What is AMIT?

Transcript

The Attribution Managed Investment Trust, also known as the AMIT regime, is a taxation system for eligible managed funds. All Magellan and Airlie funds have elected to be an AMIT.

This regime allows AMITs to make a cash distribution to unitholders where the cash that is paid can be different to the tax components that are attributed as part of that distribution.

This would result in a corresponding adjustment to your tax cost base and the introduction of a CGT event cost base uplift.  The cost base represents the original value of an investment.

In a scenario where your cash distribution is greater than the attributed taxable amount, the difference will result in a decrease to the cost base of your units for that year and is referred to as an AMIT Cost Base Net Amount – Excess on your AMMA statement.

It works in the same way as the tax deferred amount on your tax statements was treated prior to AMIT.

Conversely, where your cash distribution is lesser than the attributed taxable amount, the difference will result in an increase to the cost base of your units for that year and is referred as an AMIT Cost Base Net Amount – Shortfall on your AMMA statement.

A helpful way to understand this is through an example.

Let’s assume that Mary has purchased $10,000 of units in a Magellan fund that is an AMIT.

In the first financial year she receives a cash distribution of $400. When referring to her first annual tax statement, called the AMMA statement, Mary can see that of the $400 cash distribution, the tax income attributed to her is only $300.

This is the amount that is assessable for her payment of tax in Year 1. The remaining $100 is shown on her AMMA as an other non-attributable amount. This gives rise to a decrease in the cost base of her investment.

As Mary’s cash distribution is greater than the attribution amount, the excess of $100 reduces the tax cost base of her units in the AMIT by $100. In this example, this would result in her initial tax cost base of $10,000 being reduced to $9,900 at the end of Year 1.

If Mary is to sell her units now, the capital gain or loss should be calculated using her adjusted cost base at the end of Year 1. This would be the $9,900, which is lower than the initial $10,000 paid.

Let’s move forward to Year 2.

Mary receives another cash distribution of $400, however, this year the tax amount that is attributed to her is $600 and is greater than the cash distribution by $200.

The $600 is the amount that is assessable for her payment of tax in Year 2.

How would the additional $200 be treated in this scenario?

The additional $200 results in an uplift in Mary’s tax cost base. This is added to the adjusted tax cost base from Year 1 and now becomes $10,100.

When cash distribution is less than the attribution amount, this gives rise to an increase in the cost base of the investment.

This process continues for the life of Mary’s investment in this fund, with cash distributions and tax attributions that can vary from year to year.

The tax cost base of Mary’s investment is adjusted each year.

The tax cost base decreases when taxable amount attributed is less than the cash distributions paid.

Conversely, the tax cost base increases when taxable amount attributed is greater than the cash distributions paid.

Assuming Mary has not sold any units, she will only pay tax on the amounts that are attributed to her each year.

Over the life of an investment in an AMIT, the net difference between cash distributions and attribution amounts is equal to the total tax cost base adjustments.

If in Year 5, Mary sells out of the investment before receiving any distributions. Mary would need to calculate whether she has made a capital gain or loss, on her holding.

She needs to consider the proceeds received for selling the investment and deduct this from the adjusted tax cost base. The result will be a taxable gain or loss which is included in her tax return for that financial year.

In our example, let’s assume that Mary received proceeds of $14,000 for the sale of her units in the AMIT. Mary’s tax cost base in Year 5, after adjusting for the annual increases and decreases, is $10,100.

The result is a gross capital gain of $3,900 that Mary would need to include in her Year 5 income tax return. As the investment was held for more than 12 months, Mary may be eligible for CGT discounting depending on her circumstances.

Therefore, over the life of Mary’s investment in this AMIT, the net difference between total cash distributions and total attribution amounts is equal to the total tax cost base adjustments.

Prior to AMIT being introduced, cash distributions were usually equal to tax attributions. On occasions, cash distribution can be greater than tax income, and results in a decrease to the cost base of your units for that year. This illustration assumes cash distributions was equal to tax income, in pre-AMIT scenario.

Under AMIT, any difference between cash distributions and tax attributions triggers tax cost base adjustments on an annual basis, resulting in a corresponding adjustment to capital gains or losses on the sale of your investment.

In summary, there is no difference in the total amount of tax assessable for payment over the life of your investment.