Private ruling: cost base of shares - capital loss
Published: October 2011
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2007

Ruling: Q1:  | A1: 

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were a member of a friendly society. You were allocated a number of shares in Company A as part of the friendly society demutualisation after 20 September 1985. A number of years later, Company A announced that it had entered into an agreement to consider a merger with Company B. Under the Merger Proposal, Company A shareholders would receive a specified number of new Company B shares for a specified number of Company A shares held. You were allocated further shares in Company A a number of days after the merger announcement. Company A merged with Company B a number of months later and you received shares in Company B in exchange for your shares in Company A. You chose the scrip for scrip rollover when your Company A shares were exchanged for Company B shares as a result of the merger. You disposed of your Company B shares a number of months after the merger. You incurred charges in relation to the disposal of your Company B shares. You have provided copies of a number of documents, which form part of, and should be read in conjunction with this private ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 104-25 | Income Tax Assessment Act 1997 Section 316-105 | Income Tax Assessment Act 1997 Section 316-55

Reasons for decision: Detailed Reasoning - Capital gains tax: You may make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event is CGT event A1 which occurs when your ownership interest in a CGT asset is transferred to another entity. CGT event C2 happens on the ending of an intangible asset such as a membership interest in a friendly society. Where that ending is not pursuant to a contract, the CGT event happens at the time of the ending. You will make a capital loss when the proceeds received for the disposal of the CGT asset are less than the reduced cost base of the CGT asset. | Detailed Reasoning - Demutualisation of friendly society: Division 316 applies where a verified member receives shares under a demutualisation. The member's capital gain or capital loss from CGT event C2, which happens on the ending of the corresponding membership interest, is disregarded. The first element of the cost base or reduced cost base of a verified member's allocation of shares following demutualisation is calculated in accordance with subsections 316-105(1) and (2) of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Scrip for scrip rollovers - Mergers: When a company in which you own shares merges with another company and you receive new shares in the takeover, you may be entitled to a scrip-for-scrip rollover When you choose rollover, you can disregard the capital gain made on the disposal of your original shares. You are then taken to have acquired the replacement shares for the cost base of the original shares. The rollover also allows you to use the acquisition date of the original shares for the replacement shares. You can apply the CGT discount when you dispose of new shares, providing the combined period that you owned the original shares and the new shares is at least 12 months. | Detailed Reasoning - Application to your situation: You were issued a number of shares in Company A as a result of the implementation of the demutualisation of a friendly society after 20 September 1985. You where then allocated additional shares in relation to the demutualisation of the friendly society. The first element of the cost base or reduced cost base of a member's allocation of shares following demutualisation is calculated in accordance with subsections 316-105(1) and (2) of the ITAA 1997. For you this amount is $X. The first element of the cost base of your Company A shares is calculated as follows: Number of Company A shares X $X When Company A and Company B merged by way of a scheme of arrangement, you received shares in Company B in exchange for your Company A shares. You made the scrip-for-scrip rollover choice, which enables you to disregard any capital gain made on the disposal of your Company A shares. You are taken to have acquired your Company B shares you received in exchange for your Company A shares for the cost base of your original Company A shares. CGT event A1 happened when you disposed of your Company B shares. You made a capital loss on the disposal of your Company B shares as the proceeds are less than the first element of your Company B cost base, being the cost base of your original Company A shares. Note: You will need to determine if there are any amounts that should be included in the other elements of your Company B shares reduced cost base, such as the charges you incurred when you disposed of your Company B shares.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: capital gains tax - reduced cost base of shares - capital loss: Question: Is the first element of the reduced cost base of your Company B shares $X?