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  • CSR Limited (CSR): 2005 return of capital

    Overview

    This page contains information about the return of capital CSR Limited (CSR) made to shareholders in August 2005.

    This information applies to you if:

    • you are an individual, not a company or trust
    • you are an Australian resident for tax purposes
    • you held shares in CSR and received the return of capital in August 2005
    • you did not acquire your shares under an employee share scheme, and
    • any gain or loss you made on the shares is a capital gain or capital loss - this means that you held your shares as an investment asset, not:
      • as trading stock
      • as part of carrying on a business, or
      • to make a short-term or 'one-off' commercial gain.
       

    Background

    CSR Limited announced a return of capital (capital return) on 18 May 2005. All CSR shareholders registered on 21 July 2005 (the record date) received the capital return. The capital return was paid on 4 August 2005.

    Components of the capital return

    The capital return was $0.20 per share. This payment was a capital payment (it was not classed as a dividend for any purpose and had no dividend component).

    Are there any tax consequences for me?

    There are two tax consequences.

    • As a result of the return of capital, you must adjust the cost base and reduced cost base of your CSR shares.
       
    • The capital return on your shares is a capital gains tax (CGT) event that may have resulted in a capital gain for you. Depending on the outcome, you may have to include some details on your 2006 tax return.

    If you held the shares when the return of capital was paid

    For CSR shares you acquired after 19 September 1985* you must:

    • adjust the cost base and reduced cost base of your CSR shares
       
    • work out whether you have made a capital gain (you cannot make a capital loss on a return of capital).

    * Shares acquired before 20 September 1985 are pre-CGT assets and you, therefore, disregard any capital gain or capital loss you make on them.

    How do I adjust the cost base and reduced cost base of my CSR shares?

    For the shares that had a cost base of less than $0.20, reduce the cost base and reduced cost base to nil. Your capital gain will be equal to the excess.

    For your other shares - reduce the cost base and reduced cost base by $0.20 each. If any of your shares had a cost base of exactly $0.20, their new cost base and reduced cost base will be nil.

    For more information on how to work out the cost base and the reduced cost base of shares, see the Guide to capital gains tax.

    Did I make a capital gain?

    You have made a capital gain if your cost base per share on the payment date (4 August 2005) was less than the amount you received for each share ($0.20). For each of these shares, you have made a capital gain of $0.20 minus the cost base of the share.

    For shares with a cost base equal to or greater than $0.20, you have made no capital gain as a result of the return of capital.

    For information on how to work out the cost base (and reduced cost base) for shares, see the Guide to capital gains tax.

    If you no longer held the shares when the return of capital was paid

    If you disposed of the shares after the record date and before the return of capital was received, the return of capital is a CGT event separate from the CGT event on disposal. The cost base for the return of capital is nil. Therefore, you have made a capital gain from this event of $0.20 per share disposed.

    How do I treat the capital gain?

    For CSR shares you acquired after 19 September 1985*, use the table below to decide which method to use to calculate your net capital gain or loss from the capital return.

    * Shares acquired before 20 September 1985 are pre-CGT assets and you, therefore, disregard any capital gain or capital loss you make on them.

    If you made a capital gain on this CGT event, you must include it in your calculations when completing item 17 on your 2006 tax return (supplementary section).

    The method you use to work out the amount to include in your calculations depends on when you acquired the shares. The following table sets out what method you can use.

    If you acquired your CSR shares:

    You calculate your capital gain using the:

    before 21 September 1999

    indexed cost base or discount method, whichever you choose*

    Note: if you have capital losses to apply against capital gains you made on shares acquired before 21 September 1999, you may want to use the indexation method for some of your shares and the discount method for the others. For more information, see the Clare example in chapter 2 of the Guide to capital gains tax.

    on or after 21 September 1999 and before 4 August 2004

    discount method (after applying any capital losses - including unapplied capital losses from previous years)

    on or after 4 August 2004

    other method

    * If you choose to index the cost base of shares you acquired before 21 September 1999, you cannot apply the CGT discount when you dispose of them.

    For information on the different methods you can use to work out your capital gain, see the Guide to capital gains tax.

    Note: If you did not make a capital gain on the return of capital, you don't need to include anything on your 2006 tax return regarding this CGT event.

    Example 1

    John purchased 2,000 CSR shares in May 1999. At the time of the capital return on 4 August 2005, the cost base of these shares (including any brokerage and stamp duty) was $2,100, or $1.05 per share.

    John received a total of $400 (2,000 x $0.20) in the return of capital.

    John must adjust the cost base and reduced cost base of his CSR shares by subtracting the amount of the capital return. The new cost base for his share parcel is $1,700 ($2,100 - $400), or $0.85 per share.

    John has not made a capital gain on his shares as a result of the capital return so he does not have to put anything on his tax return to reflect this event.

    Example 2

    Peta sold 500 CSR shares on 30 July 2005 - she acquired these shares in March 2004. Peta made a capital gain of $350 on the sale. As a consequence of this sale, Peta held no CSR shares at the time of the capital return on 4 August 2005.

    Because she held CSR shares on the record date (21 July 2005), Peta is eligible to receive the capital return. Peta received $100 (500 x $0.20) in the return of capital.

    Calculating the capital gain

    Peta made a capital gain from the return of capital as follows:

    Capital proceeds (500 x $0.20)

    $100

    less total cost base (500 x $0.00)

    $0

    Capital gain

    $100

    Because Peta had held the shares for which the capital return was paid for more than 12 months, she applies the CGT discount to her capital gain (if she had capital losses she would offset them against her capital gain before applying the discount).

    Recording the capital gain on the tax return

    Assuming she had only the capital gains from her CSR shares and no capital losses for the 2005-06 year, Peta would complete item 17 on her 2006 tax return (supplementary section) showing:

    Did you have a capital gains tax event during the year?

    Yes

    Net capital gain:

    $225

    Total current year capital gains:

    $450 *

    * $350 (gain on sale) + $100 (gain on capital return) = $450

    What to read/do next

    For more information about this return of capital, see Class Ruling CR 2005/45: Income tax: capital reduction: CSR. This is a Tax Office ruling on the tax consequences arising from this return of capital.

    For more information about the tax implications of owning shares, see the following publications:

    • You and your shares (NAT 2632-6.2006) - this publication is for individuals investing in shares or convertible notes and offers guidance on the taxation of dividends from investments, allowable deductions from dividend income and record keeping requirements for investors.
       
    • Guide to capital gains tax (NAT 4151-6.2006) - this publication explains how capital gains tax works and will help you to calculate your net capital gain or net capital loss.
       
    • Personal investors guide to capital gains tax (NAT 4152-6.2006) - shorter than the Guide to capital gains tax, this publication covers the sale, gift or other disposal of shares or units, distribution of gains from managed funds and non-assessable payments from companies or managed funds. It does not cover CGT consequences for bonus shares, shares acquired under an employee share scheme, bonus units, rights and options, and shares and units where a takeover or demerger has occurred - for information on these CGT issues, you will need to refer to the Guide to capital gains tax.

    For help applying this information to your own situation, phone us on 13 28 61.

      Last modified: 06 Oct 2009QC 18446