• WMC Resources Limited takeover by BHP Billiton

    Overview

    This page contains information about the takeover of WMC Resources by BHP Billiton in 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 WMC Resources which were acquired by BHP Billiton in the 2005 takeover of WMC Resources
    • you did not acquire your shares under an employee share scheme, and
    • any gain or loss you made on the shares is regarded as 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

    In March 2005, BHP Billiton (BHP) announced a takeover offer of $7.85 per share for all WMC Resources (WMC) shares. The offer became unconditional on 3 June and closed on 17 June 2005.

    WMC shareholders who did not accept the offer before 7.30 pm (Eastern Standard Time) on 17 June 2005 had their shares compulsorily acquired. They received the same payment for their shares as accepting shareholders. The compulsory acquisition took effect on 2 August 2005.

    What are the tax consequences of my participation in the takeover?

    There are capital gains tax (CGT) consequences. The sale of your shares to BHP 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 2004-05 or your 2005-06 tax return.

    What are the capital gains tax consequences for me?

    A CGT event happened when you disposed of your WMC shares in the takeover by BHP. The time of the event depends on when (or if) you accepted the BHP offer for your WMC shares.

    The following table sets out the date of the event according to your actions:

    If you:

    the date of the event is:

    accepted the offer on or before 3 June 2005

    3 June 2005.

    accepted the offer between 3 June and 17 June 2005

    the date that you accepted the offer.

    did not accept the offer by 7.30pm EST 17 June 2005

    2 August 2005 .

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

    For shares that you acquired after 19 September 1985*, work out if you have made a capital gain or capital loss using the capital proceeds of $7.85 you received for each WMC share.

    * Shares acquired before 20 September 1985 are pre-CGT assets and you therefore disregard any capital gain or capital loss you make on them.

    The following table will help you work out your capital gain or loss.

    For each WMC share with a:

    you have made:

    equal to:

    cost base* of less than $7.85

    a capital gain

    $7.85 minus the cost base of the share.

    reduced cost base* of more than $7.85

    a capital loss

    the reduced cost base of the share minus $7.85.

    For WMC shares with a cost base of not less than $7.85 and a reduced cost base of not more than $7.85, you have made neither a capital gain nor a capital loss. You will not need to take the disposal of these shares into account in preparing your tax return

    * For information on how to work out the cost base and reduced cost base for shares, see the Guide to capital gains tax 2005-06.

    How do I treat the capital gain or capital loss?

    If you made a capital gain on the disposal of your WMC shares, you must include it in your calculations when completing item 17 on your tax return for the income year that the event happened in (supplementary section).

    The method you use to work out any capital gain depends on when you acquired those shares. The following table sets out what method you can use.

    If you acquired your WMC shares*:

    You calculate your capital gain using the:

    Before 21 September 1999

    Indexation method or discount method.

    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 example of Clare in chapter 2 of the Guide to capital gains tax 2005-06).

    After 21 September 1999 and more than 12 months before the event happened to your WMC shares

    Discount method.

    Note: If you have capital losses to apply against capital gains you made on these shares, you deduct the capital losses before applying the discount.

    12 months or less before the event happened to your WMC shares

    Other method.

    * If you acquired your WMC Resources shares in the demerger of Western Mining Corporation in 2002 and chose roll-over, use the date you acquired the original Western Mining Corporation shares that these shares are attributed to.

    Note: 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 2005-06.

    If you made a capital loss you can offset this loss against other capital gains you made in the income year that the event happened to your WMC shares. If you are unable to offset all the capital loss, you can carry the balance forward to offset against future capital gains.

    Example 1

    Demerged shares

    Harry bought 500 Western Mining Corporation shares in December 1996. When Western Mining Corporation demerged WMC Resources*, the unindexed cost base of these shares (including the cost of the shares, brokerage, and stamp duty) was $3,800, or $7.60 per share.

    * Western Mining Corporation changed its name to Alumina Limited in December 2002 - immediately after it demerged WMC Resources. After the demerger, shareholders held one share in each of WMC Resources and Alumina Limited for each share in Western Mining Corporation that they held at the time of the demerger.

    Under the demerger, 46.3% of the cost base of Harry's Western Mining Corporation shares at the time of the demerger was allocated as the cost base of his WMC shares (the remainder was allocated to the Alumina shares). This was $1,759.40 or $3.5188 per share.

    Harry accepted the takeover offer on 18 May 2005. Because this is before 3 June, the time of the event for his shares is 3 June 2005. Harry received a cheque for $3,925 (500 x $7.85).

    Calculating the capital gain

    Harry made a capital gain from the sale of the 500 shares as follows:

    Capital proceeds (500 x $7.85)

    $3,925.00

    less total cost base (500 x $3.5188)

    $1,759.40

    Capital gain

    $2,165.60

    Harry has no other capital gains or capital losses for the year. He also has no capital losses carried forward from previous years.

    Because Harry had held his shares for more than 12 months, he applies the CGT discount to his capital gain* (if he had any capital losses, he would offset them against his capital gain before applying the discount). If Harry chooses to apply the CGT discount, he will include a $1,082 ($2,165 x 50% to the nearest dollar) net capital gain on his tax return for the year ended 30 June 2005.

    * Because he bought the Western Mining Corporation shares before 21 September 1999, Harry could use an indexed cost base to work out the gain instead of applying the CGT discount.

    Recording the capital gain on the tax return

    Harry would complete item 17 on his Tax Return 2005 (supplementary section) showing:

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

    Net capital gain: $1,082

    Total current year capital gains: $2,165

    Example 2

    Purchased shares

    Simone bought 200 WMC shares in July 2004. At the time that she accepted the takeover offer, on 7 June 2005, the unindexed cost base and reduced cost base of these shares (including the cost of the shares, brokerage, and stamp duty) was $1,040, or $5.20 per share.

    Simone accepted the takeover offer on 7 June 2005. Because this is after the offer was made unconditional, this is the date of the event for her shares. Simone received a cheque for $1,570 (200 x $7.85).

    Calculating the net capital gain

    Simone makes a capital gain from the sale of 200 shares as follows:

    Capital proceeds (200 x $7.85)

    $1,570

    less total cost base (200 x $5.20)

    $1,040

    Capital gain

    $530

    Simone has no other capital gains or capital losses for the year. She also has no capital losses carried forward from previous years.

    Because Simone had held her shares for less than 12 months, she calculates her capital gain using the other method. Under this method, Simone will include a $530 net capital gain on her tax return for the year ended 30 June 2005.

    Recording the capital gain on the tax return

    Simone will complete item 17 on the Tax Return 2005 (supplementary section) showing:

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

    Net capital gain: $530

    Total current year capital gains: $530

    Example 3

    Purchased shares

    Justine bought 350 WMC shares in December 2003. She did not accept the takeover offer, so her shares were compulsorily acquired by BHP on 2 August 2005. At the time of the compulsory acquisition, the unindexed cost base and reduced cost base of these shares (including the cost of the shares, brokerage, and stamp duty) was $1,900.50, or $5.43 per share.

    Justine's shares were compulsorily acquired on 2 August 2005, so this is the date of the event for her shares. Justine received a cheque for $2,747.50 (350 x $7.85).

    Calculating the net capital gain

    Justine makes a capital gain from the sale of 350 shares as follows:

    Capital proceeds (350 x $7.85)

    $2,747.50

    less total cost base (350 x $5.43)

    $1,900.50

    Capital gain

    $847

    Justine has no other capital gains or capital losses for the year. She also has no capital losses carried forward from previous years.

    Because Justine had held her shares for more than 12 months, she calculates her capital gain using the discount method. Under this method, Justine will include a $423 net capital gain on her tax return for the year ended 30 June 2006.

    Recording the capital gain on the tax return

    Justine will complete item 17 on the Tax Return 2006 (supplementary section) showing:

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

    Net capital gain: $423

    Total current year capital gains: $847

    What to read/do next

    For more information about the tax implications of owning shares, see the following publications:

    • You and your shares 2005-06 (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 2005-06 (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 2005-06 (NAT 4152-6.2006) - shorter than the Guide to capital gains tax 2005-06, 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 2005-06

    For help in applying this information to your own situation, phone us on 13 28 61.

      Last modified: 06 Oct 2009QC 18179