Taxation of units in mutual funds

Taxation has to be adapted to the composition of shares and other securities in the fund. 

The principle is that income which a shareholder receives from a money market fund (interest/sales) will be taxed at a rate of 23 percent (for the 2018 income year). A deduction for risk-free return is given from income from basic equity funds (equity fund dividends/sales) before the income is subject to an effective tax rate of 30.59 percent (for the 2018 income year).

For the income year 2019 the rates are 31,68 percent for share dividends and 22 percent for intrest income.

When you receive income from a combination fund (a fund which includes both shares and other securities), the income figure that is used for taxation purposes will be split between an interest income component and a share income component.

Taxation of distributions

Whether distributions are taxed as interest income or share dividends depends on the fund's ratio of shares at the start of the income year.

  • If the ratio of shares in the fund at the start of the income year is more than 80 percent, all distributions from the fund shall be taxed as share dividends. 
  • If the ratio of shares in the fund at the start of the income year is less than 20 percent , all distributions from the fund shall be taxed as interest income.
  • If the ratio of shares in the fund at the start of the income year is between 20 percent and 80 percent, the distribution is split into one part that is taxed as share dividends and one part that is taxed as interest income.

Example:

You have 200 units in a combination fund that, at the start of the income year, had 70  percent invested in shares and 30 percent in other securities. The fund distributes an interest return to the unit holders of NOK 10 per unit.

You receive NOK 2,000 from the fund.

NOK 1,400 is taxed as share dividends.
NOK 600 is taxed as interest.

Share dividends can be reduced by earned deductions for risk-free return.

Taxation in the event of sale and other realisation

The rules mean that the exemption method and the shareholder model only apply to the part of the realisation gains that are considered to relate to the share component of the fund. To determine the share component, one needs to find the average of the ratio of shares in the year of the purchase (acquisition year) and the year of the sale.

Example 1:

You purchase 100 units for NOK 200,000 in year 1.
At the start of year 1, the fund is invested 40% in shares and 60% in fixed income securities.
In year 2, you sell all the units for NOK 220,000.
At the start of year 2, the fund is invested 50% in shares and 50% in fixed income securities.

You make a gain of NOK 20,000.
The average ratio of shares is 45%, i.e. (40 + 50)/2.

NOK 9,000 is taxed as share gains (effective tax rate is 31.68%).
NOK 11,000 is taxed as gains (tax rate is 22%).

The share gain can be reduced by any unused deduction for risk-free return from year 1.

Example 2 - concerning the calculation of gains when the ratio of shares in the fund exceeds 80 per cent:

You purchase 100 units for NOK 200,000 in 2017.
At 1 January 2017, the fund is invested 85% in shares and 15% in fixed income securities.
In year 2018, you sold all the units for NOK 220,000.
At 1 January 2018, the fund is invested 95% in shares and 5% in fixed income securities.

You make a gain of NOK 20,000.
The average ratio of shares is 100% – (100 + 100)/2.

NOK 20,000 is taxed as share gains (effective tax rate is 30.59%).

The share gain can be reduced by any unused deduction for risk-free return from 2017.

Example 3 - concerning the calculation of gains for acquisitions made in the period 7

October 2015 – 31 December 2015:
You purchased 100 units for NOK 200,000 in November 2015.
At 1 January 2016, the fund is invested 85% in shares and 15% in fixed income securities.
In 2016, you sell all the units for NOK 220,000.

You make a gain of NOK 20,000.
The average ratio of shares is 92.5% – (85% + 100)/2.

NOK 18,500 is taxed as share gains.
NOK 1,500 is taxed as gains.

The share gain can be reduced by any unused deduction for risk-free return from 2015.

Example 4 - concerning calculation of gains/losses where the unit holder is a limited liability company:

A limited liability company purchased 100 units for NOK 200,000 in 2013. At 1 January 2013, the fund is invested 5% in shares and 95% in fixed income securities. In 2018, the limited liability company sells all the units for NOK 220,000. At 1 January 2018, the fund is invested 18% in shares and 82% in fixed income securities.

The company has made a gain of NOK 20,000.
The average ratio of shares is 50% – (100 % + 0)/2.

NOK 10,000 is exempt from tax under the exemption method.
NOK 10,000 is taxed as gains in fixed income securities  (tax rate is 23% in 2018).

Example 5 - sale after two funds have merged:

A purchases 100 units in fund XX in 2007 for NOK 100,000. The ratio of shares in the fund on 1 January 2007 is 5%. The unit holder has therefore a basis for deduction for risk-free return of NOK 100,000.

In June 2017, fund XX is merged into fund YY. After the merger, A becomes the owner of 120 units in fund YY.

A sells 60 of his units in YY in November 2017 for NOK 55,000.
A sells the remaining 60 of his units in YY in 2018 for NOK 35,000.

At 1 January 2017 the fund has a ratio of shares of 81%.
At 1 January 2018 the fund has a ratio of shares of 40%.

Calculation of gain/loss for the sale in 2017:

A has made a gain of NOK 5,000.

The average ratio of shares is 100% – (100 + 100)/2.

NOK 5,000 is taxed as share gains (effective tax rate is 29.76%).

The share gain can be reduced by any unused deduction for risk-free return from 2016. The basis for deduction for risk-free return will always be (input value of NOK 50,000 + unused risk-free return from earlier years).

Calculation of gain/loss for the sale in 2018:

A has a total loss on the sale of this acquisition of NOK 15,000.

The average ratio of shares is 70% – (100 + 40)/2.

NOK 10,500 is deductible as losses on shares (effective deduction rate is 30.59%).

NOK 4,500 is deductible as capital losses (effective deduction rate is 23%).

In the case of a loss, any unused deduction for risk-free return from previous years is lost.

Deduction for risk-free return

The deduction for risk-free return reduces the tax on share income from mutual funds. The deduction for risk-free return equals the basis for deduction for risk-free return times an annually determined risk-free interest rate. You will find the risk-free interest rate here.

Basis for deduction for risk-free return

The basis for deduction for risk-free return consists of input value + unused deduction for risk-free return from previous years.

What will be the basis for deduction for risk-free return for units in mutual funds acquired before 7 October 2015?

You purchased 100 units in a bond-only fund for NOK 100,000. The basis for deduction for risk-free return will be NOK 0.

You purchased 100 units in a share-only fund for NOK 100,000. The basis for deduction for risk-free return will be NOK 100,000.

You purchased 100 units in a combination fund for NOK 100,000. The basis for deduction for risk-free return will be NOK 100,000. (Combination fund here refers to a mutual fund that has invested in at least one share.)

What will be the basis for deduction for risk-free return for units acquired in the period 7 October 2015 - 31 December 2015?

The basis for deduction for risk-free return constitutes the actual ratio of shares in the mutual fund on 1 January 2016.

Example:

You purchase 100 units for NOK 100,000 in a mutual fund in November 2015. At 1 January 2016, the fund is invested 90% in shares and 10% in fixed income securities. The basis for deduction for risk-free return will be NOK 90,000.

What will be the basis for deduction for risk-free return for units acquired starting in 2016?

This is calculated on the basis of the ratio of shares at the start of the income year.

If the ratio of shares in the fund at the start of the income year is more than 80%, the basis for deduction for risk-free return will equal the input value.

If the ratio of shares in the fund at the start of the income year is less than 20%, the basis for deduction for risk-free return will equal NOK 0.

If the ratio of shares in the fund at the start of the income year is between 20% and 80%, the basis for deduction for risk-free return will equal the share ratio.

Example 1:

You purchase 100 units for NOK 100,000 in a mutual fund in November 2016. At 1 January 2016, the fund is invested 90% in shares and 10% in fixed income securities. The basis for deduction for risk-free return will be NOK 100,000.

Example 2:

You purchase 100 units for NOK 100,000 in a mutual fund in November 2016. At 1 January 2016, the fund is invested 10% in shares and 90% in fixed income securities. The basis for deduction for risk-free return will be NOK 0.

Example 3:

You purchase 100 units for NOK 100,000 in a mutual fund in November 2016. At 1 January 2016, the fund is invested 50% in shares and 50% in fixed income securities. The basis for deduction for risk-free return will be NOK 50,000.

For more information on the taxation of share income, see the article on the shareholder model.

The tax return

If you own units in a Norwegian mutual fund, the taxable amounts will normally be pre-completed in the tax return.

If you own units in a foreign mutual fund that are not pre-completed in the tax return, you need to calculate the taxable amount yourself and enter it in the tax return.