• Mayne Group Ltd: 2004 off-market share buy-back

    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 Mayne Group Limited and participated in the 2004 off-market share buy-back
    • 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 30 January 2004 Mayne Group Ltd (Mayne) announced that it would undertake an off-market share buy-back. The buy-back was completed on 22 March 2004.

    Components of buy back price

    The buy-back price was $3.55 per share. This price was:

    • a capital payment (there was no dividend component).

    What are the tax consequences of my participation in the buy-back?

    There are capital gains tax consequences because you stopped owning the shares:

    • The sale of your shares (to Mayne) is a capital gains tax event that may have resulted in a capital gain (or capital loss) for you. Depending on the outcome, you may have to include some details on your 2003-04 tax return.

    What are the capital gains tax consequences for me?

    A CGT event happened on 22 March 2004 when the Mayne Group accepted your offer of shares for buy-back.

    You may have made a capital gain or a capital loss on your Mayne shares, depending on their cost base (or reduced cost base) and the amount your received for them.

    For shares that you acquired before 20 September 1985 - disregard any capital gain or capital loss you made because the shares are pre-CGT assets.

    For shares you acquired after 19 September 1985 - work out if you have made a capital gain or a capital loss using the capital payment amount of $3.55 you received for each share. The following table will help you.

    For each Mayne share with a:

    you have made:

    equal to:

    cost base* of less than $3.55

    a capital gain

    $3.55 minus the cost base of the share

    reduced cost base* of more than $3.55

    a capital loss

    the reduced cost base of the share minus $3.55

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

    Note

    If your cost base is not less than $3.55 and your reduced cost base is not more than $3.55, you have made neither a capital gain nor a capital loss on the share buy-back. There is nothing you need to include on your 2003-04 tax return regarding this sale.

    How do I treat the capital gain or capital loss?

    If you made a capital gain on the disposal of your post-CGT Mayne shares, 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 those shares. The following table sets out what method you can use.

    If you acquired your Mayne shares:

    You calculate your capital gain using the:

    Before 21 September 1999

    Indexed cost base or discount method, whichever gives you the better result*

    After 21 September 1999 and before 22 March 2003

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

    On or after 22 March 2003

    '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.

    If you made a capital loss you can offset this loss against other capital gains made in the 2003-04 income year. If you are unable to offset all the capital loss, you can carry the balance forward to be offset against future capital gains.

    Example 1: Capital gain

    John bought 2,000 shares in Mayne Group in June 2000 for $3.00 per share plus brokerage of $100 - a total of $6,100. He sold all of his shares in the buy-back, receiving $7,100.

    Calculating the capital gain

    John has made a capital gain of $1,000 ($7,100 - $6,100) on the sale of his shares. Because he has held his shares for more than 12 months, he can choose to apply the CGT discount to his capital gain (John has no capital losses to offset against his capital gain). If John chooses to apply the CGT discount, he will include a $500 net capital gain ($1000 x 50%) in his tax return for the year ended 30 June 2004.

    Recording the capital gain on the tax return

    Assuming that he has no other capital gains or losses for the 2003-04 year, John will complete item 17 on the 2004 tax return (supplementary section) showing:

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

    Net capital gain: $500

    Total current year capital gains: $1,000

    Note:

    If he had bought his Mayne shares before 19 September 1999, John could use the indexed cost base method - instead of the discount method - to work out his capital gain. For help in working out a capital gain using the indexed cost base, see the Guide to capital gains tax.

    Example 2: Capital loss

    Mary bought 500 Mayne shares in May 2002 for $2,500 ($5.00 per share) plus a brokerage fee of $80 - making her cost base $2,580, or $5.16 per share.

    Mary sold all of her shares in the buy-back, receiving $1,775.

    Calculating the capital loss

    Mary has made a capital loss of $805 ($2,580 - $1,775) on the sale of her shares.

    Recording the capital loss on the tax return

    Mary made a capital gain of $400 on the sale of other shares that she held during the 2003-04 income year. Mary must offset the $400 capital gain against her capital loss and carry the unused $405 capital losses forward until she is able to offset them against a capital gain in a future year.

    Mary will complete item 17 on her 2004 tax return (supplementary section) showing:

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

    Net capital gain: $0

    Total current year capital gains: $400

    Net capital losses carried forward to later income years: $405.

    What to read/do next

    For more information about this buy-back, see Class Ruling CR 2004/32 - Income tax: Off-market share buy-back: Mayne Group Limited. This is a Tax Office ruling on the tax consequences arising from this buy-back.

    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 capital 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 these you will need to refer to the longer 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 17652