C3: Worked examples for managed fund distributions

Start of example

Example 26: Bob has received a non-assessable amount

Bob owns units in OZ Investments Fund, which distributed income to him last May. 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
• $28 calculated using the ‘other’ method.

These capital gains add up to $203.

The statement shows Bob’s distribution included a $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 income year.

Bob follows these steps to work out the amounts to write on his tax return.

As Bob has a capital gain which the fund reduced by 50% under the discount method ($100), he includes the grossed-up amount ($200) in his total current year capital gains.

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 discounted capital 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 18 on his tax return (supplementary section) as follows:

 

Other CGT consequences for Bob (where OZ Investments Fund is not an AMIT)

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

A CGT-concession amount is only taken off the cost base and reduced cost base if it was received before 1 July 2001.

If OZ Investments Fund is an AMIT, Bob should instead refer to the AMIT cost base net amount to determine any cost base adjustment.

Example 27: 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 last April and gives her a statement that shows her distribution included:

• $65 discounted capital gain
• $50 capital gain calculated using the ‘other’ method
• $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 H item 18 on her tax return (supplementary section).

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 x 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 18 on her tax return (supplementary section).

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:

1. 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 from these capital gains:
    
   $90 – $90 = $0 (indexed and ‘other’ method capital gains)
2. subtracts her remaining capital losses after step 1 ($10) against her discounted capital gains ($130):
    
   $130 – $10 = $120 (discounted capital gains)
3. applies the CGT discount to her remaining discounted capital gains:
    
   ($120 x 50%) = $60 (discounted capital gains)

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 18 on her tax return (supplementary section) as follows:

 

Other CGT consequences for Ilena (where XYZ Managed Fund is not an AMIT)

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

If XYZ Managed Fund is an AMIT, Ilena should instead refer to the AMIT cost base net amount to determine any cost base adjustment.

 

Example 28: Miriam has been notified of an AMIT cost base net adjustment

Miriam owns units in the Exponential Growth Fund, which has elected in to the new tax system for managed investment trusts in 2015–16, and is therefore an AMIT. Her units have a cost base of $55 each.

The fund attributes $13 of assessable income per unit to Miriam for 2015–16 but only pays a cash dividend amount of $3 per unit. Exponential Growth Fund retains the balance of $10 per unit for reinvestment rather than paying it as a cash distribution. The $13 attributed amount is included in Miriam's assessable income.

Cost base consequences

The $13 attributed to Miriam that is included in her assessable income is included in her AMIT cost base increase amount, while the actual payment of $3 is included in her AMIT cost base reduction amount. The AMIT cost base increase amount is netted off against the AMIT cost base reduction amount, resulting in a shortfall AMIT cost base net amount of $10 per unit. Miriam's AMMA statement shows the AMIT cost base net amount of $10.

The $10 (shortfall) AMIT cost base net amount is not included in Miriam's assessable income or capital gains, but is used to increase the cost base (and reduced cost base) of her units in Exponential Growth Fund. She will need to include it in her cost base (and reduced cost base) calculations when she eventually sells her units in the fund, to ensure that the undistributed amount already attributed to her is not double taxed as a capital gain.

 

Cost base per unit	$55
plus AMIT cost base net amount (shortfall)	$10
New cost base per unit	$65

 

End of example