Private ruling: CGT - Company A / Company B merger - Partial scrip-for-scrip rollover
Published: August 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: 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. Some time after 20 September 1985 you were allotted a number of shares as a result of a demutualisation. The first element of the cost base of these shares was their embedded value. In 2011 Company A merged with Company B and you received cash and number of shares in Company B. You have chosen partial scrip-for-scrip rollover on the share component of your capital gain.

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 and | 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. As a result of the merger between Company A and Company B your shares in Company A were disposed of. This disposal is a CGT event. As the capital proceeds received were greater than your cost base you made a capital gain. Capital gains can be disregarded in part or in full in some circumstances. In your case you have chosen to disregard part of the capital gain made on the disposal of your Company A shares. Your discount capital gain is calculated as follows: | Detailed Reasoning - Partial scrip-for-scrip rollover 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. 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. You have chosen partial scrip-for-scrip rollover. | Detailed Reasoning - Total capital proceeds: Cash + Company B shares | Detailed Reasoning - Cost base of cash component: The amount of the cost base of your Company A shares that is attributable to the cash received is calculated as follows: Cost base of Company A shares exchanged x (cash / (market value of Company B shares + cash)) | Detailed Reasoning - Cost base of new Company B shares: The remaining portion of the cost base of your Company A shares is used to determine the first element of the cost base (and reduced cost base) for the Company B shares you received. Cost base of Company A shares x (market value of Company B shares / (market value of Company B shares + cash)) | Detailed Reasoning - Capital gain: Your capital gain on the cash component of the capital proceeds is calculated as follows: Cash - cost base of Company A shares exchanged for the cash This amount needs to be added to any other discount capital gains 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.

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