Explaining capital gains tax on ETFs

Investing in exchange-traded funds (ETFs) has become a popular way to gain exposure to diversified portfolios at low cost. However, it’s essential to understand how capital gains tax (CGT) applies to ETF units and any gains distributed, so you can accurately report a gain or loss. This guide breaks down everything you need to know about CGT on ETFs in Australia, with practical tips and a simple solution to streamline your tax reporting. 

 The tax structure of ETFs 

Australian ETFs are generally structured as unit trusts and made an Attribution Managed Investment Trust (AMIT) election. Given the benefits available to investors under this AMIT regime, you should check whether an ETF has made an AMIT election and understand the reasons for such election not being made. This AMIT regime simplifies tax compliance for collective investment vehicles (e.g. ETFs) and give certainties to investors in such vehicles. Another aspect is that an ETF can make cash distributions less than income attributed to investors in an income year, and this will trigger an AMIT cost base increase or AMIT cost base decrease (collectively referred to as cost base adjustments in this article). 

At each 30 June, an ETF must issue an annual tax statement (called AMMA statement) to its investors. In this statement, all information about income attribution and cost base adjustments are outlined to help investors complete their tax returns.   

When does a CGT event occur within an ETF? 

As an ETF is required to rebalance its investment holdings on a regular basis (as stated in each index methodology). Each rebalancing will require an ETF to sell down certain portions of investment holdings and buy new assets. The sell down activities trigger CGT events within the ETF, and there may be capital gains or losses arising from such events.  

Under the AMIT regime, an ETF is required to attribute such capital gains to investors at least annually and disclose the information on the AMMA statement. There is an interaction of this attributed or distributed capital gains with capital gains or losses arising from an investor’s trading or disposal of ETF units.  

When does a CGT event occur for investors who hold ETFs? 

For ETF investors, a CGT event happens when you sell or otherwise dispose of your units. Disposals can include:   

• Selling units via your broker or investment platform 

• Giving the units away or transferring them off-market 

• Liquidation of the ETF  

At the disposal date, you calculate your capital gain or loss by comparing your sale proceeds with your cost base (original purchase price plus certain adjustments such as brokerage and cost base adjustments).  

The information about cost base adjustments outlined on the AMMA statement should be retained by ETF investors and incorporated them into the cost base of your ETF investments. If you have accumulated a large number of investments over time, it will be a challenge to maintain correct tax cost bases. There are solutions on the market       

Calculating capital gains and losses 

The calculation should be performed for each disposal. 

1. Work out the capital proceeds from the CGT event. 
2. Determine your initial cost base: purchase price plus incidental costs (e.g. brokerage).   
3. Identify the adjusted cost base: initial cost base less AMIT cost base decrease or add AMIT cost base increase. 
4. Identify the reduced cost base: similar to cost base but excludes some costs and non-deductible expenses. This will only require if there is a capital loss in step 4.   
5. Calculate your capital gain or loss:  

   Capital gain = sale proceeds – cost base   

   Capital loss = sale proceeds – reduced cost base  

6. Determine the discounted capital gains (time 2) and other gains from the AMMA statement. 

Once the calculation for each event is completed, capital gains can be offset against capital losses (from current year and prior year) to determine the remaining capital gains or capital loss to be carried forward to use against future capital gains.  

If you hold your ETF units for at least 12 months, you will be eligible for a 50% CGT discount on any capital gain -only half of your net gain is included in assessable income. 

If you need help with the calculation, the ATO has a “Guide to capital gains tax 2025” that provide further guidance. Your tax advisor can also assist with the calculations taking into account your specific circumstances and investments.