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Re: How to calculate CGT especially reduced cost base on sold managed fund units

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I am preparing my 2020 paper tax return and I’m stuck on capital gains.

 

In the 2019-2020 financial year I sold units on three occasions in a single managed fund.  The units were acquired, some by outright purchase, some by reinvestment of distributions, on ten dates between July 2004 and February 2008.  I’m working on the basis of first in, first out.  The dates don’t align, in the sense that in some cases the units acquired on one date were sold across several dates, and in some cases the units sold on one date correspond to more than one acquisition date, and in the case of the final sale, part of one of the corresponding acquisitions is incompletely redeemed—I still hold some of the units purchased in February 2008.  I made a spreadsheet breaking the sales down into twelve different events, and I’ve got as far as working out the difference between the (total) acquisition and sale prices for each event (although I’m not sure if ‘event’ is the right word; for each row on the spreadsheet).  Nine of them are positive, in which case I think no problem: I would calculate the capital gain for each by the discount method.  Unless I’m supposed to add the amounts pertaining to each sale date before proceeding?  Three of the amounts are negative, and that’s where I’m stuck.  I’m using Personal Investors guide to capital gains tax 2020.  It says I need to calculate my reduced cost base.

 

At the times of acquisition, obviously the fund was not an AMIT, but it is now.  I have an AMMA statement for the past financial year and statements of a different sort for earlier years.  The AMMA statement lists a shortfall but I don’t know whether that’s relevant at all since it may be talking about distributions acquired in the recent financial year, not those that I sold.  If it is relevant I don’t know by what rule I would divide the amount between the twelve rows.  On the other hand the statements from 2005 to 2008 list tax-deferred amounts, but again it’s only one figure per year and not divided between the several distributions each year with their different prices.  I am completely at sea.  Previously when I’ve sold units either the fund (other funds, not this one) has released a dedicated CGT statement or there was no need to reduce the cost base.

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ATO Certified Response

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Hi @Alysoun 

 

Generally, when selling any kind of securities, it is best to keep track of what you have bought and sold at various times and the purchase price and other details so that you can work out CGT at time of sale. When selling you can choose which items you are going to keep and which you are going to sell. There is no set rule. If you want to sell on a first in first out basis you can choose to do that. The basic rule is that you have to make sure that you have identified what items you have sold at what cost and what items at what cost you still have on hand. It appears that you have successfully done this by grouping your sold items into twelve separate groups based on different acquisition dates etc. See identifying-when-shares-or-units-are-acquired

 

With AMIT investments there is the added complication that there are often adjustments to the CGT cost base, such as payments previously referred to as ‘tax deferred amounts. This can include payments that are not taxable to you but can decrease your cost base.

 

Prior to AMIT, for any holdings of a particular managed fund, you had to reduce the cost base of various holdings of the same fund investment (eg you had 100 at $5 cost and 200 at $4 cost) by the same amount of tax deferred payment for that year. If the payment was 10 cents, then you would now have 100 at $4.90 cost base and 200 and $3.90 cost. This would be repeated each year to whatever stock you had on hand at the end of the year.

 

With AMIT, there is now the possibility of increasing cost bases. The adjustment is called the AMIT cost base net amount.

See Cost-base adjustments for AMIT members.

 

All of this means that you have to keep track of your original purchase cost of each AMIT parcel bought each year that you still have, plus take into account any adjustments to cost base each year, and then when choosing to sell part or all of that parcel use the purchase price as adjusted by any yearly amounts to arrive at cost base when selling.

 

Once you have correctly calculated your cost base amounts you work out your capital gain for each of the twelve parcels.

 

When the amount you calculate is positive you are using a CGT cost base and the outcome is a capital gain. When the outcome is negative you have a capital loss and the CGT cost is called the reduced cost base.

 

The reference to reduced cost base isn't overly meaningful in your situation.

 

Where you have made capital losses from selling some of your 12 parcels you need to offset them against capital gains that you have made ( you can choose which particular capital gains for the year to offset the losses with) before working out  the amount of discount capital gains that are left, and then arriving at your net capital gain amount for the year.

 

 

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Community Manager

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Hi @Alysoun,

 

We are looking into this for you an will have an answer for you soon. 

Most helpful response

ATO Certified Response

Community Moderator

Replies 7

Hi @Alysoun 

 

Generally, when selling any kind of securities, it is best to keep track of what you have bought and sold at various times and the purchase price and other details so that you can work out CGT at time of sale. When selling you can choose which items you are going to keep and which you are going to sell. There is no set rule. If you want to sell on a first in first out basis you can choose to do that. The basic rule is that you have to make sure that you have identified what items you have sold at what cost and what items at what cost you still have on hand. It appears that you have successfully done this by grouping your sold items into twelve separate groups based on different acquisition dates etc. See identifying-when-shares-or-units-are-acquired

 

With AMIT investments there is the added complication that there are often adjustments to the CGT cost base, such as payments previously referred to as ‘tax deferred amounts. This can include payments that are not taxable to you but can decrease your cost base.

 

Prior to AMIT, for any holdings of a particular managed fund, you had to reduce the cost base of various holdings of the same fund investment (eg you had 100 at $5 cost and 200 at $4 cost) by the same amount of tax deferred payment for that year. If the payment was 10 cents, then you would now have 100 at $4.90 cost base and 200 and $3.90 cost. This would be repeated each year to whatever stock you had on hand at the end of the year.

 

With AMIT, there is now the possibility of increasing cost bases. The adjustment is called the AMIT cost base net amount.

See Cost-base adjustments for AMIT members.

 

All of this means that you have to keep track of your original purchase cost of each AMIT parcel bought each year that you still have, plus take into account any adjustments to cost base each year, and then when choosing to sell part or all of that parcel use the purchase price as adjusted by any yearly amounts to arrive at cost base when selling.

 

Once you have correctly calculated your cost base amounts you work out your capital gain for each of the twelve parcels.

 

When the amount you calculate is positive you are using a CGT cost base and the outcome is a capital gain. When the outcome is negative you have a capital loss and the CGT cost is called the reduced cost base.

 

The reference to reduced cost base isn't overly meaningful in your situation.

 

Where you have made capital losses from selling some of your 12 parcels you need to offset them against capital gains that you have made ( you can choose which particular capital gains for the year to offset the losses with) before working out  the amount of discount capital gains that are left, and then arriving at your net capital gain amount for the year.

 

 

Initiate

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Thank you--I will study that over the next few days and let you know whether it's answered my question.

Initiate

Replies 5

Kylie,

 

You write:

 

Prior to AMIT, for any holdings of a particular managed fund, you had to reduce the cost base of various holdings of the same fund investment . . . by the same amount of tax deferred payment for that year. . . . This would be repeated each year to whatever stock you had on hand at the end of the year. . . . Once you have correctly calculated your cost base amounts you work out your capital gain for each of the twelve parcels.

 

I think you are saying that I may need to adjust the cost base on all 12 parcels if the statement shows a tax-deferred amount, not just for those where I appear to have made a capital loss because on raw figures the sale price is lower than the buy price.  In contrast, the Personal Investors Guide to Capital Gains Tax (Part B1) sets out the following steps:

 

Step 1  Work out the capital proceeds from the CGT event

Step 2  Work out the cost base of your asset

Step 3  Did you make a capital gain?

Step 4  If you did not make a capital gain, work out the reduced cost base of the asset . . .

 

where adjusting for a tax-deferred amount is an example of reducing the cost base (page 11).  Note that the step is conditional on not making a capital gain on the basis of the primary figures.  Can you please clarify whether adjusting the cost base by the tax-deferred amount is conditional as per step 4 above?

 

I think you are also saying that I need to make adjustments to each parcel for each year I owned it, so for example if I owned it for 16 years and each year the statement shows a tax-deferred amount, then I need to subtract all those 16 amounts from the buy price to get my cost base.  Is that right?  If so, do I understand each parcel will be treated under both non-AMIT and AMIT rules, according to whether the fund was an AMIT for each year of ownership?

 

The next thing is . . . the proportions in your example don’t make sense in the context of a managed fund.  My units are priced around the $1 to $2 mark, and the first statement I look at the tax-deferred amount is around $70.  I suspect the tax-deferred amount is a total, not a per-unit amount, but in that case my question remains, how do I get a per-unit amount, or how do I divide the total between the parcels when the number of units held changed throughout the year?

ATO Community Support

Replies 4

Hi @Alysoun

 

I recommend getting in touch with our Early engagement team for tailored advice.

 

You can find more information on our website about requesting an Early engagement discussion.

 

All the best

 

Ari

Initiate

Replies 3

Hi Ari,

 

Thank you, I will try that.  Before posting here I rang ATO, waited 25 minutes to speak to someone who said he'd have to transfer me, and then cut me off.  I think it's been helpful writing it down.  Meanwhile, if anyone else has something to say, I'd like to read it.

 

Alysoun

Initiate

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I'm wondering how long it will take for ATO to contact me.  I posted the early engagement form in mid-February and the tax return is already overdue, which is not my fault but because I couldn't get my payment summary from another agency.

ATO Community Support

Replies 1


Hi @Alysoun,

 

Sorry for the delay you're experiencing.

 

If you've sent a request to the Early engagement team, they typically respond within a few days of receiving it, but in some instances it may take longer.

 

I understand that you've called up previously, but if you've been waiting since mid-February, it might be best for you to call up again. Alternatively our website provides a call-back option for the Early Engagement team.

 

Please let us know how this goes.

 

Contact us

Early Engagement Call Back Request

 

RachATO

Initiate

Replies 0

Thank you. I rang ATO again, for an hour and forty minutes.  They are still working on my early engagement request but will prioritise it.  They also said I can visit a service centre (some Centrelinks) so I'll try that too.