For individuals and trusts the discount is 50% and for superannuation funds the discount is 33⅓%. Companies do not receive any discount.

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1 Capital Gains Tax Created May 2012 What is a capital gain? A capital gain is the profit made from the sale of assets when a capital gains tax (CGT) event occurs. It is calculated as the difference between the capital proceeds received from the disposal and the tax cost base of the asset. What is a discounted capital gain? To be a discounted capital gain a capital gain must: be made by an individual, trust or complying superannuation fund result from a CGT event happening after 11.45am on 21 September 1999 be worked out by reference to an unindexed cost base; and result from a CGT event happening to a CGT asset owned by the taxpayer for at least 12 months. What is the amount of the discount? For individuals and trusts the discount is 50% and for superannuation funds the discount is 33⅓%. Companies do not receive any discount. When can the discount be applied? The discount can only be applied where assets have been held for at least 12 months and the investor is either an individual, superannuation entity, or a trust. What is an indexed gain? Indexation is another means of reducing an investor s assessable capital gain and applies to assets that have been acquired prior to 21 September In this situation, the cost base of the asset has an index factor applied to it prior to calculating the gain. On what assets may a capital gain be calculated using either the discount or indexation method? For assets acquired on or before 21 September 1999 and held for at least 12 months, any capital gain on disposal occurring after that time may be calculated by either the indexation

2 method or the discount method. The method chosen will depend upon the individual circumstances of each investor. What is an other capital gain? An other capital gain (also known as a short or nominal capital gain) arises on assets held for less than 12 months. What is the cost base of an asset? Broadly, the cost base of an asset is the sum of money paid to acquire it and incidental costs of ownership that are incurred in connection with purchasing and holding the asset (e.g. stamp duty and brokerage fees). Do any amounts distributed by an asset reduce that asset s cost base? There are three main components which may reduce the cost base of an asset. 1. Tax deferred 2. Return of capital amounts, and 3. Tax free amounts These amounts are typically distributed through unlisted managed funds and listed trusts. In some cases, they may also be distributed through listed securities. These amounts are nonassessable income for investors. Tax deferred income, for example, may arise from amounts associated with building allowances. Note that tax free amounts will only reduce the cost base of an asset when the asset is sold and the investor is in a capital loss position as a result of the sale. What is the CGT concession amount? The CGT concession amount represents the non assessable CGT discount component distributed by listed trusts or unlisted managed funds to investors. Such amounts are made through the sale of assets held for at least 12 months. Investors are not required to adjust the cost base of their units for such amounts paid on or after 1 July Will the concession amount always be 50% of the gross discountable capital gain distributed by product issuers?

3 No. The CGT concession amount is the amount that the relevant product issuer has distributed. MPPM is advised by the product issuer as to whether or not 50% of the gross discountable gain is distributed as the non assessable CGT concession amount. This amount may not be 50% of the gross discountable gain because, for example, of the way in which the product issuer has allocated expenses. What is a capital loss? Generally, a capital loss is made as a result of a CGT event where the capital proceeds received by the investor is less than the cost base of the asset (i.e. broadly, what was paid for the asset). The capital loss is the cost base less the capital proceeds. For an individual, is the 50% discount applied before or after any capital loss has been offset? A capital loss must be offset against a capital gain before the 50% discount can be applied. The capital loss must therefore be offset against the gross capital gain. In what order should capital losses be offset against capital gains? Investors would generally get the greatest benefit by deducting capital losses (in the following order) against: capital gains for which neither the indexation method nor the discount method applies (i.e. gains from assets held for less than 12 months) capital gains calculated using the indexation method; and then capital gains to which the CGT discount can apply. If an investor has current and prior year capital losses, which should be offset first against capital gains? Current year capital losses should be deducted from capital gains in the first instance. After all such losses have been utilised, if capital gains remain and there are prior year capital losses that have not previously been utilised, these unapplied prior year capital losses may then be offset against the remaining current year capital gains in the order in which they were incurred. Note that capital losses can only be offset against capital gains (not revenue gains). For how long can a capital loss be carried forward?

4 An investor can carry forward a capital loss indefinitely. Does MPPM maintain an investor s prior year capital loss history? No. Given that MPPM does not prepare investors income tax returns and hence cannot be certain what capital losses have been applied by investors against capital gains, we would not be able to accurately maintain such a history. This is the responsibility of investors and their tax agents/advisers. Are foreign capital gains able to get the CGT discount? Yes. The same discount percentages apply as for Australian sourced capital gains. Capital gains and losses are not quarantined according to source. That is, both Australian and foreign capital gains are treated in the same manner and not separately identified for tax purposes. For how long do investors need to keep CGT records? Investors are required to keep records of all matters that could result in them making a capital gain or loss. Those records must be kept for five years after the relevant CGT event has happened. We strongly recommend that independent taxation advice be sought so as to ensure that an investor s underlying cost bases are correct. What are TARP capital gains? Since December 2006, the above capital gain categories have been further sub classified as Taxable Australian Real Property (TARP) capital gains or Non Taxable Australian Real Property (NTARP) capital gains. TARP capital gains refer to capital gains made upon the disposal of interests in Australian real property. TARP capital gains may arise from a direct or indirect interest in real property. A direct interest in real property is simply a direct ownership interest in Australian real property, for example, an interest in an investment property. Broadly, an indirect interest in Australian real property is an interest in an entity which passes BOTH the non portfolio interest test and the principal asset test. The non portfolio interest test is satisfied where the taxpayer (and any associates) holds an interest of 10% or more in another entity.

5 Broadly, the principal asset test is satisfied if the sum (by way of market value) of the entity s TARP assets is greater than the sum (by way of market value) of the entity s NTARP assets. What is the impact of TARP and NTARP capital gains for an Australian investor? An Australian resident investor pays tax on both TARP and NTARP capital gains that it receives. Where the Australian investor is considered to be an intermediary for non residents, the TARP and NTARP capital gains distinction may be important as this may impact its withholding tax (WHT) obligations in respect of its non resident beneficiaries/investors. Broadly, an entity will be considered an intermediary where it is an Australian resident and it is in the business of predominantly providing custodial or depository services under an Australian financial services license. What is the impact of TARP and NTARP capital gains for a non resident investor? A non resident investor is subject to Australian tax on the TARP capital gains that it derives, and is not subject to Australian tax on any NTARP capital gains that it derives. Funds invested on your behalf by MPPM are not deposits with or other liabilities of MBL or any other member of the Macquarie Group and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. None of MBL, MPPM, or any other member of the Macquarie Group guarantees any particular rate of return or the performance of the investments, nor do they guarantee the repayment of capital. The Macquarie Group does not give, nor does it purport to give, any taxation advice. The taxation discussion in this document is based on laws current at the time of writing. Those laws and the level of taxation may change. The application of taxation laws to each investor depends on that investor s individual circumstances. Accordingly, investors should seek independent professional advice on taxation implications before making any investment decisions.