Personal investors guide to capital gains tax 2001

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Part C: Distributions from managed funds

Chapter C1: How to work out your capital gains tax for 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 two types of amounts that affect your capital gains tax obligation:

• capital gains, and
• non assessable payments.

The following steps in chapter C1 show 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.

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.

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 explanation under the heading Explanation of terms

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 indexation and other method gains 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. You should be able to find this out from the statement from your managed fund.

This statement should also show which of the calculation methods the fund has used to calculate the gain: the indexation method, the discount method or the 'other' method.

These methods are explained in part A , part B and in the 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 two. This enables you to reduce your grossed-up capital gain by your capital losses and then later discount the reduced gain.

Example

Tim received a distribution from a fund that included a discounted capital gain of $400. Tim's statement says that only the CGT discount of 50% has been applied.

Tim grosses up the capital gain to $800 (that is, $400 x 2).

Handy hint

If the managed fund has also shown the grossed up amount of the discounted capital gain on your distribution statement, you can use that amount.

Step 3 - Complete label 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 label H item 17.

Step 4 - Applying capital losses against capital gains

If you have no capital losses from assets you disposed of this year, and no capital loss from an earlier year that you were told to carry forward to this year, go to step 5.

Otherwise, from the amount you wrote at H , 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

Let us assume that Tim had a loss from a sale of shares of $200. Tim 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:

7. 'other' capital gains
8. indexation method capital gains, and then
9. discount method capital gains.

Step - 5 Applying the CGT discount

Where available, you can now apply the CGT discount to any remaining grossed-up capital gains by reducing those capital gains by 50%.

Example

Tim calculates 50% 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 indexation method or 'other' method capital gains distributed from the fund.

STEP 6 - Work out your net capital gain-label 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 label A item 17.

Step 7 - Work out your carry forward losses - label 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 a '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.

Note

For more information about capital gains tax and managed fund distributions, obtain a copy of the Guide to capital gains tax 2001 .

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 allowed to the fund, for example, deductions for the cost of buildings, 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 allowed to the fund on its capital gains and accounting differences in income).

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

• cost base - add the tax deferred amounts and the CGT-concession amounts received before 1 July 2001 and deduct the total from the cost base, or
• reduced cost base - add the tax-deferred amounts, the CGT-concession amounts received before 1 July 2001, and the tax-free amounts and deduct the total from the reduced cost base.

The cost base and reduced cost base adjustments are more complex if you deducted capital losses from a grossed-up capital gain. If this applies to you, see the worked example for Ilena to work out how to make the adjustments.

If the total of the tax-deferred amounts and the CGT-concession amounts received before 1 July 2001 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.

Handy hint

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

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 capital gains tax for 2000 - 01 and complete item 17.

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 2001. The fund gave him a statement showing he had received $550 assessable income, including the following capital gains:

• $100 using the discount method (grossed-up amount $200)
• $75 using the indexation method, and
• $28 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 losses for the 2000- 01 income year.

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

Bob works out how much of the fund distribution to show as income by deducting the total of the capital gains on his statement from the total assessable income distributed to him:

$550 - $203 = $347.

Bob shows the $347 at item 12 - Partnerships and trusts.

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

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

$200 + $75 + $28 = $303

As Bob has no other capital gains or losses, his net capital gain is the amount of capital gain included in his distribution from the fund ($203).

Bob completes item 17 as follows:

Label G Yes
Net capital gain - Label A $203
Total year capital gains - Label H	$303

Records to keep

The tax deferred amount Bob received is not included in his income or his capital gains, but it affects the cost base and reduced cost base of his units in OZ Investments Fund for future income years.

Bob did not deduct any capital losses from his discount method capital gains, so he deducts the tax deferred amount from both the cost base and reduced cost base of his units as follows:

Cost base	$1200
less tax-deferred amount	$105
New cost base	$1095
Reduced cost base	$1050
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 an income distribution of $400 to Ilena for the year ending 30 June 2001 and provides her with a statement that shows her distribution included:

• $65 discounted capital gain, and
• $90 non discounted capital gain.

The statement shows Ilena's distribution also included:

• $115 tax-deferred amount, and
• $35 tax-free amount.

Ilena has no other capital gains but made a capital loss of $100 on some shares she sold during the year.

From her records, Ilena knows the cost base and reduced cost base of her units are $5000 and $4700 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.

To work out how much of the fund distribution to show as income, Ilena subtracts the total of the capital gains on her statement from the income distribution:

$400 - ($65 + $90) = $245.

Ilena shows the $245 at item 12 - Partnerships and trusts.

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

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 label H item 17.

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 first. In her case, she will receive the best 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% 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 as follows:

Label G Yes
Net capital gain - Label A $60
Total year capital gains - Label H	$220

Handy hint

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

Records to keep

The tax-deferred and tax-free amounts Ilena received are not included in her income nor 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 deducted $10 capital losses from her grossed up capital gain before she applied the CGT discount of 50%. In effect, $5 of the tax deferred amount was offset against her capital losses. So she reduces the tax deferred amount by $5 and deducts the remainder ($110) from the cost base and reduced cost base of her units as follows:

Cost base	$5000
less tax-deferred amount	$110
New cost base	$4890
Reduced cost base	$4700
less tax deferred amount ($110) + tax free amount ($35)	$145
New reduced cost base	$4555

ATO references:
NO NAT 4152