• Non-assessable payments from a unit trust

    Attention

    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

    It is quite common for a unit trust to make non-assessable payments to unit holders.

    If a profit made by the unit trust is not assessable, any part of that profit distributed to an individual unit holder will also be non-assessable in most cases - for example, a share of a profit made on the sale of property acquired by the unit trust before 20 September 1985.

    If you receive non-assessable payments from a unit trust, you need to make cost base adjustments while you own the units. Those adjustments will affect the amount of any capital gain or capital loss you make on disposal of your units. If certain amounts exceed your cost base, you may also make a capital gain on the excess in the year of receipt of those non-assessable payments.

    Note
    Capital loss

    You cannot make a capital loss from a non-assessable payment.

    If relevant to you, non-assessable payments may be shown on your distribution statement as:

    • tax-free amounts (where certain tax concessions allowed to the trust, for example, deductions for the cost of buildings, means it can pay greater distributions to its unit holders)
    • CGT-concession amounts (the CGT discount component of any actual distribution)
    • tax-exempted amounts (generally made up of exempt income of the trust, amounts on which the trust has already paid tax, or income you had to repay to the trust), or
    • tax-deferred amounts (other non-assessable payments, including indexation allowed to the fund on its capital gains and accounting differences in income).

    Tax-exempted amounts do not affect your cost base or reduced cost base. However, if your statement shows any tax-deferred, CGT-concession or tax-free amounts, you adjust the cost base and reduced cost base as follows:

    • cost base-add the tax-deferred amounts and the CGT-concession amounts received before 1 July 2001 and deduct the total from the cost base, or
    • reduced cost base-add the tax-deferred amounts, the CGT-concession amounts received before 1 July 2001 and the tax-free amounts and deduct the total from the reduced cost base.

    You must adjust the cost base or reduced cost base of the units when you sell them. The amount of the adjustment is based on the amount of non-assessable payments you received up to the date of sale. You use the adjusted cost base or reduced cost base to work out your capital gain or capital loss (see How to calculate a capital loss in chapter 2 for more information).

    The cost base and reduced cost base adjustments are more complex if you deducted capital losses from a grossed-up capital gain. If this is applies to you, the 'Ilena' example shows how to make the adjustments.

    Example
    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 2001. The fund gave him a statement showing he had received $550 assessable income, including the following capital gains:

    • $100 using the discount method (grossed-up amount $200)
    • $75 using the indexation method, and
    • $28 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 losses for the 2000-01 income year.

    Bob follows these steps to work out the amounts to show on his tax return.

    Bob works out how much of the fund distribution to show as income by deducting the total of the capital gains on his statement from the total assessable income distributed to him:

    $550-$203 = $347.

    Bob shows the $347 at item 12-Partnerships and trusts.

    As Bob has a capital gain which the fund reduced under the CGT discount of 50% ($100), he includes the grossed-up amount ($200) in his total current year capital gain.

    Bob adds the grossed-up amount to his indexed method and 'other' capital gains to work out his total current year capital gains:

    $200 + $75 + $28 = $303

    As Bob has no other capital gains or losses, his net capital gain is the amount of capital gain included in his distribution from the fund ($203).

    Bob completes item 17 as follows:

    G

    X Yes

    A

    203

    H

    303

    Records Bob needs to keep

    The tax-deferred amount Bob received is not included in his income or his capital gains, but it affects the cost base and reduced cost base of his units in OZ Investments Fund for future income years.

    Bob did not deduct any capital losses from his discount method capital gains, so he deducts the tax-deferred amount from both the cost base and reduced cost base of his units as follows:

     

    $

    Cost base

    1200

    Less tax-deferred amount

    105

    New cost base

    1095

    Reduced cost base

    1050

    Less tax-deferred amount

    105

    New reduced cost base

    945

    Example
    Ilena's capital loss is greater than her non-discounted capital gain

    Ilena invested in XYZ Managed Fund. The fund makes an income distribution of $400 to Ilena for the year ending 30 June 2001 and provides her with a statement that shows her distribution included:

    • $65 discounted capital gain, and
    • $90 non-discounted capital gain.
     

    The statement shows Ilena's distribution also included:

    • $115 tax-deferred amount, and
    • $35 tax-free amount.
     

    Ilena has no other capital gains but made a capital loss of $100 on some shares she sold during the year.

    From her records, Ilena knows the cost base and reduced cost base of her units are $5000 and $4700 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.

    To work out how much of the fund distribution to show as income, Ilena subtracts the total of the capital gains on her statement from the income distribution:

    $400-($65 + $90) = $245.

    Ilena shows the $245 at item 12-Partnerships and trusts.

    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

    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 label H item 17.

    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 first. In her case, she will receive the best 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% to the remaining grossed-up capital gains:

    $120-($120 x 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 as follows:

    G

    X YES

    A

    60

    H

    220

    Records Ilena needs to keep

    The tax-deferred and tax-free amounts Ilena received are not included in her income nor 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 deducted $10 capital losses from her grossed-up capital gain before she applied the CGT discount of 50%. In effect, $5 of the tax-deferred amount was offset against her capital losses. So she reduces the tax-deferred amount by $5 and deducts the remainder ($110) from the cost base and reduced cost base of her units as follows:

     

    $

    Cost base

    5000

    Less tax-deferred amount

      110

    New cost base

    4890

    Reduced cost base

    4700

    Less tax-deferred amount ($ 110)+
    tax-free amount ($ 35)

    145

    New reduced cost base

    4555

    Last modified: 31 Aug 2010QC 16195