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2007 Standard distribution statement: guidance notes for fund managers |
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Introduction
The 2007 Standard distribution statement is the format recommended by the Tax Office and the Investment and Financial Services Association (IFSA) for disclosure by managed funds of tax information to resident individuals for completion of 2007 tax returns, relevant schedules and other requirements.
The 2007 standard format has been developed to address any confusion experienced by managed fund investors in completing their tax returns. The standardisation of terms and presentation used in trust distribution statements to unit holders should reduce the confusion experienced and promote consistency. The input of the Australian Shareholders Association and Australian Independent Retirees Association in developing this agreed format is appreciated.
The 2007 Standard distribution statement has amounts included by way of example which are referred to in the Guidance Notes which follow the statement.
The 2007 version has a few changes:
- Part B now lists all of the capital gains methods
- Part C has become Part D
- a new Part C has been inserted so that the information for the capital gains question is in its own part
- a non-compulsory new Item ‘Less other allowable trust deductions’ has been included in Part D.
Purpose
These notes are prepared to assist those involved in the preparation of fund manager distribution statements to understand the basis on which the 2007 Standard distribution statement format has been determined, and the rationale behind the various items disclosed on the statement.
Basis of Standard Distribution Statement
The standard format does not purport to deal with all possible scenarios a fund manager may encounter. Where the funds' circumstances are outside those shown in the standard format, additional information or requirements need to be considered. For example, attributed foreign income may need to be included.
Fund managers may delete lines that are not relevant to the particular circumstances. For example, if there is no indexed capital gain, the lines for an indexed capital gain may be deleted. Also, if there is no foreign income, Part B may be deleted but it would be recommended that a note be included advising that Part B is not shown as it is not applicable.
The format is based on the standard information needs of a resident individual unit holder in a unit trust operated by the funds management industry. The circumstances are relevant to those unit holders holding units on capital account and where distributions labelled as ‘non assessable amounts’ are not capital gains or ordinary income of the unit holder. It is also assumed that the unit holder is a resident for the whole of the year of income.
Fund managers should apply relevant provisions of the income tax law in preparing the taxation information in the distribution statement, in particular Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).
The 2007 Standard distribution statement is current as at 18 June 2007 and is issued at this time to enable the necessary systems changes to be implemented by the fund managers prior to 30 June 2007 for 2007 income year reporting. If subsequent changes are necessary we will discuss these with industry bodies.
Basic Structure
Part A of the 2007 Standard distribution statement explains items 12, 17 and 19 in the Tax return for individuals (supplementary section) 2007 which may need to be completed by an investor in a managed fund. For investors with straightforward circumstances the information in Part A should be sufficient to complete their tax return.
Part B contains the specific information needed by a unit holder to determine their foreign tax credit entitlement in accordance with the ITAA 1936.
Part C explains the components of a distribution which investors may need to know to work out their net capital gain or loss.
Part D allows a reconciliation of the net cash amount distributed to the unit holder and provides information relevant to cost base adjustments and foreign loss quarantining.
Standard distribution statement
2007 tax return information: Resident individual unit holder for year ended 30 June 2007
Part A: Summary of 2007 tax return (supplementary section) items
Tax return (supplementary section) |
Amount |
Tax return label |
Non-Primary Production income |
165 |
12U |
Other deductions relating to distributions |
4 |
12Y |
Franking credits |
30.00 |
12Q |
Credit for TFN amounts withheld |
10.00 |
12R |
Credit for tax paid by trustee |
0.00 |
12S |
Total current year capital gains |
230 |
17H |
Net capital gain |
160 |
17A |
Assessable foreign source income |
220 |
19E |
Other net foreign source income |
220 |
19M |
Part B: Foreign tax credit information
Additional information for Question 19.
Foreign income categories: |
Amount |
Foreign tax paid |
passive income * |
235 |
37.00 |
other income |
14 |
6.00 |
*includes foreign net capital gains and | ||
- discount capital gains |
16 |
5.00 |
– indexed capital gains |
30 |
5.00 |
– other capital gains |
14 |
2.00 |
Part C: Capital gains tax information
Additional information for Question 17.
Capital gains – discounted method |
140 |
(grossed up amount) |
Capital gains – indexation method |
65 | |
Capital gains – other method |
25 | |
Total current year capital gains |
230 |
Part D: Components of distribution
Cash distribution |
Tax |
Taxable | |
Australian income | |||
Dividends – |
70 |
30.00 |
100 |
Dividend - |
60 |
60 | |
Interest |
20 |
20 | |
Other income |
15 |
15 | |
Less other allowable trust deductions |
-30 |
-30 | |
Non primary production income |
135 |
30.00 |
165 |
Capital Gains | |||
Discounted capital gain |
65 |
5.00 |
70 |
CGT concession amount |
70 |
0 | |
Capital gains - |
60 |
5.00 |
65 |
Capital gains – |
23 |
2.00 |
25 |
Distributed capital gains |
218 |
12.00 |
|
Net capital gains |
160 | ||
Foreign income | |||
Interest income |
90 |
10.00 |
100 |
Modified passive income |
85 |
15.00 |
100 |
Other assessable foreign income |
14 |
6.00 |
20 |
Assessable foreign income |
189 |
31.00 |
220 |
Other non-assessable amounts | |||
Tax-exempted amounts |
25 |
||
Tax-free amounts |
15 |
||
Tax-deferred amounts |
30 |
||
Gross cash distribution |
612 |
||
Other deductions from distribution | |||
TFN amounts withheld |
-10 |
||
Other expenses |
-4 |
||
Net cash distribution |
598 |
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Guidance Notes
Part A. Summary of Tax return for individuals (supplementary section) 2007 items.
- The references in Part A are to the Tax return for individuals (supplementary section) 2007.
- U Item 12 – Non-primary production income
Unit holders include their share of franked dividends and their share of franking credits at this item. Net capital gains and foreign income are not shown here.
The standard format assumes that there are no primary production activities carried out by the managed fund.
- Y Item 12 – Other deductions relating to distributions
At this item unit holders show the total of deductible expenses they incurred during the income year. (Deductions allowable to the trustees that are taken into account in the net income calculation under section 95 of the ITAA 1936 are not shown at this item. Ordinarily, deductible expenses would be netted off against the relevant class of income in the trust estate.)
- Q Item 12 – Franking credits
Unit holders show their share of franking credits from franked dividends at this item. Include cents.
- R Item 12 – Credit for TFN amounts withheld
At this item unit holders show their share of any credit for tax file number amounts withheld from interest, dividends, and unit trust distributions paid or payable, in accordance with sections 12–140 and 12–145 of Schedule 1 to the Taxation Administration Act 1953. Include cents.
- S Item 12 – Credit for tax paid by trustee
At this item unit holders show their share of any credit for tax paid or payable by the trustee, including cents, for example, tax paid or payable when the trustee has been assessed under subsection 98(1) of the ITAA 1936 in respect of beneficiaries under a legal disability (includes beneficiaries under the age of 18).
- H Item 17 – Total current year capital gain
A Item 17 – Net capital gain.
The components of these items are set out in Part C. Unit holders will need to gross up their cash distribution by the amount of any tax paid on capital gains (for example, foreign tax on foreign net capital gains). It is important to note that an individual unit holder who has capital losses will not simply be able to transfer the net capital gain amount from Part A to their tax return. Fund managers may wish to refer investors in these circumstances to our publications - Guide to capital gains tax 2007 or the Personal investors guide to capital gains tax 2007 or provide details in their own explanatory material.
- Item 18 – Foreign entities
Part A of the standard format assumes that there is no attributed foreign income of the trust such that the information requested at item 18 of the Tax return for individuals (supplementary section) 2007 is not applicable to the managed fund investment. If this is not the case this information should be provided to unit holders.
- E Item 19 – Assessable foreign source income
M Item 19 – Other net foreign source income
We would expect that Part A of the trust distribution statement would show the amounts for these items to be the same. If the unit holder has foreign income deductions they should follow the instructions in TaxPack 2007 Supplement.
Part B. Foreign Tax Credit Information
- This Part contains information relevant for determining the Australian resident unit holder's entitlement to foreign tax credits under Division 18, Part III of the ITAA 1936.
- The foreign tax credit entitlement needs to be determined by the unit holder separately for each class of foreign income. The foreign tax credit for each class cannot be more than the Australian tax payable by the unit holder on that class of taxable foreign income. Due to these requirements Part A cannot simply identify the unit holder's share of foreign tax paid by the trustee as the amount to claim at item 19O (Foreign tax credits) in the unit holder's tax return.
Full details are set out in our publication How to claim a foreign tax credit 2007.
- Foreign income categories
Part B assumes that ‘passive income’ and ‘other income’ are the relevant foreign income categories for foreign tax credit purposes under subsection 160AF(7) of the ITAA 1936 for managed funds. If this is not the case then additional information will need to be provided.
- Passive income is defined in section 160AEA of the ITAA 1936.
- Foreign capital gains
Fund managers should only show foreign capital gains and attached foreign tax paid in Part B if the capital gain is deemed to be foreign source income under subsection 160AE(2) of the ITAA 1936.
Therefore do not show a foreign capital gain in Part B if:
– no foreign tax was paid in relation to that capital gain; or
– the foreign capital gain is not included in the net income of the trust estate.
- The separation of the foreign net capital gains that are included in passive income is necessary for determining the unit holder's foreign tax credit entitlement under subsection 160AE(2) and section 160AF of the ITAA 1936. For example, the unit holder may have offset losses against gross capital gains such that no foreign capital gain is ultimately included in the unit holder's assessable income under subsection 160AE(2). In these circumstances, the unit holder would have no foreign tax credit entitlement in relation to their share of the foreign tax paid by the trustee.
Part C. Capital gains tax information
- Capital gains
These items provide tax figures for the break up of H item 17 (Total current year capital gains) shown in Part A. They are also necessary for unit holders with capital losses to offset and for completion of the Capital Gains Tax (CGT) schedule.
We have assumed that the managed fund has no capital gains from collectables and the small business capital gains concessions are not applicable.
Line 1: Capital gains – discount method
This amount is the grossed up discounted capital gain (ie in our example, $70 x2). It would assist understanding of instructions and guides if the words ‘grossed up amount’ were placed adjacent to this figure.
Line 2: Capital gains – indexation method
This figure is taken from the tax amount column of the capital gains section of Part D (ie line 3).
Line 3: Capital gains – other method
This figure is taken from the tax amount column of the Capital gains section of Part D (ie line 4).
Part D. Components of a distribution
- Australian income
These details provide a break up of U item 12 (Non-primary production income) and the information is necessary for those investors who use the Application for refund of franking credits for individuals 2007 (Nat 4098/Nat 4105).
Show the net income for each item. The net income is either: - the gross income less expenses directly relevant to that income, or
- the gross income less expenses directly relevant to that income and indirect expenses that are apportioned against all income components. Expenses indirectly incurred in respect of deriving the income, for example ‘Trust Operating Expenses’ can be shown here or separately at the new ‘Less other allowable trust deductions’ item.
The practice of offsetting indirect trust expenses against one type of income (for example, Dividends – Franked amount) or successively against income types rather than apportioning the expense against all income components should be discontinued. The ‘Less other allowable trust deductions’ item uses the same information as the ‘Other trust deductions not included elsewhere’ field in version 8 of the ‘Annual Investment Income Report’.
- Line 1: Discounted capital gain
If the trust's capital gain has been reduced by the 50% discount show the part of the discounted capital gain that is included in the share of net income of the unit holder.
The $5 amount shown in the Tax paid/offsets column is the foreign tax credit amount shown in Part B.
- Line 2: CGT concession amount
The CGT concession amount is identified as the amounts referred to in subsection 104-71(4) of the Income Tax Assessment Act 1997 (ITAA 1997). Frozen indexation amounts paid to the unit holder should not be shown as CGT concession amounts on the distribution statement.
This amount comprises the non-assessable CGT discount amount paid to the unit holder. Also included is the amount of any capital losses (including unapplied net capital losses carried forward from previous years) applied by the trust (or another trust in the chain) to reduce capital gains made, that is reflected in the payment to the unit holder. (Refer Items 1 and 7 of the Table in subsection 104–71(4) of the ITAA 1997.)
Following amendments to sections 104–70 and 104–71 of the ITAA 1997, unit holders are not required to adjust the cost base of their units for these amounts if paid on or after 1 July 2001.
- Line 3: Capital gains – indexation method
This line item shows the part of the capital gain calculated by the trustee under the indexation method that is included in the share of net income of the unit holder. This item, which is required to allow an investor to make choices about the order in which to deduct capital losses, is taken into account in working out their net capital gain, and is also relevant for CGT Schedule preparers.
The $5 amount shown in the Tax paid/offsets column is the foreign tax credit amount shown in Part B.
- Line 4: Capital gains – other method
This line item shows the part of the capital gain included in the share of net income of the unit holder where the trustee has not applied the indexation or discount methods. This item, which is required to allow an investor to make choices about the order in which to deduct capital losses, forms part of the calculation of net capital gain, and is also relevant for CGT Schedule preparers.
The $2 amount shown in the Tax paid/offsets column is the foreign tax credit amount shown in Part B.
- Line 5: Distributed capital gains
This item represents the actual cash amount of capital gains distributed and includes the non-assessable CGT concession amount. It is calculated as the sum of lines 1 to 4 of the cash distribution column for capital gains. This figure is not taken into account in working out the unit holder’s net capital gain but it allows fund managers to reconcile the net cash distribution amount paid to the unit holder.
The total distributed capital gains (that is, the cash distribution plus the tax paid/offsets) equals the total current year capital gains in Part C.
- Line 6: Net capital gain
This item is the sum of line items 1, 3 and 4 of the tax amount column of capital gains and represents the net capital gain under the three methods included in the share of net income of the unit holder. In our example, this is $160 which is transferred directly to A Item 17 of the Tax return for individuals (supplementary section) 2007 as discussed in Part A above.
Where the individual unit holder has no current year capital losses or prior year net capital losses, this figure can be used directly for completion of A Item 17. If the unit holder has capital losses to offset, investors would need to refer to the Tax Office publications- Guide to capital gains tax 2007 or Personal investors guide to capital gains tax 2007.
- Foreign Income
This section is relevant for unit holders applying the foreign loss quarantining provisions under section 160AFD of the ITAA 1936. The classes shown in the statement are those considered relevant for a managed fund. If this is not the case then additional information should be provided. The classes of assessable foreign income and definitions are set out in subsections 160AFD(8) and (9) respectively.
It should be noted that foreign capital gains are not ‘assessable foreign income’ and should not be shown in this section of Part D but in the Capital Gains section.
The foreign tax credit amounts are shown only to reconcile the cash and taxable amounts, as foreign tax credit entitlements are determined under Part B.
- Other Non-assessable amounts
The headings used are based on the terminology used in sections 104–70 and 104–71 of the ITAA 1997.
‘Tax-exempted amounts’ are amounts referred to in subsection 104–71(1). Unit holders are not required to adjust either the cost base or reduced cost base of their units for these amounts.
‘Tax-free amounts’ are amounts referred to in subsection 104–71(3). Unit holders are required to reduce the reduced cost base of their units by these amounts but not their cost base.
These amounts now only include infrastructure borrowing amounts under section 159GZZZZE and exempt income arising from shares in a Pooled Development Fund under sections 124ZM and 124ZN of the ITAA 1936.
‘Tax-deferred amounts’ are amounts referred to in subsection 104–70(1) of the ITAA 1997. Unit holders are required to reduce both the cost base and reduced cost base of their units by these amounts. It should be noted that building allowance amounts paid on or after 1 July 2001 are now treated as tax-deferred amounts.
‘CGT concession amounts’ are shown in the Capital gains section to allow reconciliation of capital gains.
- Other amounts deducted from trust distribution
‘TFN amounts withheld’
This item allows the cash amount to be reconciled in Part D.
‘other expenses’
This item allows the cash amount to be reconciled in Part D.
This is to be used for expenses incurred by unit holders, for example management fees, (and not deductions allowable to the trustees that are taken into account in the net income calculation under section 95 of the ITAA 1936 and are discussed at paragraph 17 above).
Only the deductible expenses component of this amount should feed through to Part A, Y Item 12.
- ‘Please retain this statement for income tax purposes’
The use of this wording also exempts the fund manager from the requirement to include the words ‘Payment Summary’ on the distribution statement where TFN amounts have been withheld from the investment. Our position on this and other PAYG Withholding Payer issues was provided to IFSA on 21 December 2001.
Issued by the Tax Office on 18 June 2007.
Last Modified: Thursday, 21 June 2007
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