ETF Distribution
Income distributed by an exchange-traded fund (ETF) to its unit holders, with tax components similar to managed fund distributions.
An ETF (exchange-traded fund) distribution is the income paid to holders of ETF units, similar to managed fund distributions. ETFs trade on the stock exchange like shares but are structured as trusts, distributing income (dividends, interest, capital gains) to unit holders. Australian ETFs typically distribute quarterly or semi-annually, with an AMMA (AMIT Member Annual) statement issued at year-end detailing the tax components.
ETF distributions can include: Australian franked and unfranked dividends, foreign income (with or without foreign income tax offsets), interest income, net capital gains (potentially with CGT discount), tax-deferred (non-assessable) amounts, and other components. For index ETFs, the majority of distributions are typically franked dividends (for Australian share ETFs) or foreign income (for international ETFs).
Tax-deferred distributions are a common feature of property and infrastructure ETFs, and reduce your cost base in the ETF units. If your cost base reaches zero, further tax-deferred amounts become assessable as capital gains. When you eventually sell your ETF units, the capital gain is calculated using the adjusted cost base. ETFs also create CGT events when the ETF manager rebalances the portfolio, and these gains are distributed to unit holders — so you may have capital gains to report even if the ETF's unit price has fallen.