How to record capital gains components of dividend distributions?

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Hi guys,
I am trying to account for capital gains components of dividend distributions within LICs and how to enter them in sharesight properly.
I understand I can add an field to reflect this, however do I then need to deduct the Discounted Capital Gains amount from the franked amount so that the total income stays the same?
What happens when the capital gain component is larger than the distribution? (not that it makes much sense to me!) this is happening with a distribution for MIR dated AUG 17.
It would be great if this could be automatically populated - I have come across this issue in a range of LICs.
Thanks
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ergora

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Posted 1 year ago

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Ben Clendon, Official Rep

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Hi,

We've recently received a few questions around capital gains components on LIC dividends so I took a closer look today at our data feed to see if we can get the required information.

Unfortunately it doesn't look like it will be as simple as updating our handling of our existing ASX corporate action data. It's likely we would need to source these CGT components from another source.

However, I will explore these options further and see if we can come up with a better automated handling of these components. We've done a lot of work with ETF's in this space so I don't see why LIC's should be any different.

I also took a closer look at the MIR dividend paid out on the 10th August 2017.

If you were willing to send a copy of your dividend statement to support@sharesight.com I could dig a bit further, but here's my thoughts so far:

1. I would suggest splitting the dividend into two. It appears there was a special dividend of 4 cents with the full amount attributed to capital gains plus the regular dividend of 6.5 cents which had 5 cents attributed to capital gains.

Splitting the two out might make it easier to record the components correctly.

2. The franking credit rate that we calculated of 30% appears to be wrong. As per the linked doc, a franking credit rate of 27.5% should have been used:
https://www.asx.com.au/asxpdf/2017071...

3. I see in the doc I linked above there is a pre-tax attributable gain of 12.86 cents, which is more than the 10.5 cents per share for the two combined dividends. I will dig a little further into what this means. At the least some shareholders can claim a tax deduction on their tax return. Perhaps others reading this post will add their thoughts.
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Ben Clendon, Official Rep

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Hi,

I've just dug a little deeper and I think the simplest approach for now would be to keep the single dividend record in Sharesight of 10.5 cents a unit, but adjust the franking credits (if necessary to reflect the % franked of 27.5%) and add a comment regarding the LIC Capital Gain component.

See an older post on this topic (also for an August MIR dividend)
https://getsatisfaction.com/sharesigh...

From what I can tell you do need to keep the fully franked amount as advised on your dividend statement otherwise the franked amount you report on your tax return will be off. However, if you add a cgt tax component into your existing payout, then your net dividend ie cash received will be incorrect.

See an ATO example here:
https://www.ato.gov.au/general/capita...

You will want to keep note of the LIC Capital Gain component because you will need this to work out what deduction, if any, you can claim. For more info:
https://www.ato.gov.au/Individuals/Ta...

I will discuss the issue further internally, but it feels like the ideal solution would be for us to add a new LIC Capital Gain tax component to our payout form. This wouldn't affect the Net Dividend received.

See below an example for how it might look (using just a one share distribution as an example):



I will re-post on this topic once I have had a chance to discuss the issue further with the team.

IMPORTANT DISCLAIMER: I am not a tax advisor and I don't know your tax circumstances.
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ergora

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Hi Ben,
Thank you so much for looking into this so promptly, it is greatly appreciated.
Regarding the franking rate, I have seen the mismatch in a few LICs, but this is easy enough to rectify on our end.

I think your suggested new field would certainly be a fantastic addition.
It would hopefully show in the CGT report as well.
It seems that for now the best way to address this is to add a mention of the LIC cap gain in the comments on the dividend in question.
Is there a way to display comments on a report so that I don't need to go check every single comment come tax time to see if there is a cap gain component attached to each dividend?
Thanks again Ben for the great support!
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Ben Clendon, Official Rep

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Hi, no problem at all.

Under advanced settings on the taxable income report you can select the 'show comments' checkbox in order to show comments for each dividend.
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Ben Clendon, Official Rep

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Unlike with some of the existing cgt components that can be added on the payout form, I don't think we want to show this new 'LIC capital gain' component on the CGT report.

See the first paragraph at the following link:
https://www.ato.gov.au/Individuals/Ta...

However, if we do add this new LIC capital gain field to the payout form, then we will ensure it displays on the taxable income report and appears in our new Income Tax Return section as a deduction.
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Ben Clendon, Official Rep

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Hi All,

Today we released a new LIC Capital Gain component onto the payout form.



When you have one or more LIC Capital Gain values, we display an extra column on the Taxable Income report. In addition, we now display a new D8 Deduction section on our income tax return assistance section which shows the sum of your LIC Capital Gain values minus 50% of this total for addition onto the D8 section of the Australian income tax return.



We hope you find this new feature a useful way to keep track of these LIC Capital Gains.
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ergora

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Hi Ben,
Thank you so much for implementing this feature!
Amazing stuff!It works perfectly, and allows for complete record keeping.Love the separate column in the income report.

Thank you so much!
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Ben Clendon, Official Rep

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That's great to hear!
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Ian Dickson

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Thanks for implementing this feature. However, I don't see the new field on the Edit a Payment screen for any of my LICs (AFI, AUI, BKI, MLT). Does it only appear for LICs that have announced a LIC Capital Gain?
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Ben Clendon, Official Rep

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Hi Ian,

If you click on 'Add another field' beneath the franking credit field you should see LIC capital gain appear as one of the options in the resulting dropdown.
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Ian Dickson

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Thanks Ben.