Personal investors guide to capital gains tax 2009

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Part C: Distributions from managed funds

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

New terms Some terms in this section may be new to you. These words are explained in Definitions .

Remember 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 12   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, and
• non-assessable payments.

The following steps in this section show you how to record a capital gain distributed from a managed fund. 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 method(s) 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   x   2).

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).

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: capital gains calculated using the 'other' method 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.

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 the Guide to capital gains tax 2009 .

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 capital gain of $350.

Step 6 Write your net capital gain

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

Tim writes $350 at A item   18 on his tax return (supplementary section).

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 the Guide to capital gains tax 2009 .

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 , 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.

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 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.

Note As a result of recent stapling arrangements, some investors in 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.

C3: Worked examples for managed fund distributions

The following worked examples take the steps explained in 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 2008-09 and complete item   18 on your tax return (supplementary section).

Example 26: 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 2009. 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 2008-09 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 completes item 18 on his tax return (supplementary section) as follows:

18 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 capital gains tax event during the year?	G	No			Yes	X
Net capital gain						A                                                 203
Total current year capital gains			H                                                 303
Net capital losses carried forward to later income years			V

Other 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:

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

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 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 for the year ending 30   June 2009 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 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 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   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 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 18 on her tax return (supplementary section) as follows:

18 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 capital gains tax event during the year?	G	No			Yes	X
Net capital gain							A                                                 60
Total current year capital gains			H                                                 220
Net capital losses carried forward to later income years			V

Other 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:

Cost base	$5,000
less tax-deferred amount	$30
New cost base	$4,970
Reduced cost base	$4,700
less (tax-deferred amount + tax-free amount) ($30 + $35)	$65
New reduced cost base	$4,635

ATO references:
NO NAT 4152