TD 93/170 — Income tax: capital gains: how is the adjusted payment calculated pursuant to subsection 160ZM(3A) of the Income Tax Assessment Act 1936 where there is a non assessable distribution from a unit trust and when is the adjusted payment used for the purposes of calculating a capital gain or loss under section 160ZM?

Income tax: capital gains: how is the adjusted payment calculated pursuant to subsection 160ZM(3A) of the Income Tax Assessment Act 1936 where there is a non assessable distribution from a unit trust and when is the adjusted payment used for the purposes of calculating a capital gain or loss under section 160ZM?

The general position covering the capital gains consequences of non assessable distributions as they affect the calculation of the cost base of an asset is set out in TD 93/AA. Specific provisions relating to the impact of certain non assessable distributions (i.e. distributions attributable to deductions for capital expenditure on travel accommodation and on certain buildings and structural improvements; distributions from income that are exempt income because of section 124ZM or 124ZN; distributions from the consideration in respect of a disposal of shares in a PDF; and distributions from an amount that, because of section 159GZZZZE, is not included in assessable income) are included in subsection 160ZM(3A).

The effect of subsection 160ZM(3A) is to exclude certain amounts from the calculation of the indexed cost base as required under paragraph 160ZM(2)(a) and subsection 160ZM(3) where non assessable distributions are received. Non assessable distributions generally reduce the indexed cost base of an asset. Amounts referred to in paragraphs 160ZM(3A)(a), (b), (c) and (d) do not reduce the indexed cost base of an asset.

No adjustments are made under subsection 160ZM(3A) to non assessable distributions when calculating the reduced cost base of an asset. If a taxpayer claims a loss on the disposal of units in a unit trust, the reduced cost base is reduced by the full amount of any non assessable distributions. Example: Units acquired on 1 July 1990 for $10,500 Units sold on 30 September 1992 Non assessable distribution of $9,000 received on 30 June 1992 which includes an amount of $3,000 attributable to a deduction allowed under Division 10C or 10D of Part IIIA. Relevant indexation factors 30 September 1990 103.3 30 June 1992 107.3 30 September 1992 107.4 What is the cost base in order to determine whether there has been : (i) a capital gain? (ii) a capital loss? (i) To determine whether there has been a capital gain, the following calculation is made under subparagraph 160ZM(2)(a)(i): Deemed disposal consideration as at 30 June 1992 ($10,500 x [107.3/103.3]) $10,910 Less adjusted payment ($9,000 - $3,000) $ 6,000 Deemed re-acquisition consideration as at 30 June 1992 $ 4,910 Therefore indexed cost base as at 30 September 1992 (4,910 x [107.4/107.3]) $ 4,915 A capital gain will arise if the sale price exceeds $4,915. (ii) To determine whether there has been a capital loss, the following calculation is made under subparagraph 160ZM(2)(b)(i): Deemed re-acquisition consideration as at 30 June 1992 ($10,500 [unindexed] - $9,000) $1,500 Therefore reduced cost base as at 30 September 1992 $1,500 A capital loss will arise if the sale price is less than $1,500. It should be noted that no reduction is made to the non assessable distribution in the calculation of the reduced cost base.