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/D131.

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 two consequences will follow:- (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.