Are ETFs Double Taxed?

LemonShapedRock on 10/07/2022 - 22:33

Hoping this is an easy one to clear up.

When you buy a an ETF unit for $100 then sell it for $150 then I expect to pay $50 as capital gains tax.

However, when I received my annual statement it has a line item in there for capital gains made within the fund that I must also declare. Am I missing something here, this seems as if I need to pay CGT twice; once on the disposal of the ETF unit and again for individual security movements within the ETF holdings that trigger a CGT event.

Ideally Ive misunderstood something and I can continue on my days loving ETFs!

Financial Taxation

Comments

  • [Deactivated] on 10/07/2022 - 22:48

    If the individual investments within an ETF are sold (e.g. if the management rebalances the fund, etc), the capital gains on that are passed on to the underlying holders of that ETF. Those capital gains would be from that.

    Even if you didn't sold your units of the ETF, you would still incur those capital gains.

    • LemonShapedRock on 10/07/2022 - 22:57

      Got it, that makes sense.

      Does that not in essence result in double taxation if I sold the individual ETF unit?

      • Hearthstone on 12/07/2022 - 22:11

        No

        Fund rebalance on a regular basis to keep up with the index composition
        if and when they rebalance and there is a capital gain, it gets distributed to you and you pay tax on that

        the other bit of you selling and buying ETFs, that got nothing to do with fund rebalancing, every time you buy and sell
        ETFs, you can buy/sell from other ETFs holders and if there aren't enough units the market maker will redeem or create more units
        and go to the market buy and sell the underlying asset to match

        it a separate act all together, just think of it as a two separate transactions and they are not link or has any association with one another
        the only thing they have in common is the ETFs code

    • chrisn26 on 10/07/2022 - 23:00
      +1

      You should not be paying for CGs from other unitholders. ETFs are one of the most tax efficient investments: see this https://www.vanguard.com.au/personal/learn/smart-investing/e…

      • [Deactivated] on 10/07/2022 - 23:01

        Never said I was.

  • chrisn26 on 10/07/2022 - 22:57
    +1

    You should be taxed on any distribution (dividend) but not the capital gains of the fund. These reporting requirements you mention are probably because the ETF is setup as an AMIT. An actual capital gain/loss (if you sell any units) should be logged in a different section of the tax return form.

    • LemonShapedRock on 10/07/2022 - 23:00

      Thank you, for context it's a VAS the Vanguard ASX300 ETF.

      When you say it's logged in a "different section of the tax return" is that because the capital gain made within the fund is taxed differently? Or is any gain made within the fund meant to be taxed at my marginal tax rate?

      • chrisn26 on 10/07/2022 - 23:06
        +1

        Some capital gain can get realised when the fund rebalances (sells some units and buys others). In this event, the fund will distribute these CGs as a dividend. So you aren't being double taxed.

        • netjock on 11/07/2022 - 10:41
          +1

          OP this comment.

          ETF gives you a tax statement end of every tax year which breaks out the tax on dividends (inputation credits, capital gains, foreign tax credits).

          Your capital gains on sale is a different matter.

  • TChalla on 10/07/2022 - 23:33

    Talk to an Accountant

    • EightImmortals on 11/07/2022 - 06:30
      +13

      There goes his $50 profit! :)

      • TChalla on 11/07/2022 - 07:59

        😂😂😂

      • iand on 11/07/2022 - 18:31

        hopefully you can claim the now $200 loss 😀

  • CyberMurning on 10/07/2022 - 23:56
    -2

    If double do you think ozb will be raving about it… duh…

  • toniyellow on 11/07/2022 - 09:17

    You adjust the cost base depending on different events - it may not stay as $100

    One way to do that is to use something like sharesight
    https://www.sharesight.com/blog/at-a-glance-cost-base-per-sh…
    https://www.ozbargain.com.au/deals/sharesight.com

    or use an accountant.

  • brad1-8tsi on 11/07/2022 - 14:59
    +1

    They are different CGT events.

    Look at the EOY tax statement and there are often cost base adjustments that you have to apply to your own cost base. Look for "AMIT cost base excess or shortfall".

    Remember that the ETF info downloads as a managed fund rather than in the dividends section.

  • Rako on 13/07/2022 - 13:35

    "buy a an ETF unit for $100 then sell it for $150 then I expect to pay $50 as capital gains tax."
    You wouldn't have to pay $50 CGT there isn't a 100% tax rate.

    • LemonShapedRock on 13/07/2022 - 19:04

      Should read; expect to pay capital gains tax on $50

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