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 Wesfarmers and received the return of capital in December 2003
- 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
On 3 November 2003 Wesfarmers Limited announced a return of capital ('capital return'). All Wesfarmers shareholders on 15 December 2003 (the record date) received the capital return. The capital return was completed on 18 December 2003.
Components of the capital return
The capital return was $2.50 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:
- The capital return on your shares is a capital gain 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 2003-04 tax return.
- As a result of the return of capital, you must adjust the cost base of your Wesfarmers shares.
What are the capital gains tax consequences for me?
A CGT event happened on 18 December 2003, when Wesfarmers made a capital return on the shares that you held in the company.
You received $2.50 for each share that you held on the record date. This amount represents your capital proceeds.
For Wesfarmers shares you acquired after 19 September 1985* you must:
- work out whether you have made a capital gain (you cannot make a capital loss on a return of capital)
- adjust the cost base and reduced cost base of your Wesfarmers shares.
* Shares acquired before 20 September 1985 are pre-CGT assets and you therefore disregard any capital gain or capital loss you make on them.
Did I make a capital gain?
You have made a capital gain if your cost base per share on the record date (15 December 2003) was less than the amount you received for each share ($2.50). For each of these shares, you have made a capital gain of:
- $2.50 minus the cost base of the share.
For shares with a cost base equal to or greater than $2.50, 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.
How do I adjust the cost base and reduced cost base of my Wesfarmers shares?
For the shares you made a capital gain on - reduce their cost base and reduced cost base to nil.
For your other shares - reduce the cost base and reduced cost base by $2.50 each. If any of your shares had a cost base of exactly $2.50, 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.
How do I treat the capital gain?
If you made a capital gain on this CGT event, you must include it in your calculations when completing item 17 on your 2003-04 tax return (supplementary section).
The method you use to work out the amount to include in your item 17 calculations depends on when you acquired the shares. The following tables sets out what method you can use.
|
If you acquired your Wesfarmers shares: |
You calculate your capital gain using the: |
|
Before 21 September 1999 |
Indexed cost base or discount method, whichever gives you the better result* |
|
On or after 21 September 1999 and before 15 December 2002 |
Discount method (after applying any capital losses - including unapplied capital losses from previous years) |
|
On or after 15 December 2002 |
'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, there is nothing you need to include on your 2003-04 tax return regarding this CGT event.
Example 1
Mark purchased 200 Wesfarmers shares in December 2000. He paid $2,900 ($14.50 per share) plus brokerage of $150 - making his cost base $3,050, or $15.25 per share. There were no CGT events affecting the cost base of his shares before the return of capital in December 2003.
Mark received a total of $500 (200 x $2.50) in the return of capital.
Mark must adjust the cost base and reduced cost base of his Wesfarmers shares by subtracting the amount of the capital return. The new cost base for his share parcel is $2,550 ($3,050 - $500), or $12.75 per share.
Mark 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 2003-04 tax return to reflect this event.
Example 2
Maria purchased 1,000 Wesfarmers shares in December 1986. She paid $2,200 ($2.20 per share) plus brokerage of $100 - making her cost base $2,300.
Maria received a total of $2,500 (1,000 x $2.50) in the return of capital.
Calculating the capital gain
Maria can choose to apply either the indexation method or the discount method to calculate any capital gain.
If Maria chooses the indexed cost base, she calculates her cost base by multiplying her original cost base by an uplift factor. The uplift factor is worked out by dividing 123.4 by the consumer price index for the December quarter of 1986 (79.8) and is 1.546 (rounded to three decimal places). Maria's indexed cost base is $3,555.80 ($2,300 x 1.546).
Using this method, Maria has made no capital gain on the return of capital, so she does not have to put anything on her 2003-04 tax return to reflect this event.
Maria must reduce the cost base of her shares by $2,500 to $1,055.80.
Note
If Maria uses the indexed cost base for this event, she cannot use the discount method if she sells her Wesfarmers shares later. She must use the indexed cost base method in all future events affecting these shares.
If Maria chooses the discount method, she calculates her capital gain by subtracting her cost base from the amount she received in the return of capital. Maria's capital gain is $200 ($2,500 - $2,300). Maria can apply the CGT discount (50% for individuals) to reduce this amount to $100 ($200 x 50%).
Maria must also adjust the cost base and the reduced cost base of her Wesfarmers shares to nil.
Recording the capital gain on the tax return
Assuming that she has no other capital gains or capital losses for the 2003-04 year, Maria would complete item 17 on the 2004 tax return (supplementary section) as follows:
Did you have a capital gains tax event during the year?: Yes
Net capital gain: $100
Total current year capital gains: $200
What to read/do next
For more information about this return of capital, see Class Ruling CR 2003/105W: Return of capital: Wesfarmers 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 2632-6.2004) - 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 4151-6.2004) - 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 4152-6.2004) - 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.