Private ruling: capital gains tax
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you declare a capital loss on the disposal of your shares as a result of a merger in the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: You and your spouse purchased X shares in company A during the 2009-10 financial year. In the 2012-13 financial year there was a merger between company A and company B. Eligible shareholders in company A received a number of shares for every 1 company A share held. You and your spouse received Y shares in the new entity. You and your spouse's shareholding in company A was reduced to 0. These shares were worth considerably less than what you and your spouse originally paid.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 Subdivision 124-M

Reasons for decision: Summary: If a company in which you own shares is taken over or merges with another company, you may have a capital gains tax (CGT) obligation if you are required to dispose of your existing shares or they are cancelled. In certain circumstances, if you acquire new shares in the takeover or merged company, you may be able to defer paying CGT until a later CGT event happens. Rollover does not apply to a capital loss. Receiving shares Some takeover or merger arrangements involve an exchange of shares. In these cases, when you calculate your capital gain or capital loss, your capital proceeds will be the market value of the shares received in the takeover or merged company at the time of disposal of your original shares. | Detailed Reasoning - Application to your circumstances: In this case, you and your spouse disposed of the shares held in company A. In exchange for disposing of these shares, you and your spouse received shares in a new company. To calculate the capital gain or loss, the capital proceeds will be the market value of the shares received in the merged company at the time of disposal of your original shares. As the shares in the merged company had a market value that was less than the cost base of the original shares, you and your spouse will make a capital loss. As the merger occurred in the 2012-13 financial year, this is when the capital loss should be declared.