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Income tax: capital gains: what are the consequences where a taxpayer receives a non assessable distribution in respect of units in a unit trust and the distribution exceeds the indexed cost base of the units?

The general position covering the capital gains consequences of non assessable unit trust distributions is set out in TD 93/169.

Subsection 160ZM(3) of the Income Tax Assessment Act 1936 covers the situation where a taxpayer receives a non assessable distribution which exceeds the indexed cost base. In this situation, there will be two consequences:- (i) the indexed cost base will reduce to nil; (ii) an assessable capital gain equal to the excess will arise.

Any subsequent non assessable distribution will constitute a capital gain. Example: Indexed cost base before distribution $8,500 Non assessable distribution $9,000 The non assessable distribution is an "adjusted payment" as defined in subsection 160ZM(3A). A capital gain of $500 arises upon distribution. Indexed cost base after distribution will be nil.

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