Aristocrat Leisure Limited (Aristocrat): 2005 return of capital
This page contains information about the return of capital Aristocrat Leisure Limited (Aristocrat) made to shareholders in July 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 Aristocrat and received the return of capital in July 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.
Aristocrat Leisure Limited announced a return of capital ('capital return') on 22 February 2005. All Aristocrat shareholders registered on 1 July 2005 (the record date) received the capital return. The capital return was paid on 15 July 2005.
The capital return was $0.21 per share. This payment was a capital payment (it was not classed as a dividend for any purpose and had no dividend component).
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 Aristocrat shares.
- The capital return on your shares is a capital gains tax event that may have resulted in a capital gain for you. Depending on the outcome, you may have to include some details on your 2005-06 tax return.
For Aristocrat shares you acquired after 19 September 1985* you must:
- adjust the cost base and reduced cost base of your Aristocrat shares, and
- 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 Aristocrat shares?
For the shares that had a cost base of less than $0.21, reduce their cost base and reduced cost base to nil. Your capital gain will be equal to the excess (see below).
For your other shares, reduce the cost base and reduced cost base by $0.21 each. If any of your shares had a cost base of exactly $0.21, 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 (NAT 4151-6.2005).
Did I make a capital gain?
You have made a capital gain if your cost base per share on the payment date (15 July 2005) was less than the amount you received for each share ($0.21). For each of these shares, you have made a capital gain of $0.21 minus the cost base of the share.
For shares with a cost base equal to or greater than $0.21, 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 disposed of the shares after the record date and before the return of capital was received, the return of capital is a capital gains tax (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 $0.21 per share disposed.
For Aristocrat shares you acquired after 19 September 1985*, use the table below to decide which method to use to calculate the amount to include in your net capital gain or loss for the year of income that comes 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 2005-06 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 Aristocrat 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 15 July 2004
Discount method (after applying any capital losses - including unapplied capital losses from previous years)
On or after 15 July 2004
* 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 2005-06 tax return regarding this CGT event.
Allan purchased 2,000 Aristocrat shares in July 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 $6,100, or $3.05 per share.
Allan received a total of $420 (2,000 x $0.21) in the return of capital.
Allan must adjust the cost base and reduced cost base of his Aristocrat shares by subtracting the amount of the capital return. The new cost base for his share parcel is $5,680 ($6,100 - $420), or $2.84 per share.
Allan 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.
Wendy sold 500 Aristocrat shares on 5 July 2005 - she acquired these shares in March 2004. Wendy made a capital gain of $4,100 on the sale. As a consequence of this sale, Wendy held no Aristocrat shares at the time of the capital return on 15 July 2005.
Because she held Aristocrat shares on the record date (1 July 2005), Wendy is eligible to receive the capital return. Wendy received $105 (500 x $0.21) in the return of capital.
Calculating the capital gain
Wendy made a capital gain from the return of capital as follows:
Capital proceeds (500 x $0.21)
less total cost base (500 x $0.00)
Because Wendy had held the shares for which the capital return was paid for more than 12 months, she applies the CGT discount to her capital gains (if she had capital losses she would offset them against her capital gains before applying the discount).
Recording the capital gain on the tax return
Assuming she had only the capital gains from her Aristocrat shares and no capital losses for the 2005-06 year, Wendy 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: $2,102
Total current year capital gains: $4,205*
* $4,100 (gain on sale) + $105 (gain on capital return) = $4,205
For more information about this return of capital, see Class Ruling CR 2005/51: Income tax: capital reduction: Aristocrat Leisure Limited - 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.