What is a tax-deferred distribution?
As a property fund holds real estate, it is entitled to a number of tax concessions for things like depreciation. These tax concessions are calculated at the fund level (for all assets) and then shared with the investors through their income distributions.
A Tax-deferred rate will be quoted for each financial year (eg. 80% tax deferred). The investor is then entitled to be exempt from income tax for that proportion of the income distributions they have received from the fund on a tax-deferred basis in the same financial year.
The higher the tax-deferred rate, the higher the net value of the income to the investor in a given financial year.
The tax-deferred nature of income distributions from unlisted property funds and syndicates is one of the most attractive features for income investors into the sector.
It is important to understand however, that tax-deferred does not mean “tax-free”. The value of any tax-deferred distributions over the life of the investment will be offset against the purchase price (or cost-base) of the investment for the purpose of calculating an investor’s Capital Gains Tax liability and may give rise to a taxable capital gain.
Please note that this is not tax advice and does not take into account the personal circumstances of any investor. Investors should seek their own individual tax advice as it pertains to their own circumstances.