My treasure’s in the harbour, take it.

_{Shakespeare, Antony and Cleopatra, Act 3, Scene 11}

Introduction – why analyse taxable income investment?

Each year measuring taxable investment income produced by the financial independence portfolio has provided an alternative independent benchmark of progress on the journey to the portfolio goal.

This measure is distinct from the regularly reported portfolio distributions, through being generated entirely from annual tax records.

Generally, my portfolio income analysis focuses solely on ‘after-tax’ dollars received in the bank account as the primary data. This is reported twice a year.

Nevertheless, this separate annual series of taxable investment income can also help illustrate progress. For example, it can highlight exactly what my taxable income might be in the absence of any paid work. That is, if early retirement was taken today.

Last year some analysis showed some broad trends. More time and new data, however, now provides the opportunity for a longer and fuller view of trends in taxable investment income across the journey.

This longer read post expands the analysis from the last review. It builds into this review data from four additional years of tax records covering the earlier phases of the journey.

The theme of this analysis is how the momentum of gradual progress can build over 15 years, turning a breath of wind into a powerful force through time, and compounding as the years pass.

Along the way it also corrects some minor inconsistencies in data reporting on dividends and franking credits in earlier years of previous analysis.* It also refines the analysis through a greater focus on income from income-producing financial assets, rather than all portfolio assets.

Taxable income investment grows significantly over 2020-21

Taxable investment income for financial year 2020-21 totalled over $68,000. This is a more than 60 per cent increase from the past two financial year totals of around $42,000.

Taxable investment income is defined here as the combined totals of taxable income from the tax assessment categories of partnerships and trusts, foreign source income, franking credits and ‘other income’.

That is, the measured taxable investment income is the total of Items 13, 20 and 24 on the 2021 tax return. Capital gains under Item 18 are excluded.

Figure 1 below shows the levels of taxable investment income for the past fifteen years. This is expanded to cover four additional earlier years, from 2006-07 to 2009-10.