Personal investors guide to capital gains tax 2002

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Part C: Distributions from managed funds

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

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

Distributions from managed funds can include 2 types of amounts that affect your CGT obligation:

• capital gains
• non-assessable payments.

The following steps in chapter C1 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.

Note - New terms

We may have used some terms that are not familiar to you. The first time these words are used, they are linked to their entry in Explanation of terms .

Handy hint

If your managed fund distribution (as advised by the fund) includes a capital gain amount, you show this amount at item 17 - Capital gains. You do not show capital gains at item 12 - Partnerships and trusts.

Handy hint

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 'other method' as non-discount gains.

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. These methods are explained in part A , part B and Explanation of terms . Handy hint You must use the same method(s) as the fund to calculate your capital gain.
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 2. This enables you to reduce your grossed up capital gain by your capital losses and then later discount the reduced gain. Note Generally a managed fund will not have qualified for the 50 per cent small business CGT reduction. However if it did qualify for that concession in addition to the CGT discount you should multiply the gain by 4. Handy hint 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 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).
Step 3	Complete H item 17
	You need to show the total of your capital gains at H . If you have more than one capital gain, including a distribution from a fund, you should add all those amounts. If you have any capital losses from other assets, do not deduct them from the capital gains when showing the total amount at H . Example Tim shows $800 at H item 17 on his tax return.
Step 4	Applying capital losses against capital gains
	If you have no capital losses from assets you disposed of this year and no net capital loss from an earlier year that you were told to carry forward to this year, go to step 5 . Otherwise, from the total of your capital gains, you can now deduct your capital losses. You may do this in the order that gives you the greatest benefit. If your capital losses are greater than your capital gains, go to step 7 . Example If Tim had a loss of $200 when he sold his shares, he deducts the $200 from the $800 grossed-up amount to arrive at $600. He applies the CGT discount to this $600. Handy hint The greatest benefit is probably to deduct capital losses from capital gains distributed from the fund in the following order: iv. capital gains calculated using the 'other' method v. capital gains calculated using the indexation method and then vi. capital gains calculated using the discount method.
Step 5	Applying the CGT discount
	Where available, you can now apply the CGT discount to any remaining grossed-up capital gains by reducing the capital gains by 50 per cent. Example Tim calculates 50 per cent of his capital gain (after applying capital losses) to which the CGT discount can apply: $600 x 50% = $300. Tim has a capital gain of $300. Note - Applying the CGT discount Remember, you cannot apply the CGT discount to capital gains distributed from the fund calculated using the indexation or 'other' method.
Step 6	Work out your net capital gain - A item 17
	At A you show the total of your capital gains after applying any capital losses (step 4) and then applying the CGT discount to any part of your capital gain that is eligible (step 5). Show the result at A . Example Tim shows $300 at A item 17 on his tax return.
Step 7	Work out your carry-forward losses - V item 17
	If your capital losses were greater than your capital gains, you were directed to this step from step 4. If you have capital losses remaining, you should show '0' (zero) at A . At V , show the amount by which your capital losses are greater than your capital gains. You can now carry these capital losses forward to later years, until you have capital gains against which you can deduct these capital losses. Information For more information about CGT and managed fund distributions, get the publication Guide to capital gains tax .

Chapter C2 - Non-assessable payments from a managed fund

Non-assessable payments from a managed fund to a unit holder are common. If relevant to you, these non-assessable payments may be shown on your statement from the fund as:

• tax-free amounts (where certain tax concessions received by the fund mean it can pay greater distributions to its unit holders)
• CGT-concession amounts (the CGT discount component of any actual distribution)
• tax-exempted amounts (generally made up of exempt income of the fund, amounts on which the fund has already paid tax or income you had to repay to the fund) or
• tax-deferred amounts (other non-assessable amounts, including indexation received by the fund on its capital gains and accounting differences in income).

Tax-exempted and CGT-concession amounts do not affect your cost base or reduced cost base. However, if your statement shows any tax-deferred or tax-free amounts, you adjust the cost base and reduced cost base of your units for future purposes as follows:

• cost base - deduct the tax-deferred amount from the cost base or
• reduced cost base - add the tax-deferred and tax-free amounts and deduct the total from the reduced cost base.

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 21 September 1999.

A CGT-concession amount received after 1 July 2001 is no longer taken off the cost base or the reduced cost base.

Before 1 July 2001 payment of an amount associated with building allowances was treated as a tax-free amount. Payments after 1 July 2001 are treated as tax-deferred amounts.

Handy hint

You cannot make a capital loss from a non-assessable payment.

Handy hint

A CGT-concession amount received before 1 July 2001 is treated in the same way as a tax-deferred amount.

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 for 2001-02 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 2002. 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 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 $1200 and $1050 respectively.

Bob has no other capital gains or capital losses for the 2001-02 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 under the CGT discount of 50 per cent ($ 100), he includes the grossed-up amount ($ 200) in his total current year capital gain.

So Bob adds the grossed-up amount to his capital gains calculated using the indexation method and 'other' method to work out his total current year capital gains:

$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 gain from the trust calculated using the discount method, 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:

17 Capital gains		You must also print X in the YES box at G if you received a distribution of a capital gain from a trust
Did you have a CGT event during the year?	G         NO     X   YES
Net capital gain			A           203
Total current year capital gains	H           303
Net capital losses carried forward to later income years	V

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	$1095

Reduced cost base	$1,050
less tax-deferred amount	$105
New reduced cost base	$945

Example 2

Ilena's capital loss is greater than her non-discounted capital gain.

Ilena invested in XYZ Managed Fund. The fund makes a distribution to Ilena for the year ending 30 June 2002 and provides her with a statement that shows her distribution included:

• $65 discounted capital gain
• $90 non-discounted capital gain.

The statement shows Ilena's distribution also included:

• $30 tax-deferred amount
• $35 tax-free amount.

A CGT-concession amount received after 1 July 2001 is no longer taken off the cost base or the reduced cost base.

Handy hint

A CGT-concession amount received before 1 July 2001 is treated in the same way as a tax-deferred 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 and reduced cost base of her units are $5,000 and $4,700 respectively.

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 per cent, she must gross up the capital gain. She does this by multiplying the amount of the discounted capital gain by 2:

$65 x 2 = $130

Ilena adds her grossed-up and non-discounted capital gains to work out her total current year capital gains:

$130 + $90 = $220

She shows her total current year capital gains ($ 220) at H item 17 on her tax return.

After Ilena has grossed up the discounted capital gain received from the fund, she subtracts her capital losses from her capital gains.

Ilena can choose which capital gains she subtracts the capital losses from irst. In her case, she will receive better result if she:

• first subtracts her capital losses from her non-discounted capital gains:

$90 -$90 = $0

• then subtracts any remaining capital losses from her grossed-up gains:

$130 -$10 = $120

Ilena applies the CGT discount of 50 per cent to the remaining grossed-up capital gains: $120 -($ 120 x 50%) = $60

Ilena adds up the capital gains remaining after applying the CGT discount.

The total is her net capital gain:

$60 + $0 = $60

Ilena completes item 17 on her tax return as follows:

17 Capital gains		You must also print X in the YES box at G if you received a distribution of a capital gain from a trust
Did you have a CGT event during the year?	G       NO       X   YES
Net capital gain			A           60
Total current year capital gains	H           220
Net capital losses carried forward to later income years	V

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 ($30) + tax-free amount ($ 35)	$65
New reduced cost base	$4,635

ATO references:
NO NAT 4152