• ### Chapter C3 - Worked examples for managed fund distributions

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

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 \$1,200 and \$1,050 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:

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 \$1,095 Reduced cost base \$1,050 less tax-deferred amount \$105 New reduced cost base \$945

End of example

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 × 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 × 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:

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

End of example