CGT Event E4: Non-Assessable Trust Payments

CGT event E4 applies when a trustee pays a non-assessable amount on a non-AMIT trust interest, subject to component adjustments and exclusions. The applicable amount reduces the cost base. Any excess becomes a capital gain, and the cost base stops at nil.

When CGT Event E4 Applies

Start with the trust interest and the payment made on it. Section 104-70 requires a trustee payment in respect of the beneficiary’s unit or interest, with some or all excluded from assessable income. A payment can include property.

Identify the registered holder, trust and unit class. Match the payment advice to the holding and obtain the annual tax statement. Keep acquisition records and earlier cost-base adjustments so the current calculation starts with the adjusted balance.

A bank receipt establishes what arrived. It does not establish which tax components the trustee paid. Separate amounts assessed to the beneficiary from the non-assessable part, then apply section 104-71 before calculating E4.

Sections 104-70 to 104-72 of the Income Tax Assessment Act 1997 set out the event and its adjustments. E4 excludes payments for specified other CGT events and interests in attribution managed investment trusts (AMITs).

Read the Distribution Statement

Read each statement label separately because non-assessable components can have different effects on the holding record. The ATO’s trust non-assessable payments guidance distinguishes tax-deferred amounts from tax-free and tax-exempted amounts.

Fictional Non-AMIT Distribution Statement

Assume an Australian resident individual holds 1,000 identical units on capital account throughout the income year. The trustee pays $3,300 in cash and supplies this breakdown. The capital gain component uses the non-discount method.

Statement label	Amount paid	Return or holding treatment
Ordinary assessable trust income	$800	Report through the relevant trust income category
Non-discount capital gain	$400	Include in the beneficiary’s capital gains calculation
Tax-deferred amount	$1,800	Apply the E4 cost-base test
Tax-free amount	$200	Reduce the reduced cost base only
Tax-exempted amount excluded under section 104-71(1)	$100	Exclude from the E4 adjustment
Total cash distribution	$3,300	Reconcile to payment advices and the bank

The statement components total $3,300, but the amount tested against the cost base is $1,800. The reduced-cost-base adjustment is $2,000, comprising the tax-deferred and tax-free amounts, subject to the nil floor.

Use the trustee’s tax breakdown to establish the $100 exclusion. A generic label such as capital distribution cannot establish the section 104-71 treatment on its own.

A discounted trust capital gain requires its own beneficiary gross-up and capital gains calculation. The associated CGT-concession amount has separate E4 exclusions. Historical payments can have different treatment, so use the ATO’s rules for the payment period when reconstructing older balances.

Small business reductions and losses in a chain of trusts can also change the non-assessable part under section 104-71. Obtain the trustee’s supporting calculation when these components appear. Subtracting taxable income from cash alone can miss those adjustments.

Adjust the Cost Base and Calculate the Gain

Compare the applicable non-assessable payments for the income year with the adjusted cost base of the units receiving them. E4 creates a capital gain equal to the excess. It cannot create a capital loss.

Keep cost base and reduced cost base in separate columns. Their opening amounts can differ, and tax-free amounts can reduce only the reduced cost base. The following examples assume ordinary post-CGT units, with no indexation, rollover or other adjustment.

Example A: Payments Below the Cost Base

Apply the fictional statement to an opening cost base of $10,000 and reduced cost base of $9,800. There are no purchases, sales or reinvestments during the year.

Holding record	Cost base	Reduced cost base
Opening balance for 1,000 units	$10,000	$9,800
Tax-deferred adjustment	Subtract $1,800	Subtract $1,800
Tax-free adjustment	No adjustment	Subtract $200
Closing balance for 1,000 units	$8,200	$7,800
Closing amount per unit	$8.20	$7.80

The $1,800 E4 amount is below the $10,000 cost base, so the E4 capital gain is nil. The separate $400 trust capital gain still enters the beneficiary’s return calculation.

Carry $8,200 and $7,800 into the next income year’s holding record. Keeping the original purchase cost unchanged would overstate the cost base used for a later disposal.

Example B: Payments Above the Cost Base

Use the same 1,000 units and statement components, but assume earlier adjustments have left a cost base of $1,500. The opening reduced cost base is $1,300.

The E4 calculation is $1,800 less $1,500, producing a $300 capital gain. Section 104-70(5) then reduces both bases to nil. Record 1,000 units remaining, a nil cost base and a nil reduced cost base.

Incorrect: carry a negative $300 cost base into next year.

Correct: record the $300 E4 gain this year and carry a nil cost base forward.

The $300 gain is separate from the statement’s $400 trust capital gain. The combined capital gains before losses or any available discount are $700. Assess discount eligibility for each gain separately using its applicable rules and holding period.

Check Timing and Competing CGT Rules

E4 normally happens just before the end of the income year in which the trustee makes the payment. If another CGT event happens to the interest after payment but before year end, E4 happens immediately before that event.

For a disposal during the year, identify the relevant disposal event time and calculate E4 first. Use payments made up to that point to adjust the affected units. Then calculate the disposal gain or loss using their adjusted bases.

For example, the holder in Example A receives the full distribution and later sells all units before year end. E4 reduces the cost base to $8,200 immediately before the sale event. That balance enters the disposal calculation. A payment made after ownership ends can instead form part of the disposal proceeds.

Check what transaction occurred before selecting E4. Section 104-70 excludes payments for events A1, C2, E1, E2, E6 and E7. Sales and redemptions therefore need their own event analysis, even where other payments on the holding require E4 adjustments.

AMIT Statements Follow Separate Rules

E4 does not apply to an AMIT interest. Use the net adjustment under section 104-107B from the AMIT member annual statement (AMMA statement).

An AMIT cost base net amount described as an excess reduces both bases. A shortfall increases both. If the reducing amount exceeds the cost base, CGT event E10 can produce a capital gain and both bases become nil.

Record the AMMA adjustment once. Adding a second E4 adjustment for tax-deferred amounts already reflected in that net amount would duplicate the reduction.

For other trust holdings, check any pre-CGT acquisition status, foreign-resident exclusion, listed investment company capital gain or demerger rollover before applying the ordinary examples. These facts can change the event or its tax result.

Section 104-72 also provides relief for certain trustee beneficiaries. It applies where the recipient is trustee of another fixed trust that is not a complying superannuation entity. A corresponding notional capital gain under section 115-215(3)(b) or (c) and attributable payment proceeds are also required.

Where those conditions hold, reduce the E4 gain by the lesser of that notional gain and the attributable amount, with a nil floor. Keep that calculation separate from ordinary unit-holder adjustments.

Reconcile the Beneficiary’s Return

Finish with a workpaper that connects the statement to both the return and the closing holding record. The cash reconciliation and tax reconciliation answer different questions.

1. Reconcile opening units and their adjusted bases to the prior-year closing record. Add each acquisition or reinvestment as its own parcel and identify any units disposed of.
2. Match trustee payment advices to the bank or property received. Retain the annual statement and its supporting component schedule.
3. Allocate statement components to assessable trust income, capital gains and cost-base adjustments. Record the section 104-71 basis for exclusions or additional adjustments.
4. Calculate E4 for the affected units at the correct event time. Keep any resulting gain separate from capital gains distributed by the trust.
5. Reconcile the closing unit count and both bases. Carry the closing record forward even where E4 produces no current-year gain.

For Example A, the workpaper closes with 1,000 units, an $8,200 cost base and a $7,800 reduced cost base. It records $800 ordinary trust income and $400 capital gains before any beneficiary losses or discount. Example B instead closes with both bases at nil and $700 capital gains before those adjustments.

Keep the beneficiary’s reconciliation separate from preparation of the trustee’s trust tax return. The trustee’s calculation supplies distribution information, while this workpaper records what that information does to the beneficiary’s holding and return.

If a corrected statement reclassifies $100 from tax-deferred to ordinary assessable income in Example A, cash remains $3,300. The E4 amount becomes $1,700 and ordinary trust income becomes $900. The revised closing cost base is $8,300 and reduced cost base is $7,900.

Replace the superseded component calculation and recalculate affected later holdings or disposals. Where a return has already been lodged, assess the amendment required by the correction. Retain both statements and a clear adjustment trail so next year starts from the corrected balances.