The Ultimate Guide to ETF Tax in Australia (AMMA & Cost Base Explained)

Investing in Exchange Traded Funds (ETFs) is celebrated for its simplicity. It's a fantastic way to build a diversified portfolio with minimal effort. But when tax time rolls around, that simplicity can quickly feel like a distant memory.

Many investors are unaware of the unique tax obligations that come with ETFs, particularly the crucial task of adjusting your cost base. Ignoring this can lead to a major headache and potentially an incorrect tax bill when you eventually sell.

This guide will demystify ETF tax. We’ll cover what you need to report, why your cost base matters, and walk through a step-by-step example of how to do it properly.

Disclaimer: I am not an accountant or tax agent, just a fellow ETF investor passionate about doing things correctly. Please double-check any information with your qualified advisor or tax professional.

The Basics: How are ETFs Taxed in Australia?

All ETFs in Australia are structured as unit trusts. This means that when you invest, you are buying units in a trust that holds a pool of underlying assets, like shares or bonds.

The ETF itself does not pay tax. Instead, it acts as a "flow-through" vehicle. Any income the fund earns—such as dividends, interest, or capital gains from selling assets within the fund—is directly attributed to the unit holders. As an investor, you must report this income in your personal tax return and pay the tax yourself.

Most major ETF providers in Australia (including Vanguard, Betashares, and iShares) operate under the Attribution Managed Investment Trust (AMIT) regime, a tax framework introduced by the ATO in 2016. Understanding this regime is key to getting your tax right.

Cash vs. Taxable Income: The Two Numbers You Must Understand

To understand your tax obligations, you need to grasp the difference between two key concepts:

• Cash Distribution: This is the actual money the ETF pays into your bank account. Depending on the fund, this can happen quarterly, half-yearly, or annually.
• Attributed Taxable Income: This is the amount of income the ETF assigns to you for tax purposes. This amount can be more or less than the cash distribution you actually received.

For your tax return, you are required to report the attributed taxable income, not the cash you received.

Decoding Your AMMA Statement

All the information you need is provided on your Attribution Managed Investment Trust Member Annual Tax Statement, commonly known as the AMMA statement.

This statement is issued by the ETF provider (via their unit registry, like Computershare) and is usually available in July or August each year. While it can look intimidating, it's clearly labelled to show which numbers go where on your tax return.

The best approach is to wait for your ETF data to be pre-filled in your ATO tax return, and then cross-check the figures against your AMMA statement to ensure everything matches.

The Golden Rule: Why You MUST Adjust Your ETF Cost Base

Towards the bottom of your AMMA statement, you will see a section for cost base adjustments. This is the part many ETF investors mistakenly ignore, but it is a legal requirement.

You must adjust the cost base of your ETF units as per the AMMA statement. The best practice is to update your records every single year. If you wait until you sell—especially after 5 or 10 years—you will have to go back and apply every annual adjustment from the year you bought the ETF. This can quickly become a tracking nightmare.

So, why are these adjustments necessary?

It’s because of the difference between your cash distribution and your attributed taxable income. The cost base adjustment ensures you are taxed fairly over the life of your investment.

• Cost Base Reduction: This happens when your cash distribution is more than your attributed taxable income. You received tax-free cash. To ensure you don't escape tax completely, your cost base is lowered, which will increase your capital gain when you eventually sell.
• Cost Base Increase: This happens when your attributed taxable income is more than your cash distribution. You were taxed on income you didn't physically receive. To ensure you are not taxed twice, your cost base is increased, which will reduce your capital gain when you sell.

Step-by-Step Guide: How to Adjust Your Cost Base (with Example)

Let’s walk through an example with an investor named John and his investment in "ETF XYZ" from FY23 to FY25.

Step 1: FY23 – First Purchase & Cost Base Increase

In August 2022, John buys 100 units of ETF XYZ at $10 each. His initial total cost base is $1,000.

His AMMA statement for FY23 shows a $5 cost base increase. This is a gross amount that must be spread across all 100 units he held.

• Cost base increase per unit: $5 / 100 units = $0.05 per unit.
• His adjusted cost base per unit is now $10.00 + $0.05 = $10.05.
• His adjusted total cost base is $1,005.

Step 2: FY24 – Second Purchase & Cost Base Reduction

In February 2024, John buys another 50 units at $12 each, adding a new parcel worth $600.

His AMMA statement for FY24 shows a $10 cost base reduction. At the end of FY24, he holds 150 units in total. This reduction must be applied across all units.

• Cost base reduction per unit: $10 / 150 units = $0.0667 per unit (rounded).

He applies this reduction to both parcels:

• Parcel 1 new cost base: $10.05 - $0.0667 = $9.98 per unit.
• Parcel 2 new cost base: $12.00 - $0.0667 = $11.93 per unit.

Step 3: FY25 – Selling Units & Applying the Final Adjustment

In April 2025, John sells 75 units at $13 each. Using the "first-in, first-out" method, these are the first 75 units from his original parcel.

Later, he receives his FY25 AMMA statement, which shows an $8 cost base increase. Here is the crucial part: the legislation makes it clear that this adjustment applies to all units held during the financial year, including those that were sold.

This increase must be applied across the 150 units he held during the year.

• Cost base increase per unit: $8 / 150 units = $0.0533 per unit.

He now must go back and apply this final adjustment to the units he sold to calculate his capital gain correctly.

• Final cost base of sold units: $9.98 + $0.0533 = $10.03 per unit.
• Capital gain per unit: $13.00 (sell price) - $10.03 (final cost base) = $2.97.
• Total capital gain: $2.97 x 75 units = $222.75.

Since he held these units for more than 12 months, he qualifies for the 50% CGT discount. He also updates the cost base for the units he still holds, so his records are ready for the future.