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  • Company non-assessable payments (CGT event G1)

    Non-assessable payments to shareholders are generally made only where a company has shareholder approval to reduce its share capital.

    If you receive a non-assessable payment from a company (that is, a payment that is not a dividend or an amount that is taken to be a dividend for tax purposes), CGT event G1 occurs at the time of the payment. Under CGT event G1, you need to adjust the cost base of the shares. These payments are often referred to as a 'return of capital'.

    If the amount of the non-assessable payment is less than the cost base of the shares at the time of payment, you reduce the cost base and reduced cost base by the amount of the payment.

    If the non-assessable payment exceeds the cost base of your shares, the excess is a capital gain and the cost base of your shares is reduced to zero.

    You can't make a capital loss from the receipt of a non-assessable payment.

    Interim liquidation distributions that are not dividends are generally treated in the same way as other non-assessable payments under CGT event G1.

    Example: Non-assessable payments

    Rob bought 1,500 shares in RAP Ltd on 1 July 1994 for $5 each, including brokerage and stamp duty. On 30 November 2007, as part of a shareholder-approved scheme for the reduction of RAP's share capital, he received a non-assessable payment of 50 cents per share. Just before Rob received the payment, the cost base of each share (without indexation) was $5.

    As the amount of the payment is not more than the cost base (without indexation), he reduces the cost base of each share at 30 November 2007 by the amount of the payment to $4.50 ($5 minus 50 cents). As Rob has chosen not to index the cost base, he can claim the CGT discount if he disposes of the shares in the future.

    End of example

    Non-assessable payments under a demerger

    If you receive a non-assessable payment under an eligible demerger, you don't deduct the payment from the cost base and the reduced cost base of your units or trust interest. Instead, you adjust your cost base and reduced cost base according to the demerger rules.

    You may make a capital gain on the non-assessable payment if it exceeds the cost base of your original unit or trust interest, although you'll be able to choose the CGT rollover.

    An eligible demerger is one that happens on or after 1 July 2002 and satisfies certain tests. The trust making the non-assessable payment will normally advise unit or trust interest holders if this is the case.

    See also:

    Last modified: 17 Jul 2017QC 52214