Private ruling: CGT - shares - demutualisation - dividend reinvestment
Published: April 2012
Date scheme commenced: 1 July 2013

Ruling: Q1:  | A1:  | Q2:  | A2: Year ended 30 June 1996 The scheme commenced on 1 July 2013 In the late 1990s, ABCS demutualised and you and your spouse were issued a number of ABC Pty Ltd (ABC) shares in exchange for your membership rights. The shares were deemed to have a cost base of $V per share. You and your spouse participated in the ABC dividend reinvestment plan (DRP) under which you acquired a further 50% ownership interest in a number of ABC shares that were issued on various dates. Later in the 1990s, you and your spouse were allotted a number of options from ABC. This allotment was based on a one for V calculation and each of these shares had a cost base of $R. In the 2000s, the XYZ (MNO) and ABC merged. Under the merger arrangement, ABC shares were converted into MNO shares at a rate of J MNO shares for every T ABC shares. As a result of merger, you and spouse received a number of MNO shares and you and your spouse have chosen to utilise the scrip for scrip rollover provisions in relation to these shares. You and your spouse participated in the MNO DRP and were issued a number of shares on various dates. Income Tax Assessment Act 1997 Section 102-22 Income Tax Assessment Act 1997 Section 104-10 Income Tax Assessment Act 1997 Section 109-5 Income Tax Assessment Act 1997 Section 109-10 Income Tax Assessment Act 1997 Section 110-25 Income Tax Assessment Act 1997 Section 124-780 Income Tax Assessment Act 1997 Section 124-785 Income Tax Assessment Act 1936 Section 121AA Income Tax Assessment Act 1936 Section 121AAD Demutualisation of ABCS (ABC) When a company issues or allots shares to you, you are deemed to have acquired the shares when the contract is entered into or, if there is no contract, when the shares are issued or allotted. The cost base comprises any amount you paid in order to acquire the asset in question, plus most other incidental costs you have incurred along the way to maintain, preserve or dispose of the asset. In the 1990s, ABCS demutualised and you and your spouse were issued a number of ABC shares in exchange for your membership rights. As the shares were allocated free of charge, the cost base for these shares is the deemed value attributed to the shares at the date of the demutualisation. ABC has given the Australian Taxation Office the figure of $V as the embedded value per share. Therefore, the ABC shares you and your spouse acquired as a result of ABCS's demutualisation have a cost base of $V per share. ABC shares acquired under a dividend re-investment plan (DRP) For CGT purposes, if you participate in a dividend reinvestment plan (DRP), you are treated as if you had received a cash dividend and then used the cash to buy new shares. Shares acquired by this method, on or after 20 September 1985, are subject to CGT. Included in the cost base of the new shares is the price you paid to acquire them, the amount of the dividend. You and your spouse elected to participate in ABC's DRP and under this plan you elected to have your dividend entitlement used to acquire additional shares in the company instead of receiving a cash payment. You and your spouse acquired a number of shares under the DRP on various dates. Based on the information you have provided, the cost base of your 50% interest in the ABC DRP shares is $P. Cost base of ABC shares Based on the information you have provided, the cost base of your 50% interest in the ABC shares you and your spouse acquired as a result of the demutualisation, participation in the DRP and the allocated options is $Q. Merger of ABC and the XYZ (MNO) If a company in which you own shares is taken over by another company, you may have a CGT obligation if you are required to dispose of your existing shares or they are cancelled. In certain circumstances, if you acquire new shares as a result of a merger, you may be able to defer paying CGT until a later CGT event happens. This is called a scrip for scrip rollover. This means if you are liable for CGT you may elect to pay the capital gain at the time or, if you are eligible, you may elect to rollover and pay the CGT on a later event. In this case, under the merger arrangement ABC shareholders received J new MNO shares for every T ABC ordinary shares held. As a result of the merger of ABC and MNO you received a number of shares in MNO for the shares you held in ABC. You and your spouse chose the scrip for scrip rollover relief. Therefore, any CGT liability that arose on the exchange of the ABC shares is deferred until you sell your interest in the MNO shares. Calculation of the cost base of your MNO shares acquired as a result of the ABC and MNO merger. The cost base of the new MNO shares allocated to you and your spouse as a result of the merger is calculated by re-distributing the original cost base of your ABC shares amongst your new MNO shares. One of the conditions of the merger was that for every T ABC shares you held, you were entitled to J MNO shares. Therefore, in order to calculate the cost base for the new MNO shares, you multiply the cost of your ABC shares by T and then divide this figure by J. The cost base of the new MNO shares is calculated using the following formula: Cost of one ABC share = (cost of ABC shares) x T /J In your case, based on the information you have provided the cost base of the MNO shares is $S, and the cost base of each MNO share is $Y. MNO shares acquired under a DRP You and your spouse participated in the MNO DRP and received a number of shares on various dates. Based on the information you have provided, the cost base of your 50% ownership interest in the MNO DRP shares is $X. Note: You will make a capital gain if the capital proceeds from the disposal of your 50% ownership interest in the ABC and MNO shares are greater than the cost base of those shares. Brokerage fees incurred when you dispose of your ABC and MNO shares will be included in their cost base when calculating any capital gain made on their disposal.




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: CGT - shares - demutualisation - dividend reinvestment: Question 1: Is the cost base of each of your XYZ shares acquired as a result of the demerger $Y per share? | Question 2: Is the cost base of your 50% ownership interest in the XYZ dividend reinvestment plan shares $X?