ETF tax resources

Every year in July and August, tax statements are made available to investors in all Betashares funds that have paid a distribution in respect of the previous financial year. Please note that this year’s statements will be issued in batches. This means you may receive your statements separately if you invest in multiple funds.

Tax statements are now available to all investors via Link Market Services’ Investor Centre and not sent by post unless specifically requested. You can submit a request to receive your tax statement by post via Link Market Services’ Investor Centre or by calling 1300 202 738 or emailing [email protected]

It’s important to make sure you have registered your details with Link to receive your Tax Statement promptly.

If you need to check whether Link has all your details, you can also contact them directly on 1300 202 738.

It does take some time for unit registries (including our registry, Link Market Services) to pass information on to the ATO – but there is no need to manually enter these details. Once the pre-fill has occurred, you should still check the information that is pre-filled by the ATO against the annual tax statement you receive for your Betashares holdings to ensure they match up.

The cash distribution relating to an income year may be paid after 30 June each year. Tax returns should include the attributed income as specified in the AMMA Statement rather than the cash receipt.

The ATO provided guidance on how the amount of foreign income tax offset relating to foreign capital gains should be disclosed on an AMMA Statement. The 2023 Tax Guide from Betashares provides more information on how Betashares’ AMMA Statements reflect the ATO’s guidance.

Your ETF’s distribution will be subject to income tax, regardless of whether you take it in cash, or participate in a DRP.

If you participate in a DRP, it is important to keep records of each distribution. If and when you come to sell your units, you will need to calculate your capital gain/loss, and this must be calculated for each individual parcel of units you have bought, including those you received as part of a DRP. You need to know the date and allocation price for each distribution that was reinvested and any cost base adjustments attached to the ETF’s distribution for completeness.

There are many benefits that can occur from participating in a DRP.

Foreign source income is income that has been derived in a country other than Australia.

If a company earns foreign source income and passes that on to an Australian investor, it identifies the income as ‘foreign source income’. If the income has been taxed overseas, a credit for the tax paid overseas may be available. Depending on your individual circumstances, you may be able to claim an offset for tax paid overseas.

If an ETF’s portfolio includes companies that earn foreign source income, then your distributions from that ETF may include a foreign source income component, and possibly a foreign income tax offset in respect of tax paid overseas. Details of the components of your distribution will be contained in the annual tax statement you receive for your Betashares holdings.

Whether you should take your distribution in the form of cash or elect to participate in a DRP depends on your individual circumstances and investment goals.

Participating in a DRP can be a convenient way of increasing your investment. You are not charged brokerage on the incremental amount invested. Therefore, if you don’t need the cash, participating in a DRP can help you to increase the value of your portfolio.

A DRP also enables you to enjoy the benefits of compounding. As your holding of units increases over time, you will essentially be increasing your investment amount and may benefit from distributions paid on your increased holding.

If, however, you rely on your investment income for your living expenses, you may be better off taking your distributions in the form of cash.

If you participate in a DRP, the amount you receive in a distribution is applied to purchase additional units in the ETF. Any amount left over will be retained on your behalf and added to subsequent distributions to purchase new units.

For example, assume you receive a distribution of $60, and the ETF unit price is currently $40. You would receive one new unit, and $20 would be credited and applied at the time of the next distribution. Assume the next distribution also is $60, and the ETF unit price is still $40. Using the $60 distribution, plus the $20 carried over from the previous distribution, you would have $80 available to be reinvested, and so would receive two further units in the ETF.

All other things being equal, on the date an ETF goes ‘ex-distribution’, its price will typically fall by approximately the amount of that distribution.

If you purchase an ETF after or on the ‘ex-distribution’ date, you are not entitled to the distribution that has just been declared. In contrast, investors who hold an ETF ‘cum-distribution’ (i.e. as at the Record date for determining entitlement to the distribution) are entitled to receive payment of the distribution that has been declared.

For investors who hold an ETF cum-distribution, the value of the units in the ETF will typically fall on the ex-distribution date, all else being equal, but the distribution investors receive should approximately offset the loss of value.

For example, assume an ETF’s units are trading at $50 per unit before going ‘ex’ a $2 per unit distribution:

• An investor who held the ETF ‘cum-distribution’ would be entitled to the $2 per unit distribution due to be paid. The price of the ETF units should fall on the ex-distribution date by approximately $2 per unit, all else being equal, such that the distribution received roughly offsets the loss of value.
• An investor who purchased the ETF immediately when the units went ‘ex-distribution’ may have been able to buy at a lower price, around $48 per unit, but would not be entitled to the $2 per unit distribution.

There is no right or wrong answer to this question.

As explained above, all else being equal, when you buy ex-distribution you are likely to pay a lower price for your units – but you will not receive the distribution that has just been declared. When you buy cum-distribution, you will likely pay more – but you receive the distribution. Taking both purchase price and distribution into account, your net outlay may be quite similar.

However, the tax implications will differ.

If you buy cum-distribution:

• You must include the taxable components of your distribution as income in your tax return for the financial year in which the distribution is declared.
  You may be entitled to a franking credit (where applicable).
• Your cost base for the units will be higher than if you had purchased ex-distribution – so when you ultimately come to sell your units, your capital gain will be less (or capital loss greater) than had you purchased ex-distribution.

If you buy ex-distribution:

• The relevant distribution is not included in your tax return.
• Your cost base for the units will be lower than if you had purchased cum-distribution – so when you ultimately come to sell your units, your capital gain will be greater (or capital loss lower) than had you purchased ex-distribution.

Note that the above discussion is most relevant where you purchase ETF units immediately before or after the ETF goes ex-distribution. The further away from the ex-distribution date you get, the more the ETF price will be affected by variables other than the payment of the distribution.

The AMIT rules were designed to improve the taxation law for managed investment trusts by increasing certainty and allowing greater flexibility. The needs of investors and their associated compliance cost were factored into these new rules.

A “character flow-through” model will apply to ensure that amounts attributed to members will retain the character they had in the hands of the trustee for income tax purposes.

Double taxation will be reduced with the AMIT cost base adjustments applied to the member interests in the trust.

The key features of the AMIT regime include:

• AMITs will be treated as a fixed trust for income tax purposes.
• AMITs use an ‘attribution’ method to allocate taxable income amounts and their characters to investors.
• The taxable income attributed to you may be different to the cash amount you actually receive.
• If the cash amount is different to the attribution amount, you make an adjustment to the cost base of your investment that reflects this difference.
• Underestimates and overestimates of amounts at the trust level are carried forward and dealt with in later years.
• Allocation of expenses within the AMIT is performed in accordance with a set of rules.

An AMIT can attribute income to members and distribute a cash amount different to the attribution amount. In such circumstances, the AMIT cost base adjustments arise.

The adjustment you make to the cost base of your investment depends on whether the gross cash distribution you receive is higher or lower than your attributed taxable income for the year:

• If your cash distribution is more than your attributed taxable income, then you reduce your cost base by the excess.
• If your cash distribution is less than your attributed taxable income, then you increase your cost base by the shortfall.

The change to your cost base affects the capital gain or loss you will make when you come to dispose of your investment, and therefore the tax consequences of that disposal.

It is important that you keep records of the AMIT cost base adjustments and reflect such adjustments in the tax costs of your investment.

An increase in your cost base means that amounts that were counted as taxable income, but which you did not receive in cash, are not taxed again as capital gains on disposal.

A decrease in your cost base means that amounts you received in cash, but which were not counted as taxable income at the time you received those amounts, will increase the taxable gain (or decrease the loss) you make on disposal.

As the cash distribution is different to the attribution amount, the AMIT cost base adjustments need to be communicated to members.

Details of the annual cost base adjustments will be included in the Attribution Managed Investment Trust Member Annual (AMMA) Statement issued by Betashares to investors via our unit registry provider Link Market Services.

Under the AMIT rules, a Fund can choose to distribute an amount of cash that is different to its attributed taxable income.

The cash distribution relating to an income year may be receiving after 30 June each year. However, attributable income as per your AMMA Statement should be used to prepare your income tax return.

The AMIT rules give Betashares the flexibility to make a cash distribution that is different from the attribution amount.

An attribution amount may reflect not just income produced by the underlying investments of the fund, but also components that can change significantly from year to year, such as capital gains made by the fund, or profits from activities such as currency hedging.

In some years, simply passing these amounts through to investors in full in cash may result in distributions that are significantly higher or lower than the fund typically pays or that may be expected from the fund’s investment exposure.

In order to more appropriately reflect the expected distribution yield of the relevant fund, taking into account the fund’s investment objective, Betashares may determine to pay a cash distribution that is different to the attribution taxable amount.

While Betashares has elected for all of our funds to be governed by the AMIT rules, it is possible that in a particular financial year a fund does not meet the eligibility criteria to be an AMIT. In that event, the AMIT rules would not apply and the fund’s distributions would be governed by the pre-existing, non-AMIT tax rules for managed funds e.g. Managed Investment Trust (MIT).

If you have any further tax questions in relation to the AMIT regime and how it might affect your investment in Betashares funds, we recommend you consult your tax adviser or refer to the information from the ATO website at www.ato.gov.au.

Below is the link to the ATO’s webpage that discusses about the Managed investment trusts, including AMIT.

There are seven methods available for taxpayers to choose from. The most common methods used are the default TOFA rules, which are accrual and realisation.

While the TOFA accrual method seeks to spread the gains/losses over the life of a financial arrangement using the effective interest rate method, the realisation method seeks to tax gains/losses on payments received or termination of a financial arrangement.

The TOFA methods do not apply to individual investors or managed investment schemes with assets less than $100 million. However, managed investment schemes with assets less than this threshold can elect into a TOFA method.

TOFA’s default methods are accrual and realisation. Some security types that the TOFA accrual method would apply to are fixed or floating rate bonds where the gains/losses can be sufficiently determined. For the TOFA realisation method, the cash-settled futures contracts are generally subject to this rule.

For a currency overlay arrangement, there is a TOFA hedging election that allows entities to align commercial outcomes of a hedging arrangement with tax outcomes. With this TOFA method, there is a better matching of gains/losses from the currency overlay arrangement with the gains/losses arising on termination of underlying assets.

Betashares will consider the most appropriate method to apply to its managed investment schemes to align with its investment strategy.