C1: How to work out your capital gains tax for a managed fund distribution
Some terms in this section may be new to you. These words are printed in red the first time they are used (mostly in earlier sections) and are explained in Definitions.
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 13 Partnerships and trusts.
Legislative changes impacting capital gains of Managed Investment Trusts
In June 2011 amendments were enacted that enable the streaming of franked dividends and capital gains for tax purposes, as well as introducing targeted anti-avoidance rules. These changes apply for the 2010–11 and later income years.
Managed Investment Trusts (MITs) have a choice to apply the streaming changes contained in this new legislation. In the context of this chapter these changes may be relevant where a managed fund is a MIT and has made the choice to apply these streaming changes.
Where a MIT applied the streaming changes for the 2010–11 income year they were required to apply these changes for the 2011–12 income year. Where no choice was made for the 2010–11 income year a MIT could choose to apply the streaming changes for the 2011–12 income year. Legislative changes enacted in June 2013 also allow for this choice to be made for 2012–13 and 2013–14 if a choice had not been earlier made. The streaming changes only affect managed funds (trusts) that make a capital gain or that are in receipt of a franked distribution for the 2010–11 or a later income year. In income years in which the trust does not make a capital gain or receive a franked distribution, the streaming changes will not affect how tax law applies to the trust.
If a managed fund (trust) makes capital gains or receives franked distributions but no beneficiary is made 'specifically entitled' to any capital gain or franked distribution, the changes will produce a similar result to that achieved in the past.
A choice by a managed fund to apply these streaming changes should have minimal impact on you in working out your capital gains from managed fund distributions. Your fund should provide you with details of the relevant capital gain amounts in your statement which should allow you to complete your return.
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
- non-assessable payments.
The following steps in this section show you 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.
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 methods 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).
End of exampleStep 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).
End of exampleStep 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.
End of exampleLosses 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 2015.
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 x 50% = $350
Tim has a net capital gain of $350.
End of exampleStep 6 Write your net capital gain on your tax return
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 on your tax return
Tim writes $350 at A item 18 on his tax return (supplementary section).
End of exampleStep 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 2015.