Chapter C3 Worked examples for managed fund distributions
The following worked examples take the steps explained in chapter C1 and put them into different scenarios to demonstrate how they work.
If you have received a distribution from a managed fund, you may be able to apply one or more of these examples to your circumstances to help you work out your CGT obligation for 2002-03 and complete item 17 on your tax return.
Example 1
Bob has received a non-assessable amount. Bob owns units in OZ Investments Fund which distributed income to him for the year ending 30 June 2003. The fund gave him a statement showing his distribution included the following capital gains:
- $100 calculated using the discount method (grossed-up amount $200)
- $75 calculated using the indexation method, and
- $28 calculated using the 'other' method.
These capital gains add up to $203. The statement shows Bob's distribution did not include a tax-free amount but it did include:
- $105 tax-deferred amount.
From his records, Bob knows that the cost base and reduced cost base of his units are $1,200 and $1,050 respectively.
Bob has no other capital gains or capital losses for the 2002-03 income year.
Bob follows these steps to work out the amounts to show on his tax return. As Bob has a capital gain which the fund reduced by 50% under the CGT discount method ($100), he includes the grossed-up amount ($200) in his total current year capital gain.
To work out his total current year capital gains Bob adds the grossed-up amount to his capital gains calculated using the indexation method and 'other' method:
$200 + $75 + $28 = $303
As Bob has no other capital gains or capital losses and he must use the discount method in relation to the discount gain from the trust, his net capital gain is equal to the amount of capital gain included in his distribution from the fund ($203).
Bob completes item 17 on his tax return as follows:
Records Bob needs to keep
The tax-deferred amount Bob received is not included in his income or capital gains but it affects the cost base and reduced cost base of his units in OZ Investments Fund for future income years.
Bob deducts the tax-deferred amount from both the cost base and reduced cost base of his units as follows:
Cost base |
$1,200 |
less tax-deferred amount |
$105 |
New cost base |
$1,095 |
Reduced cost base |
$1,050 |
less tax-deferred amount |
$105 |
New reduced cost base |
$945 |
End of example
Example 2
Ilena's capital loss is greater than her capital gains calculated under the indexation method and 'other' method.
Ilena invested in XYZ Managed Fund. The fund makes a distribution to Ilena for the year ending 30 June 2003 and provides her with a statement that shows her distribution included:
- $65 discounted capital gain
- $50 capital gain calculated using the 'other' method, and
- $40 capital gain calculated using the indexation method.
The statement shows Ilena's distribution also included:
- $30 tax-deferred amount, and
- $35 tax-free amount.
Ilena has no other capital gain but made a capital loss of $100 when she sold some shares during the year.
From her records, Ilena knows the cost base of her units is $5,000 and their reduced cost base is $4,700.
Ilena has to treat the capital gain component of her fund distribution as if she made the capital gain. To complete her tax return, Ilena must identify the capital gain component of her fund distribution and work out her net capital gain.
Ilena follows these steps to work out the amounts to show at item 17 on her tax return.
As Ilena has a $65 capital gain which the fund reduced by the CGT discount of 50%, she must gross up the capital gain. She does this by multiplying the amount of the discounted capital gain by two:
$65 × 2 = $130
To work out her total current year capital gains Ilena adds her grossed-up capital gain to her capital gains calculated under the indexation method and 'other' method :
- $130 + $50 +$40 = $220
She shows her total current year capital gains ($220) at H item 17 on her tax return, or at H item 9 if she uses the tax return for retirees.
Now Ilena subtracts her capital losses from her capital gains. Ilena can choose which capital gains she subtracts her capital losses from first. In her case, she will receive a better result if she:
- subtracts as much as possible of her capital losses (which were $100) against her indexed and 'other' method capital gains. Her gains under these methods were $40 and $50 respectively, a total of $90, so she subtracts $90 of her capital losses against these capital gains.
$90 − $90 = $0 (indexed and 'other' method capital gains) - subtracts her remaining capital losses after step 1 ($10) against her discounted capital gains ($130).
$130 − $10 = $120 (discounted capital gains) - applies the CGT discount to her remaining discounted capital gains:
($120 × 50%) = $60 (discounted capital gains)
Reminder: A CGT-concession amount is only taken off the cost base or reduced cost base if it was received BEFORE 1 July 2001.
Finally, Ilena adds up the capital gains remaining to arrive at her net capital gain:
$0 (indexed and 'other') + $60 (discounted) = $60 net capital gain
Ilena completes item 17 on her tax return as follows:
Records Ilena needs to keep
The tax-deferred and tax-free amounts Ilena received are not included in her income or her capital gain but the tax-deferred amount affects the cost base and reduced cost base of her units in XYZ Managed Fund for future income years. The tax-free amount affects her reduced cost base.
Ilena reduces the cost base and reduced cost base of her units as follows:
Cost base |
$5,000 |
less tax-deferred amount |
$30 |
New cost base |
$4,970 |
Reduced cost base |
$4,700 |
less (tax-deferred amount + tax-free amount) ($30 + $35) |
$65 |
New reduced cost base |
$4,635 |
End of example
Appendix 1 Recent share transactions
Company |
Details of transaction |
|---|---|
AMP Ltd |
Demutualisation Acquisition cost for AMP Ltd shares was $10.43 per share and acquisition date was 20 November 1997. |
BHP Billiton Limited |
Demerger In July 2002 BHP shareholders received one BHP Steel Ltd share for every five BHP Billiton shares held. BHP Billiton has advised that BHP Steel represented 5.063% of the market value of the group as a whole just after the demerger. Shareholders who received BHP Steel shares should use this percentage to apportion the sum of the cost bases of their post-CGT BHP Billiton shares between these shares and the post-CGT BHP Steel shares. |
Commonwealth Bank of Australia Ltd |
Public share offer For the first instalment: Acquisition date was (and indexation available from) 13 July 1996. For the final instalment: Indexation also applied from 13 July 1996. |
CSR Limited-Rinker Group Limited |
Demerger In April 2003 CSR shareholders received one Rinker share for every CSR share they held. CSR has advised that Rinker represented 75% of the market value of the group as a whole just after the demerger. Shareholders who received Rinker shares should use this percentage to apportion the sum of the cost bases of their post-CGT CSR shares between these shares and the post-CGT Rinker shares. See Class Ruling CR 2003/10 Income tax: Special Dividend, Capital Reduction and Related Scheme of Arrangement for the Demerger of Rinker Group Limited from CSR Limited. |
Harris Scarfe Holdings Ltd |
Statement was not a declaration that shares are worthless. On 26 June 2002 the liquidators of Harris Scarfe Holdings Ltd advised shareholders they were unable to determine the amount of any return to shareholders in the winding up of the company. The liquidators have also advised that it may be some considerable time before all issues are resolved in the courts. Shareholders of Harris Scarfe cannot choose to make a capital loss until such time as the liquidators may make a declaration that satisfies CGT event G3. |
HIH Insurance Ltd |
Declaration shares worthless Liquidators' written declaration made on 10 October 2001 enabled shareholders of HIH Insurance Limited to choose to make a capital loss in 2001-02 equal to the reduced cost base of the share under CGT event G3. |
Insurance Australia Group (IAG) Limited |
Share purchase plan Offers opened on 4 November 2002 for shareholders to purchase shares from IAG for $2.40 per share free of brokerage and transaction costs. There are no CGT consequences at the time of purchase. However, there are taxation consequences in relation to owning and disposing of the shares you purchase. |
NRMA Insurance Group Ltd (NIGL) |
Demutualisation Acquisition cost of NIGL shares allocated to shareholders was $1.78 per share. Acquisition date was 19 June 2000. For additional shares purchased through the facility, acquisition cost was $2.75 and acquisition date was 6 August 2000. |
One. Tel Ltd |
Declaration shares worthless Liquidators' written declaration made on 30 May 2002 enabled shareholders of One. Tel Ltd to choose to make a capital loss in the 2001-02 year equal to the reduced cost base of the share under CGT event G3. |
Pasminco Limited |
Statement that shares are worthless not made by liquidator The statement by the administrators on 4 September 2002 did not cause a CGT event G3 (liquidator declares shares worthless) to happen. Shareholders of Pasminco cannot choose to make a capital loss until such time as a liquidator may make a declaration that satisfies CGT event G3. See Class Ruling CR 2002/85 Income tax: capital gains tax: CGT event G3: Pasminco Limited (subject to deed of company arrangement). |
Sonic Health Care Limited-SciGen Limited |
Demerger In December 2002 Sonic shareholders received one SciGen share in the form of a CHESS Unit of Foreign Security (CUFS) for every Sonic share held. Sonic has advised that SciGen represented 0.66% of the market value of the group as a whole just after the demerger. Shareholders who received SciGen shares should use this percentage to apportion the sum of the cost bases of their post-CGT Sonic shares between these shares and the post-CGT SciGen shares. See Class Ruling CR 2002/89 Income Tax: dividend, capital reduction and related schemes of arrangement for the demerger of SciGen Limited from Sonic Healthcare Limited. |
TAB Limited |
Share buy-back On 21 March 2002 TAB Limited announced a share buy-back. The capital proceeds received were $2.35. The amount by which the capital proceeds of $2.35 exceeds the cost base of each share will be a capital gain to the shareholder. If the share's reduced cost base exceeds $2.35, the difference will be a capital loss. The announcement date was 21 March 2002. See Class Ruling CR 2002/16 Income tax: share buy-back: TAB Limited. |
Telstra |
Public share offer 1 For the first instalment: Acquisition of shares was on (and indexation available from) 15 November 1997. For the final instalment: Indexation applied from 15 November 1997. Public share offer 2 For the first instalment: Date of acquisition was 22 October 1999 if the instalment receipts were purchased through the offer. No indexation applied because acquisition was after 11.45am (by legal time in the ACT) on 21 September 1999. For the final instalment: Similarly, no indexation applied. |
Western Mining Corporation Limited-WMC Resources Limited |
Demerger In December 2002 WMC shareholders received one WMCR share for every WMC share held. Also WMC Limited changed its name to Alumina Ltd. Alumina has advised that WMCR represented 46.30% of the market value of the group as a whole just after the demerger. Shareholders who received WMCR shares should use this percentage to apportion the sum of the cost bases of their post-CGT Alumina shares between these shares and the post-CGT WMCR shares. See Class Ruling CR 2002/81 Income tax: capital gains: demerger roll-over relief for shareholders: demerger of WMC Ltd. |
Appendix 2 Consumer price index (CPI)
Year |
Quarter ending 31 March |
Quarter ending 30 June |
Quarter ending 30 September |
Quarter ending 31 December |
|---|---|---|---|---|
1985 |
- |
- |
71.3 |
72.7 |
1986 |
74.4 |
75.6 |
77.6 |
79.8 |
1987 |
81.4 |
82.6 |
84.0 |
85.5 |
1988 |
87.0 |
88.5 |
90.2 |
92.0 |
1989 |
92.9 |
95.2 |
97.4 |
99.2 |
1990 |
100.9 |
102.5 |
103.3 |
106.0 |
1991 |
105.8 |
106.0 |
106.6 |
107.6 |
1992 |
107.6 |
107.3 |
107.4 |
107.9 |
1993 |
108.9 |
109.3 |
109.8 |
110.0 |
1994 |
110.4 |
111.2 |
111.9 |
112.8 |
1995 |
114.7 |
116.2 |
117.6 |
118.5 |
1996 |
119.0 |
119.8 |
120.1 |
120.3 |
1997 |
120.5 |
120.2 |
119.7 |
120.0 |
1998 |
120.3 |
121.0 |
121.3 |
121.9 |
1999 |
121.8 |
122.3 |
123.4 |
N/ A* |