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Captial Gain Tax on managed fund

Discussion in 'Accounting & Tax' started by evisional2, 1st Oct, 2015.

  1. evisional2

    evisional2 Well-Known Member

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    I paid $150,000 to buy a Perpetual Managed Fund in August last year at $1.8 per unit. The fund unit price now drops to 0.6cent per units. I got a significant unrealised capital loss. However, In 30 Jun 2015, there is a significant distribution (50%) of capital gain based on the fund statement. It means that though I have a significant unrealised capital loss, I still have to pay tax for the capital gain tax due to the fund capital gain distribution. Note that the total value of initial investment units ad reinvestment of distributed units is less that my initial investment capital.

    This seems to be unfair of the tax system on the managed fund.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    They've distributed the capital gains.

    Have a chat with your accountant about your losses.

    One issue with these types of managed investments is that you may not notice the erosion of capital when they're maintaining the dividend.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It might be worth realising a loss now.
     
  4. evisional2

    evisional2 Well-Known Member

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    Hi Terry_w

    You are right. If I had realised my loss in FY2015, the loss could offset against the capital gain. However, It is too late to realise loss now as it will become capital gain loss in FY2016.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep - but a similar problem could arise this year. You shouldn't do this without advice but it may be possible to sell and buy back again - watching out it won't get classed as a 'wash sale'.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Welcome to the world of managed funds. When they distribute large cap gains the unit price will generally fall by a similar value !! Its like ex-div shares.

    Did you also pay an adviser ? You probably paid approx. 2% to Perpetual...They all win and you lose.
     
  7. marty998

    marty998 Well-Known Member

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    Gotta be very careful in smaller managed funds too.

    There's a problem in the industry called the "last man standing".

    If you are thinking of redeeming out, chances are others invested in the fund are also thinking of redeeming out.

    What does a fund manager need to do to meet redemptions? Sell more investments, potentially triggering further taxable capital gains.

    And if you happen to be the last person left in the fund you could get absolutely slaughtered with CGT.

    A responsible investment manager will be alert to the possibility his/her fund is heading down that path and will write to all investors explaining the situation and giving options (recapitalisation, wind-up, in specie distribution etc). Many do not though.
     
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  8. evisional2

    evisional2 Well-Known Member

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    Thanks for your insight advice.

    This will happen again for this financial year. Market is very bad right now. I am deferring sale until this year .
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Not true. Units are revalued usually daily. Your theory is fine if all unitholders request redemption. There are still funds doing redemption requests from the gfc.
     
  10. marty998

    marty998 Well-Known Member

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    Managed funds generally do not account for Deferred tax liabilities on unrealised gains (LIC's do)... obviously for trusts being taxed in the hands of the beneficiaries it's not possible for the bean counters to know the tax position of every investor.

    So any potential tax impacts are not already included in the unit price.