Personal investors guide to capital gains tax 2004

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 17 .

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

Example

• Tim's fund also distributed a capital gain of $100 calculated using the other method. Tim shows $900 ($800 + $100) 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 able to carry forward to this year, go to step 5.

If you had capital losses (including net capital losses from earlier years) deduct them from your capital gains (the amount you wrote at H ). You may do this in the order that gives you the greatest benefit.

Offsetting 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, and then
3. capital gains calculated using the discount method.

If your capital losses (including net capital losses from earlier years) are greater than your capital gains, go to step 7 .

Example

• If Tim had a 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.

Losses from personal use assets and collectables

A net capital loss from collectables can only be used to reduce capital gains from collectables. Losses from personal use assets must be disregarded. See the Guide to capital gains tax for more information.

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

• Tim has applied his capital losses (including net capital losses from earlier years) to his capital gain. He now reduces the amount remaining by 50%:
• $700 x 50% = $350
• Tim has a capital gain of $350.

Note

• If the capital gain from the managed fund qualified for the 50% small business CGT reduction, reduce it by 50% after you have reduced it by the 50% CGT discount if that also applied.

Step 6 Work out your net capital gain

Show at A item 17 the amount remaining after completing steps 1-5. This is your net capital gain for the year. Ignore step 7.

Example

• Tim shows $350 at A item 17 on his tax return.

If your capital losses (including net capital losses from earlier years) were greater than your capital gains, you were directed to this step from step 4.

If you have capital losses (including net capital losses from earlier years) remaining, you should not put anything at A .

At V show the amount by which your capital losses (including net capital losses from earlier years) are greater than your capital gains. You carry these capital losses forward to be applied against later year capital gains.

More information

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

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 (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).

Note

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

CGT-concession amounts received after 30 June 2001 and tax-exempted amounts (whenever they are received) do not affect your cost base and 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, or
• reduced cost base - deduct both the tax-deferred and tax-free 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.

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

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

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 obligation for 2003-04 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 2004. 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, and
  • $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 $1,200 and $1,050 respectively.
• Bob has no other capital gains or capital losses for the 2003-04 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 by 50% under the CGT 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 discount 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 17 on his tax return as follows:

• CGT consequences for Bob
• 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:

Remember

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

Example 2: 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 for the year ending 30 June 2004 and provides her with a statement that shows her distribution included:
  • $65 discounted capital gain
  • $50 capital gain calculated using the 'other' method, and
  • $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 item 17 on her tax return.
• 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 17 on her tax return.
• 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 against 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 17 on her tax return as follows:

• CGT consequences for Ilena
• 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:

ATO references:
NO NAT 4152