Capital Gain on My ETF even though no Sales?

thegamerulez on 18/08/2020 - 21:53

Hey folks,
Just started working on my tax returns as I was waiting for my annual tax statements from my ETFs. This is the first financial year with any ETF purchase for me, so all a bit new from a tax-filing perspective. I have purchased VAS and VDHG in small lots over the course of the year. I haven't made any sale of units during the year.
I notice that the VAS statement doesn't have any capital gains but I see some Net Capital Gains for VDHG which I apparently need to enter in the "managed funds" section of the MyGov tax form.
Can someone please clarify why capital gains has been computed without any sale of asset (in this case the units of the ETF)? Am I actually paying tax on "notional gains?" What would happen in the event that I actually sell some or all of the units at a later stage?

I have kept my tax filing on hold till I figure this aspect out.

I don't want to approach an accountant and pay him/her just to have this query answered. I do not have any queries with the actual form filling itself. I am clear which part of the tax statement goes where in the form. It's the capital gain aspect mentioned in the ETF Tax statement that confuses me.

Thanks!

Financial

Comments

  • [Deactivated] on 18/08/2020 - 22:12
    +11

    The fund buys and sells to manage their holdings. The capital gains are attributed to that.

    • songsong on 18/08/2020 - 23:50

      So does that mean instead of paying capital gains tax once from the sale of the ETF units you own, you're paying it for each and every trade completed by the managed fund during the time you hold those units? What happens when you eventually sell off the units then?

      • [Deactivated] on 18/08/2020 - 23:53
        +1

        Yes. You pay capital gains tax when they re position their portfolio, and if they done it at a loss they'll carry that to offset future gains.

        When you sell the etf units, if youve made a profit you pay then as well.

        • songsong on 18/08/2020 - 23:58

          Interesting, thanks!

        • thegamerulez on 19/08/2020 - 09:37

          Thanks for the confirmation. I didn't know this to be honest. Makes me wonder whether my effective return on investment (post tax) will actually get impacted significantly due to this or is it generally very marginal?
          There's no alternative to this, is there? Other than buying shares outright.
          Will the treatment be similar if I say use a robo platform like StockSpot? Although Stockspot might actually be in an inferior position to begin with owing to the higher admin charges.

          • [Deactivated] on 19/08/2020 - 11:46

            @thegamerulez: You would have to be churning alot of $$$ for it to make a margin difference.

            Stockspot wouldnt help, as these funds are mostly rebalanced quarterly rather than live.

  • TuiTorpedo88 on 18/08/2020 - 22:34

    In this case you need to understand that there can be multiple sources of capital gains from your share investments: a) from you buying and selling your positions and then b) from the ETF or Managed Fund buying and selling their internal positions(of which you own a portion thereof).

  • doubleplatinum on 19/08/2020 - 15:47
    -1

    Is this for real or a joke? Seriously?

    • thegamerulez on 19/08/2020 - 17:01

      are you referring to the aspect of getting taxed in this manner or my question itself?

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