Private ruling: CGT- shares
Published: May 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Questions and answers: | Is any capital gain you make as a result of the CGT event that happened in relation to the disposal of your xx shares assessable? | 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. You purchased a number of xx shares after 19 September 1985. You had a number of shares involved in a buy back scheme and you also took part in a dividend reinvestment plan during your period of ownership. xx were taken over by xx in xxxx.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 121-20 | Income Tax Assessment Act 1997 Section 112-54 | Income Tax Assessment Act 1997 Section 125-70 | Income Tax Assessment Act 1997 Section 102-20

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Capital Gains Liability: Section 102-20 if the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event. The disposal of shares (whether voluntary or involuntary) acquired after 19 September 1985 is a CGT event. Your xx shares were acquired after 19 September 1985 and so their disposal represents a CGT event. | Detailed Reasoning - Buy Back: For the purposes of determining your cost base in a later year, it is necessary to know which shares have disposed of in an earlier income year under a buy-back arrangement Taxation Determination TD 33 Capital Gains: How do you identify shares within a holding of identical shares? provides that when a disposal of shares occurs and the taxpayer holds a number of identical shares which are acquired over a period of time (and it may not be possible to distinguish or identify the particular shares which have been disposed of) the taxpayer can adopt the First in First out (FIFO), or the taxpayers selection of the identity of the shares disposed of. Using the average cost method is not acceptable unless a number of conditions are met including that the shares were all acquired on the same day. In your case, as you have been able to identify which shares were sold under the buy-back arrangement in an earlier income year, you are able to exclude these shares from your cost base calculations for the income year. | Detailed Reasoning - Demerger: The demerger of xx saw the creation of xxxx Class Ruling Income Tax CR xxx discusses the capital gains tax implications for holders of shares. Please see Income Tax CR xxx for more information on how to calculate your gain or loss. | Detailed Reasoning - Cost base: The cost base of a CGT asset is generally the cost of the asset when you bought it. However, it also includes certain other costs associated with acquiring, holding and disposing of the asset. | Detailed Reasoning - Step 1: Determine the cost base of your shares: In working out the cost base (and reduced cost base) just after the demerger, you need to know the cost base of each of your xx shares just before the demerger (taking into account any other CGT events that happened after you acquired the shares but before the demerger if they affect the cost base). The cost base for your xx shares just before the demerger (not including indexation) is spread across those shares and the xxx xxx shares you received for your xxx shares. The spreading is based on the value that xxx xxx represented of xx xx at that time using the five day volume-weighted average price (VWAP) of xx xx shares and xxx xxx shares from the effective date of the demerger, which is x%. The remaining x% is spread across your xx xx shares. | Detailed Reasoning - Step 2: Calculate the capital gain/ loss: Deduct the amount received from xxx to determine whether you have made a capital gain or loss. | Detailed Reasoning - Step 3: Choose whether or not to apply the rollover: The scrip for scrip rollover allows you to defer any capital gain made when disposing of shares and receiving only replacement shares in a take over company as consideration. You are taken to have acquired the replacement shares for the cost base of the original interest. | Detailed Reasoning - If you choose not to apply to rollover: If you do not choose the rollover and you made a capital gain on the share capital reduction you must take the capital gain into account in calculating your net capital gain or net capital loss. Your net capital gain or loss is the amount you need to include in your income tax return. This amount is the total of your capital gains for the year, less any capital losses you incurred and any CGT discounts or concessions you're entitled to. (Note: if you have held a CGT asset for more than 12 months as an individual, and a CGT event occurs to the asset after 21 September 1999 and you do not use the indexation method in calculating your capital gain you are entitled to reduce the gain by 50%). | Detailed Reasoning - Application to you: Although we are unable to confirm your calculations, from the information that you have provided you have followed the method outlined above in the calculation of your capital gain. You have not stated that you will be applying a scrip for scrip rollover on disposal of your xx shares to xxxx so any capital gain made on the disposal will be assessable.

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.