Private ruling: Company A / Company B merger
Published: September 2011
Ruling period: Year ended 30 June 2011.
Date scheme commenced: 1 July 2010.

Ruling: Q1: Did you make a capital gain due to the merger of Company A with Company B? | A1: Yes.

Relevant facts and circumstances: Some time after 20 September 1985 you were allotted a number of shares as a result of demutualisation which became Company A shares. The first element of the cost base of these shares was their embedded value. You participated in a dividend reinvestment plan (DRP) where you were allotted a number of shares at various times after 20 September 1985. In 2011 Company A merged with Company B and you received cash and number of shares in Company B. The market value of Company B shares on the merger date was provided. You have decided not to choose partial scrip-for-scrip rollover.

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 110-25 | Income Tax Assessment Act 1997 Subdivision 115-A | Income Tax Assessment Act 1997 Section 116-20 | Income Tax Assessment Act 1997 Subdivision 124-M

Reasons for decision: Summary: You make a capital gain if a CGT event happens to an asset you own. CGT event A1 happens when you dispose of a CGT asset. CGT event A1 happened when you disposed of your Company A shares in the merger with Company B on 30 March 2011. You may have made a capital gain or capital loss on your Company A shares, depending on their cost base, or reduced cost base, and the amount (capital proceeds) you received for them. As the capital proceeds received were greater than your cost base you made a capital gain. Capital gains may be disregarded in part or in full in some circumstances. Scrip-for-scrip rollover is available for this merger if you made a capital gain, to the extent that you received Company B shares for your Company A shares. Scrip-for-scrip rollover is not available for the cash you received for your Company A shares. The rollover available is therefore a partial rollover. Scrip-for-scrip rollover allows you to defer your capital gain until a later CGT event happens to your shares. You do not have to choose rollover relief. If you choose scrip-for-scrip rollover, the capital gain made from the exchange of the Company A shares for Company B shares is disregarded and the cost base of your new Company B shares is based on the cost base of your original Company A shares. In your case, you have decided not to choose partial scrip-for-scrip rollover. Therefore, your capital gain on both the cash and share component is assessable in the 2011 income year. Your discount capital gain is calculated as follows: | Detailed Reasoning - Partial scrip-for-scrip rollover not chosen: You acquired Company C shares some time after 20 September 1985 which became Company A shares. The cost base for each Company A share was provided. Some time after 20 September 1985 you further acquired a number of shares in Company A as part of a DRP. The total cost base for all allotments of shares was provided. The market value of each Company B share on the merger date was also provided. On the merger date, you received cash and new Company B shares in exchange for your Company A shares. The market value of your new Company B shares was greater than the cost base of your Company A shares. | Detailed Reasoning - Working out the capital gain: You work out your capital gain by subtracting the cost base of your Company A shares from the total capital proceeds you received for them, that is, the cash and the market value of the Company B shares. Capital proceeds = cash + market value of Company B shares Capital gain = capital proceeds - cost base of Company A shares This amount needs to be added to any other discount capital gains you may have in the income year before applying the 50% discount. For the purpose of determining if the capital gain is a discount capital gain, you are taken to have acquired your new Company B shares when you acquired your corresponding Company A shares. As you have owned your Company A shares for more than 12 months and satisfy all other requirements, you can apply the CGT discount to reduce the capital gain by half. | Detailed Reasoning - Cost base of each new Company B share: The cost base and reduced cost base of each new Company B share is their market value on the merger date.

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.