Impact on resident individual shareholders
These questions and answers apply to you if:
- you are an individual taxpayer who is an Australian resident for tax purposes
- you held Sonic Healthcare Ltd shares on 27 November 2002 when Sonic Healthcare Ltd demerged SciGen Ltd
- 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 rather than:
- as trading stock
- as part of carrying on a business, or
- to make a short-term or one-off commercial gain.
Background
Under the demerger, SciGen Ltd (SciGen) was demerged from Sonic Healthcare Ltd (Sonic) on 27 November 2002. The demerger involved a return of capital of $0.148 per share in Sonic. This amount was compulsorily applied as consideration for the acquisition of shares in SciGen, in the form of CHESS Units of Foreign Securities (CUFS). Sonic shareholders were entitled to one SciGen share (in the form of a CUFS) for every one of their Sonic shares.
1. What do I have to do if I was a shareholder in Sonic when SciGen was demerged?
The return of capital resulted in a capital gains tax (CGT) event happening to each of your Sonic shares.
There are two things you must do:
- consider whether you want to choose rollover relief, and
- recalculate the cost base and reduced cost base of your Sonic and SciGen shares.
2. What are the consequences of choosing rollover?
If you choose rollover, you can disregard any capital gain resulting from the $0.148 return of capital. A capital gain would arise only if the cost base of your Sonic share was less than $0.148. You cannot make a capital loss on the return of capital.
3. What are the consequences of not choosing rollover?
If you do not choose rollover and you made a capital gain on the return of capital (that is, the cost base of your Sonic shares is less than $0.148), you must take the capital gain into account in calculating your net capital gain or net capital loss in your 2003 tax return.
4. How do I calculate the cost base and reduced cost base of my Sonic shares, and the SciGen shares I received in relation to those shares?
Regardless of whether or not you choose rollover, you must recalculate the cost base and reduced cost base of each of your Sonic shares, and each of the SciGen shares you received for those shares.
The cost base of these SciGen shares is not $0.148.
The cost base of your Sonic shares just before the demerger (not including indexation) is spread across those shares and the SciGen shares you received for the Sonic shares. The spread is based on the value of Sonic that SciGen represented at that time - that is, 0.66%. The remaining 99.34% is spread across your Sonic shares.
Example
You acquired a parcel of 1,000 Sonic shares that had a cost base of $5,250 just before the demerger. You later acquired another parcel of 500 Sonic shares that had a cost base of $2,650 just before the demerger. Therefore, the cost bases of all of your Sonic shares is $7,900 ($5,250 + $2,650).
Under the demerger you received 1,500 shares in SciGen (in the form of CUFS) for these 1,500 Sonic shares.
You calculate the cost base of your shares after the demerger as follows:
SciGen
$7,900 × 0.66% = $52.14
The first element of the cost base (and reduced cost base) of each of your 1,500 SciGen shares (in the form of CUFS) is
$0.035 ($52.14 ÷ 1,500).
Sonic
$7,900 × 99.34% = $7,847.86
The first element of the cost base (and reduced cost base) of each of your 1,500 Sonic shares is $5.23 ($7,847.86 ÷ 1,500).
In working out the cost base (and reduced cost base) just after the demerger you:
- need to know the cost base of each of your Sonic shares just before the demerger
- do not reduce the cost base of your Sonic shares by the $0.148 per share return of capital associated with the demerger of SciGen, and
- need to retain these details so that you can work out your capital gains and capital losses when you dispose of these shares.
5. What happens if I have disposed of some or all of my Sonic or SciGen shares after the demerger?
If you sold any Sonic or SciGen shares after the demerger (that is, after 27 November 2002), you calculate any capital gain or capital loss using the first element of the cost base or reduced cost base as calculated under question 4 above. You include the capital gain or loss when calculating your net capital gain or net capital loss for the year in which you disposed of the shares.
6. Can I use the capital gains tax discount method for working out my capital gain on SciGen shares?
You can use the discount method if you sell your SciGen shares at least 12 months after you acquired the Sonic shares that relate to those SciGen shares.
7. How can I work out my capital gains tax consequences?
You can work out your CGT consequences from the Sonic Healthcare Ltd demerger by using the online demergers calculator.
Launch the Demergers calculator.