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Part C: Distributions from managed funds

Guidance notes on distributions from managed funds.

Last updated 26 May 2016

C1: How to work out your capital gains tax for a managed fund distribution

Some terms in this section may be new to you. These words are printed in red the first time they are used (mostly in earlier sections) and are explained in Definitions.

If your managed fund distribution (as advised by the fund) includes a capital gain amount, you include this amount at item 18 Capital gains on your tax return (supplementary section). You do not include capital gains at item 13 Partnerships and trusts.

Legislative changes impacting capital gains of Managed Investment Trusts

Attribution Managed Investment Trusts

For 2016 and later income years, a managed investment trust (MIT) may be able to choose to apply the attribution rules contained within a specific tax system for MITs as set out in Division 276 of the Income Tax Assessment Act 1997. Where that choice is made, the MIT becomes an attribution managed investment trust (AMIT).

Generally, these rules apply to 'attribute' amounts for tax purposes to each member based on their interest in the AMIT, rather than the member being taxed based on their 'present entitlement' to the income of the trust.

The attribution rules ensure that, for tax purposes, amounts attributed to you by the trust:

  • keep their tax character
  • flow through to you, and
  • are treated as if you had received the amount directly in your own right (though in the same circumstances as received by the AMIT).

In relation to capital gains, these rules mean you will treat the capital gains component of your trust income as being a capital gain that you made.

The share of trust amounts attributed to you is shown on your member statement, which for an AMIT is called an AMIT member annual statement (AMMA statement) (similar to the standard distribution statement provided by a managed fund).

Otherwise, for members (unitholders) of an AMIT, there should be little practical difference to the way trust capital gains are included in your tax return.

In addition, the cost base of your units in an AMIT may also be subject to annual upward or downward adjustments (see Cost base adjustments for AMIT members).

For more information on the tax system for MITs, see Managed Investment Trusts.

Streaming

In June 2011 amendments were enacted that enable the streaming of franked dividends and capital gains for tax purposes, as well as introducing targeted anti-avoidance rules. These changes apply for the 2010–11 and later income years.

Managed Investment Trusts (MITs) have a choice to apply the streaming changes contained in this legislation. In the context of this chapter these changes may be relevant where a managed fund is a MIT and has made the choice to apply these streaming changes. The streaming rules do not apply to a MIT that is an attribution managed investment trust (AMIT), however the attribution rules for AMITs enable capital gains and franked distributions to be attributed to members for tax purposes.

Where a MIT applied the streaming changes for 2010–11 they were required to apply these changes for 2011–12. Where no choice was made for 2010–11 then a MIT could choose to apply the streaming changes for 2011–12. Legislative changes enacted in June 2013 also allow for this choice to be made for 2012–13 and 2013–14 if a choice had not been earlier made. Further changes have continued to allow for this choice in 2014–15, 2015–16 and 2016–17. However after 2016–17 a MIT will not be able to make this choice. The streaming changes only affect managed funds (trusts) that make a capital gain or that are in receipt of a franked distribution for 2010–11 or a later income year. In income years in which the trust does not make a capital gain or receive a franked distribution, the streaming changes will not affect how tax law applies to the trust.

If a managed fund (trust) makes capital gains or receives franked distributions but no beneficiary is made 'specifically entitled' to any capital gain or franked distribution, the changes will produce a similar result to that achieved in the past.

A choice by a managed fund to apply these streaming changes should have minimal impact on you in working out your capital gains from managed fund distributions. Your fund should provide you with details of the relevant capital gain amounts in your statement which should allow you to complete your return.

Examples of managed funds include property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced trusts.

Distributions from managed funds can include two types of amounts that affect your CGT obligation:

  • capital gains
  • non-assessable payments.

The following steps in this section show you how to record a capital gain distributed from a managed fund. Chapter C2 covers non-assessable amounts which mostly affect the cost base of units but can create a capital gain.

Step 1 Work out the capital gain you have received from the managed fund

You need to know whether you have received any capital gain in your distribution; to find out, check the statement from your managed fund.

This statement should also show which method the fund has used to calculate the gain; the indexation, discount or ‘other’ method. You must use the same methods as the fund to calculate your capital gain. (These methods are explained in part A and part B, and in Definitions.)

Fund managers may use different terms to describe the calculation methods and other terms used in this guide. For example, they may refer to capital gains calculated using the indexation method and the ‘other’ method as non-discount gains.

Step 2 Gross up any discounted capital gain you have received

If the fund has applied the CGT discount to your distribution, this is known as a discounted capital gain.

You need to gross up any discounted capital gain distributed to you by multiplying the gain by two. This grossed-up amount is your capital gain from the fund. If the managed fund has shown the grossed-up amount of the discounted capital gain on your distribution statement, you can use that amount.

Example 21: Grossing up a capital gain

Tim received a distribution from a fund that included a discounted capital gain of $400. Tim’s statement shows that the fund had used the discount method to calculate the gain.

Tim grosses up the capital gain to $800 (that is, $400 x 2).

End of example

Step 3 Work out your total current year capital gains

Add up all the capital gains you received from funds (grossed up where necessary) together with any capital gains from other assets. Write the total of all of your capital gains for the current year at H item 18 on your tax return (supplementary section).

If you have any capital losses, do not deduct them from the capital gains before showing the total amount at H.

Example 22: ‘Other’ method

Tim’s fund also distributed a capital gain of $100 calculated using the ‘other’ method. Tim includes $900 ($800 + $100) at H item 18 on his tax return (supplementary section).

End of example

Step 4 Applying capital losses against capital gains

If you have no capital losses from assets you disposed of this year and no unapplied net capital losses from earlier years, go to step 5.

If you made any capital losses this year, deduct them from the amount you wrote at H. If you have unapplied net capital losses from earlier years, deduct them from the amount remaining after you deduct any capital losses made this year. Deduct both types of losses in the manner that gives you the greatest benefit.

Deducting your losses

You will probably get the greatest benefit if you deduct capital losses from capital gains distributed from the fund in the following order:

  1. capital gains calculated using the ‘other’ method
  2. capital gains calculated using the indexation method or the discount method.

If the total of your capital losses for the current year and unapplied net capital losses from earlier years is greater than your capital gains for the current year, go to step 7

Example 23: Deducting capital loss

If Tim had a capital loss of $200 when he sold another CGT asset, he deducts his capital loss ($200) from his capital gain ($900) and arrives at $700. As he applied the loss first against the capital gain calculated using the ‘other’ method and then against the capital gain calculated using the discount method (after grossing it up), Tim can apply the CGT discount to the remaining $700.

End of example

Losses from collectables and personal use assets

You can only use capital losses from collectables this year and unapplied net capital losses from collectables from earlier years to reduce capital gains from collectables. Jewellery, art and antiques are examples of collectables.

Losses from personal use assets are disregarded. Personal use assets are assets mainly used for personal use that are not collectables, such as a boat you use for recreation. For more information see the Guide to capital gains tax 2016.

Step 5 Applying the CGT discount

If you have any remaining grossed-up discount capital gains you can now apply the CGT discount, if applicable, and reduce them by 50%.

Remember, you cannot apply the CGT discount to capital gains distributed from the fund calculated using the indexation or ‘other’ method.

Example 24: Applying the CGT discount

Tim has deducted his capital losses (including any unapplied net capital losses from earlier income years) from his capital gain. He now reduces the amount remaining by 50%:

$700 x 50% = $350

Tim has a net capital gain of $350.

End of example

Step 6 Write your net capital gain on your tax return

The amount remaining after completing steps 1–5 is your net capital gain for the income year. Write this at A item 18 on your tax return (supplementary section).

Example 25: Writing your net capital gain on your tax return

Tim writes $350 at A item 18 on his tax return (supplementary section).

End of example

Step 7 Work out your carry-forward losses

If the total of your capital losses for the year and unapplied net capital losses from earlier years is greater than your capital gains for the year, you were directed to this step from step 4.

Do not write anything at A item 18 on your tax return (supplementary section).

At V item 18 on your tax return (supplementary section), write the amount by which the total of your capital losses for the year and net capital losses from earlier years exceeds your capital gains for the year. You carry this amount forward to be applied against later year capital gains.

For more information about CGT and managed fund distributions, see the Guide to capital gains tax 2016.

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