• Chapter C3  Worked examples for managed fund distributions

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    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 obligation for 2004-05 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 2005. 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 2004-05 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 (supplementary section) as follows:

    17 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                         203.00

    Total current year capital gains

    H                        303.00

    Net capital losses carried forward to later income years

    V

    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 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 2005 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 (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 17 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 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 (supplementary section) as follows:

    17 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                         60.00

     

    Total current year capital gains

    H                        220.00

    Net capital losses carried forward to later income years

    V                            0.00

    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

    Last modified: 06 Oct 2009QC 27583