• Share buy-backs

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    As a shareholder you may receive an offer to buy back some or all of your shares in a company. When you dispose of your shares back to the company you may make a capital gain or loss from that CGT event. Some of the buy-back price may also be treated as a dividend for tax purposes. The time you make the capital gain or loss will depend on the conditions of the particular buy-back offer. It may be the time you lodge your application to participate in the buy-back or, if it is a conditional offer of buy-back, the time the offer is accepted.

    Contact the ATO if the information provided by the company is not sufficient for you to calculate your capital gain or loss.

    Example

    John bought 4,500 shares in Company A in January 1994 at a cost of $5 per share. In February 2000, John applied to participate in a buy-back offer to dispose of 675 shares (15 per cent). Company A approved a buy-back of 10 per cent (450) of the shares on 15 June 2000. The company sent John a cheque on 5 July for $4,050 (450 shares x $9). No part of the distribution is a dividend.

    John works out his capital gain for 1999-2000 as follows.

    If he chooses to index the cost base

    Capital proceeds

    $4,050

    Cost base 450 shares x $5
    $2250 x 1.118 (includes indexation)

    $2,515

    Capital gain

    $1,535

    If he chooses to claim the CGT discount

    Capital proceeds

    $4,050

    Cost base

    $2,250

    Discount capital gain

    $1,800

    If John has no capital losses to apply against this capital gain, he will include $900 (50 per cent of $1800) in his assessable income.

    Last modified: 18 Sep 2009QC 18323