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Part C: Distributions from managed funds

Guidance notes on distributions from managed funds.

Last updated 29 May 2019

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, see Managed investment trusts.

Streaming

In June 2011, amendments were enacted that allow the streaming of capital gains and franked dividends to beneficiaries, subject to relevant integrity provisions.

The amendments apply from 2017–18 to managed investment trusts (MITs) which have not previously made an election to apply the amendments. For MITs which have previously made an election to apply the amendments, the amendments continue to apply in 2017–18 and onwards. 

The amendments do not apply to attribution managed investments trusts (AMITs), which are subject to the separate attribution rules that enable capital gains and franked distributions to be attributed to members for tax purposes.

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.

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 × 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 Guide to capital gains tax 2019.

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 × 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 Guide to capital gains tax 2019.

C2: Non-assessable payments from a managed fund

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
  • 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.

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 obligations for 2018–19 and complete item 18 on your Tax return for individuals (supplementary section).

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 writes the following at item 18 on his tax return (supplementary section):

  • $303 at H, and
  • $203 at A.

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:

Overall cost base

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.

End of example

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 × 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 × 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 writes the following at item 18 on her tax return (supplementary section):

  • $220 at H, and
  • $60 at A.

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:

Overall cost base

Cost base

$5,000

less tax-deferred amount

$30

New cost base

$4,970

Overall reduced cost base

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.

End of example

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 2018–19, 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 2018–19 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.

New cost base

Cost base per unit

$55

plus AMIT cost base net amount (shortfall)

$10

New cost base per unit

$65

 

End of example

QC58662