Non-assessable payments from a managed fund to a unit holder are common and may be shown on your statement from the fund as:
- tax-free amounts
- CGT-concession amounts
- tax-exempted amounts, or
- tax-deferred amounts.
You may need to adjust the cost base and reduced cost base of your units depending on the kind of non-assessable payment you received. Slightly different rules apply to attribution managed investment trusts (AMITs).
Tax-free amounts relate to certain tax concessions received by the fund which enable it to pay greater distributions to its unit holders. If your statement shows any tax-free amounts, you adjust the reduced cost base (but not your cost base) of your units by these amounts. Payments of amounts associated with building allowances which were made before 1 July 2001 were treated as tax-free amounts.
CGT-concession amounts relate to the CGT discount component of any actual distribution. Such amounts do not affect your cost base and reduced cost base if they were received after 30 June 2001. A CGT-concession amount received before 1 July 2001 is taken off the cost base and reduced cost base.
Tax-exempted amounts are generally made up of non-assessable non-exempt income of the fund, amounts on which the fund has already paid tax or income you had to repay to the fund. Such amounts do not affect your cost base and reduced cost base.
Tax-deferred amounts are other non-assessable amounts, including indexation received by the fund on its capital gains and accounting differences in income. You adjust the cost base and reduced cost base of your units by these amounts. Payments associated with building allowances which are made on or after 1 July 2001 are treated as tax-deferred amounts.
If the tax-deferred amount is greater than the cost base of your units, you include the excess as a capital gain. You can use the indexation method if you bought your units before 11.45am (by legal time in the ACT) on 21 September 1999.
You cannot make a capital loss from a non-assessable payment.
As a result of some stapling arrangements, investors in some managed funds have received units which have a very low cost base. The payment of certain non-assessable amounts in excess of the cost base of the units will result in these investors making a capital gain.
Cost-base adjustments for attribution managed investment trusts (AMIT) members
Under the new legislation applying to attribution managed investment trusts (AMITs), you may need to make an upwards or a downwards adjustment to the cost base of your units (or other membership interests) in an AMIT. Upwards adjustments are only available for units in trusts that are AMITs. For more information on the rules for AMITs, see attribution managed investment trusts.
The amount of any annual upwards or downwards cost base adjustment to your units is determined by your AMIT cost base net amount. The AMIT will calculate your AMIT cost base net amount, which is the balance of your AMIT cost base reduction amount and your AMIT cost base increase amount. You will not need to refer separately to tax-free or tax-deferred amounts to determine the cost base adjustment for your units in an AMIT, however these amounts should broadly be reflected in the AMIT cost base net amount calculated by the AMIT.
Effectively, the cost base adjustment rules for AMITs apply to:
- increase the cost base of your units by your AMIT cost base increase amount, being:
- amounts attributed to you by the AMIT that are to be included in your assessable income or your non-assessable non-exempt income for the income year, plus
- amounts attributed to you by the AMIT for the income year that relate to trust capital gains
- reduce the cost base amount of your units by your AMIT cost base reduction amount, being:
- the actual cash payments you received (or have a right to receive) in relation to your units, plus
- amounts of any tax offsets that you have for the income year in respect of amounts attributed to you by the AMIT
If your AMIT cost base reduction amount exceeds your AMIT cost base increase amount, the excess is your AMIT cost base net amount and this amount is used to reduce the cost base of your units. If the AMIT cost base net amount is greater than your cost base, it will reduce your cost base to nil, and any remaining amount will result in a capital gain. If the AMIT cost base net amount is less than your cost base, your cost base amount will be decreased, which could result in a greater capital gain or reduced capital loss on the disposal of your units in the AMIT. The same adjustments are also made to your reduced cost base.
If your AMIT cost base reduction amount falls short of your AMIT cost base increase amount, the shortfall is your AMIT cost base net amount and this amount is used to increase the cost base and reduced cost base of your units. This could result in a reduced capital gain or increased capital loss on disposal of your units.
Your statement of distribution (called an AMMA statement) from the AMIT should show the AMIT cost base net amount and other information relevant to your cost base and reduced cost base.
For more information, see Law Companion Ruling LCR 2015/11 Attribution Managed Investment Trusts: annual cost base adjustments for units in an AMIT and associated transitional rules.