Author Topic: ELI5: AMIT cost basis adjustments  (Read 1789 times)

mspym

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ELI5: AMIT cost basis adjustments
« on: October 03, 2020, 04:48:21 AM »
I am a little mystified about what I actually need to do with any cost basis adjustments on my AMMA/AMIT statement. I've googled it and read what the ATO have to say but I'm still kinda unclear on what if anything I need to do with any adjustments.

- Are they a thing I can horde up until I sell and adjust any CGT obligation?
- Are they something that gets cleared at the end of the tax year?
- do I just need to track them (?) and adjust the price for all units purchased by an infindesmal fraction of a cent or are they something that applies only to a given set of purchased units?
- how does an adjustment become a CGT obligation, as alluded to by the ATO?

Any help you can give me is much appreciated - I am not used to researching and being left as stumped at the end of it as I was at the start.

deborah

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Re: ELI5: AMIT cost basis adjustments
« Reply #1 on: October 03, 2020, 05:27:39 AM »
I think the cost basis adjustments are changing the cost to you of each individual unit. You need to record what your new cost basis actually is, so that you use this when you actually sell them, rather than the amount you actually paid. CGT will then be paid on the capital gain from the adjusted cost.

This often happens when companies have share splits, so the shareholders are issued with extra shares, and the value of each individual share is reduced.

marty998

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Re: ELI5: AMIT cost basis adjustments
« Reply #2 on: October 03, 2020, 05:45:43 AM »
Number three. You allocate it across all the units you held at the time. Some years itíll decrease the cost base, some years itíll increase it. Just depends on the tax position of the fund each year.

mspym

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Re: ELI5: AMIT cost basis adjustments
« Reply #3 on: October 03, 2020, 06:02:07 AM »
Thank you Deborah and Marty. So I can't hold on to an adjustment amount and decide to apply it to a specific sale? It's applies to all units held at the time of the tax statement.

 so I assume this calls for another spreadsheet tab to track original price/adjusted prices since the transaction history only records the original cost of each parcel?

deborah

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Re: ELI5: AMIT cost basis adjustments
« Reply #4 on: October 03, 2020, 06:05:20 AM »
Yes.

marty998

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Re: ELI5: AMIT cost basis adjustments
« Reply #5 on: October 03, 2020, 08:26:33 PM »
No new tab required on the spreadsheet, just add a column for each year to the right of your purchase amounts, allocate the AMIT amount proportionately among the various parcels (parcel/total units x AMIT amount for tax year), and sum right to get the adjusted cost base.

Easy. Well, should be anyway.

mspym

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Re: ELI5: AMIT cost basis adjustments
« Reply #6 on: October 03, 2020, 10:48:58 PM »
Thank you! New columns [AND a grouping] added to my cost basis spreadsheet. Next up: tax return.

misterhorsey

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Re: ELI5: AMIT cost basis adjustments
« Reply #7 on: June 25, 2022, 10:02:00 PM »
Soz for reviving old threads, but I found this AMIT adjustment issue super confusing until I came across this explanation.  Anyway, I've done my calculation and I think it all looks in order, so thanks for OP for posting, and marty and deborah for their advice.

One more question however! The AMIT cost base net amount (excess or shortfall) for each financial year, is given as a lump sum amount. When you apportion that amount according to the shares you've owned in that year, I'm assuming it means all shares you've owned in all previous years and haven't disposed of.  So yu will adjust the cost base for each parcel of shares you've accumulated over the years, going back to Year 0. Which means you'd need to adjust the previously adjusted price? Again and again throughout the years?  It seems relatively straightforward once I've thought it through, although it does result in mean a rather long spreadsheet the way I've formatted it, if you were to hold for several decades. 

Not sure if my description makes sense, so I've set out a 3 year scenario below to flesh out my question, and the way I think that the adjustment is accounted for.  I've simplified the figures with a constant $1 share price. I've also included a calculation of the per share adjustment amount (Adjustment amount / units held = per share adjustment amount).

Year 1 - Buy 100 shares @ $1 each. Total shares = 100.
Adjustment amount = $5.  Adjust by 5c after Year 1 (i.e. $5 / 100 = 5c).
- Adjusted cost base is $1.05 

Year 2 - Buy 100 shares @ $1 each. Total shares = 200.
Adjustment amount = $14. Adjust by 7c after Year 2 (i.e. $7 / 200 = 7c).
 - 100 shares (bought in Yr 1) - Adjusted cost base is $1.12 (1.05 + 7c)
-  100 shares (bought in Yr 2)  - Adjusted cost base is $1.07 ($1 + 7c)

Year 3 - Buy 100 shares @ $1 each. Total shares = 300.
Adjustment amount = $12. Adjust by 4c after Year 3 (i.e. $12 / 300 = 4c).
 - 100 shares (bought in Yr 1) - Adjusted cost base is $1.16 (1.12 + 4c)
-  100 shares (bought in Yr 2)  - Adjusted cost base is $1.11 ($1.07 + 4c)
-  100 shares (bought in Yr 3) -  Adjusted cost base is $1.04 ($1 + 4c)


I imagine if you sell out your entire holding you can just add the lump sum AMIT adjustment amounts to your cost base and don't necessarily need to apportion it to each share. But if you were to sell specific parcels over time, is the above the way you'd keep track of the adjusted cost base?  Would appreciate your thoughts as always!

Notch

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Re: ELI5: AMIT cost basis adjustments
« Reply #8 on: June 25, 2022, 11:09:39 PM »
Yeah I think you've got it right misterhorsey.

misterhorsey

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Re: ELI5: AMIT cost basis adjustments
« Reply #9 on: June 25, 2022, 11:25:40 PM »
Thanks, good to know.   The fund that I have that sends out these AMIT adjustments happens to be VDHG, which we've discussed in that other thread! 

Makes me think while VDHG is a great fund in many respects for normies, perhaps not entirely suitable for the weirdo outliers that are FIRE-ees.  I.e all those capital gains distributed over the life of the fund (imposing drag on compounding growth) offset by capital gain adjustments which get accrued over many decades (but which can't be taken advantage of until you sell), which you will never do because you've mastered living on a sub 2% withdrawal rate......

I'm also thinking the record keeping can get a bit much over the span of 5+ decades, or more, although perhaps keeping abreast of your investments is what keeps your mind supple as you cruise into the warm orange glow of a FIRE sunset?

edit: typos
« Last Edit: June 26, 2022, 02:20:18 AM by misterhorsey »

mspym

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Re: ELI5: AMIT cost basis adjustments
« Reply #10 on: June 26, 2022, 12:59:30 AM »
Thanks for reviving this thread, oddly enough this tax year I will hopefully be simplifying my spreadsheet after working out which units and capital adjustments I will be claiming (I sold some to buy a house).

marty998

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Re: ELI5: AMIT cost basis adjustments
« Reply #11 on: June 26, 2022, 03:36:35 AM »
Yes I've certainly been helped with respect to the admin side of things by liquidating my portfolio every few years to go buy other investments.

The people who can buy and hold forever.... that takes courage, but also I wonder if they miss better opportunities along the way.


misterhorsey

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Re: ELI5: AMIT cost basis adjustments
« Reply #12 on: June 26, 2022, 08:51:59 AM »
Don't they say the best investors are those who are dead or have forgotten about their accounts?  Compared to active traders at least.

I actually tried to look for that study but all you see are secondhand sources - so perhaps it was a bit of story made up to encourage less active investment.

I do aspire to a buy and hold forever strategy.  VDHG was meant to tick that box for me, but for the unattractive tax issues. Getting nothing but exceptionally median returns in exchange for never having to really do anything seems like a reasonable bargain.