Hi all,
Just wanted to put a theoretical scenario out there regarding AMIT's. I have a rudimentary understanding that AMIT's can carry with them a higher tax payable figure for a financial year above and beyond any distributions paid in cash (i.e. cash distributions received are less than the tax bill payable on the units for the given year). This may not be a regular occurrence but just wanted to run this theoretical worst case scenario passed people:
You own say 1,000 units in an AMIT purchased at a value of $1. During the FY a 5c distribution per unit is paid and there is for whatever reason a 10c per unit tax payable (CGT etc).
If the tax payable partially incurs a cost base reduction (say 5c), I just wanted to know what would happen if your investment on the 1st of July the next financial year happened to drop to zero or near zero? If you are still liable to pay income tax on the distribution portion from the previous financial year but no longer have any units of value to sell, does this mean one could technically go bankrupt in this granted "highly unlikely" scenario or have to sell other unrelated assets (e.g. house etc)?
The part that confuses me or that thinks this could be a hypothetical possiblity is that the cost base reduction on units is based around a CGT event that might just mean you have a capital loss to carry to the next financial year, but no funds at all to pay the outstanding tax bill.
Please let know if this needs more clarification and thanks in advance for any thoughts!
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