these situations is exempt where a separate charge is made for the facility of instalment credit and disclosed to your customer.

If this condition is satisfied, the supply of credit is exempt and the supply of goods taxable, the value being the cash price stated in the agreement before any deposit or any part exchange value is deducted. If you do not satisfy this condition, the full amount paid by the customer is consideration for the supply of goods. The full amount of VAT on the goods is accounted for at the time of supply.

Usually this is when the goods are delivered, but it may be preceded by any part payment, or the issue of an invoice. Conditional sale - means the sale of goods where the price is payable by instalments. The goods remain the property of the seller until the full price is paid or the customer meets another agreed condition. Hire purchase - occurs under an agreement for the hire of goods for periodic payments, where the hirer has the option to purchase. Credit sale - means the sale of goods which immediately become the property of the customer, but the price is payable in instalments.

If you are a supplier of goods and are financing the credit yourself, your supply of credit will be exempt if the charge is disclosed separately to your customer. Your supply of goods must be under a conditional sale, hire purchase, or credit sale agreement see paragraph 4. The consideration for the taxable supply of the goods is the price stated in the agreement. If a third party finances your supply of instalment credit, for example hire purchase or conditional sale, your supply of goods is to the finance company, which takes title to the goods, and not to your customer who is allowed to use the goods.

Thus your supply is one of goods and not one of financial services. The third party supplies the financial services and the goods, to the user or customer. If by arrangement between yourself and your customer you supply goods or services and your customer pays for these goods or services over a set period without paying interest, there is no supply of credit for VAT purposes see paragraph 4. When you supply goods to customers on interest free credit terms, you may receive an amount from a finance company, which is less than the amount due from your customer for the goods.

This does not affect the value of the supply to the customer and you must still account for VAT on the full sales price invoiced to your customer for the goods. The difference between the full selling price, and the amount you receive is consideration for an exempt supply by the finance house to you, the supplier. Exemption normally applies to any supplies connected to credit charges unless the charge relates, wholly or partially, to the supply of goods.

Fees, such as for administration, documentation, or transfer of title, fall within the above exemption when they are ancillary to the principal supply of credit. You may receive commission for introducing your customers to finance houses that provide them with credit.