Exchange traded funds (ETFs) are taxed in two separate ways. Each year the fund pays you a distribution, which is income you declare, and that distribution can include a capital gains component. Separately, when you sell your ETF units you make a capital gain or loss of your own. This guide covers both, and the one ETF-specific twist that catches people out: the cost-base adjustment on your annual tax statement.
Selling ETF units is a CGT event
ETF units are a CGT asset, just like shares. When you sell or otherwise dispose of them you have a capital gains tax event, and you work out the result the same way (ATO: When CGT applies to shares and units):
- Your capital proceeds are what you sold the units for.
- Your cost base is what you paid plus brokerage on the buy and the sell.
- Proceeds minus cost base is your capital gain, or a capital loss if the cost base is higher.
If you are an individual and held the units for more than 12 months, you generally pay tax on only half the gain (the 50% CGT discount). Losses are applied before the discount. If you bought the same ETF at different times, you choose which parcels you sold, and that choice changes both the cost base and whether the discount applies. This is the part CGT Mate does for you.
ETF distributions can include capital gains
An ETF distribution is not all dividends. It can bundle franked dividends, foreign income, and a capital gains component passed through from the fund selling assets inside the portfolio. Your annual tax statement breaks this down, and you declare the capital gains component in your return (ATO: Distributions from managed funds). If the fund applied the CGT discount to that component, you gross it up by multiplying by two, then claim the discount yourself. This is separate from any gain you make by selling your own units.
The ETF twist: AMIT cost-base adjustments
Many Australian ETFs and managed funds are attribution managed investment trusts (AMITs). If yours is, your annual tax statement shows an AMIT cost base net amount, which adjusts the cost base of your units up or down each year (ATO: Cost-base adjustments for AMIT members):
- Your cost base is increased by the assessable income and tax-free amounts you were attributed, which reduces a future gain or grows a loss.
- Your cost base is reduced by the cash actually paid to you and by tax offsets, which grows a future gain or shrinks a loss.
The two are netted off each year. Where the cash paid out is more than the amounts attributed to you, common with tax-deferred or return-of-capital distributions, the net effect is a cost-base reduction, so you pay more CGT when you eventually sell. This adjustment lives on the fund tax statement, not on your broker trade history, so it has to be added by hand.
Reinvested distributions (DRP) add parcels
If you reinvest your ETF distributions, each reinvestment buys new units at the price on that day and starts a new parcel with its own cost base and purchase date. Over a few years that is many small parcels, each tracked separately for CGT. A broker file usually shows these as ordinary buys, so the buy and sell maths still works; the cost-base adjustment above is the part that is not on the file.
How to work it out
Match each sale to the units you bought, work out the gain or loss per parcel, apply your losses, then the discount, and report the net capital gain. CGT Mate does this part for you: paste or upload your CommSec, SelfWealth or Stake trades and it produces a parcel-by-parcel schedule and a CSV, entirely in your browser. Because the AMIT cost-base adjustment and the distribution capital gains component come from your annual fund statement rather than your trades, CGT Mate flags them for you to add, by you or your accountant, instead of guessing. New to all this? Start with our plain-English guide to CGT on shares.