• Example

    Steps to determine the cost base and reduced cost base of new Westfield Retail Trust units and the cost base of existing Westfield Trust units

    Step 1

    Jack determines that his holding of Westfield Group stapled securities consists of:

    • 1,000 stapled securities acquired on 16 July 2004
    • 2,000 stapled securities acquired on 15 April 2009.

    Step 2

    Jack has to determine the cost base, just before 20 December 2010, of the Westfield Trust unit, which is a component of each Westfield Group stapled security he owns.

    Jack holds 1,000 Westfield Trust units in his parcel of 1,000 stapled securities and 2,000 Westfield Trust units in his parcel of 2,000 stapled securities.

    Because Jack acquired his stapled securities at different times and for different prices, he must do a separate calculation for his parcel of 1,000 stapled securities and his parcel of 2,000 stapled securities.

    Step 2a

    Jack must firstly determine the original cost base and reduced cost base of his two parcels of stapled securities.

    Jack acquired his 1,000 Westfield Group stapled securities in the 2004 Westfield Group stapling transaction. Westfield Group advised that the cost base and reduced cost base of each unit in the Westfield Trust (a component of the Westfield Group stapled security) was $0.001.

    Attention

    Note, the cost base of each unit in Westfield Trust for Westfield Group security holders who participated in the 2004 Westfield Group stapling transaction will depend on their circumstances and may not be $0.001.

    End of attention

    The original cost base of Jack's 2,000 Westfield Group stapled securities he acquired on 15 April 2009 is $10 each (including brokerage). Jack has to work out the proportion of the $10 cost base that is attributable to each of the 2,000 Westfield Trust units.

    Step 2b

    As per Step 2a, Jack knows that the original cost base (and reduced cost base) of each of his 1,000 Westfield Trust units is $0.001.

    Jack refers to the Westfield Group website and finds that the percentage of the cost base of a Westfield Group stapled security attributable to each Westfield Trust unit, at the time he acquired the parcel of 2,000 stapled securities, is 65.72%.

    Jack determines that the cost base and reduced cost base of each of his 2,000 Westfield Trust units is $6.57 ($10 x 65.72%).

    Step 2c

    Jack now has to reduce the cost base and reduced cost base of each Westfield Trust unit by the tax-deferred distributions received from Westfield Trust from the time he acquired them up to 20 December 2010.

    Jack has received a number of tax-deferred distributions in respect of his 1,000 Westfield Trust units up to the 2010-11 income year. The first tax-deferred distribution Jack received reduced the original cost base and reduced cost base of each of his 1,000 units from $0.001 to nil.

    Tax-deferred distributions cannot reduce the cost base of units below nil.

    The cost base of Jack's 1,000 Westfield Trust units just before 20 December 2010 was therefore nil.

    From 15 April 2009 (when he acquired the 2,000 Westfield Trust units) to just before 20 December 2010, Jack has received the following tax-deferred distributions:

    • 18.05 cents per unit for the six months ended 30 June 2009
    • 18.05 cents per unit for the six months ended 30 December 2009
    • 17.36* cents per unit for the six months ended 30 June 2010.
    Attention

    *Jack must check this amount when it is confirmed on the annual tax statement he will be sent by the Westfield Group after 30 June 2011.

    End of attention

    Jack reduces his cost base of $6.57 per unit by the total of the tax-deferred distributions above (53.46 cents).

    The cost base and reduced cost base of each of Jack's 2,000 Westfield Trust units just before 20 December 2010 is therefore $6.04.

    Step 3

    Jack now has to work out the first element of the cost base and reduced cost base of his Westfield Trust units and his Westfield Retail Trust 1 units just after 20 December 2010.

    Jack doesn't need to adjust the cost base of each of his 1,000 Westfield Trust units because their cost base remains nil after 20 December 2010 and the cost base of the corresponding Westfield Retail Trust 1 units he received is also nil.

    However, he has to apportion the cost base of each of his 2,000 Westfield Trust units between their cost base and his new corresponding Westfield Retail Trust 1 units:

    • Jack's adjusted cost base of each of his 2,000 Westfield Trust units is 59% of $6.04 = $3.56.
    • Jack's cost base of each of his corresponding 2,000 Westfield Retail Trust 1 units is 41% of $6.04 = $2.48*.
    Attention

    *The formula for working out the cost base of the new Westfield Retail Trust 1 units just after 20 December 2010 says to add their cost base just before 20 December 2010 (which was $0.000000043) to 41% of the cost base of each Westfield Trust unit just before 20 December 2010. Because $0.000000043 is so small, Jack chooses to treat the first element of the cost base as just 41% of $6.04.

    *Jack must check the annual tax statement he receives from Westfield Retail Trust after 30 June 2011 to see if he has to reduce this cost base of his Westfield Retail Trust 1 units by any tax-deferred distribution he receives in respect of them.

    End of attention

    Westfield Retail Trust 2 units

    As part of the restructure, Jack acquired 3,000 Westfield Retail Trust 2 units (in satisfaction of the dividend entitlement of $0.000000043 for each of the 3,000 Westfield Holdings Limited shares he held).

    The cost base of each of these new Westfield Retail Trust 2 units is $0.000000043.

    Jack chooses to treat the first element of their cost base as nil.

    Capital gains

    As the cost base of each of Jack's 1,000 Westfield Trust units is nil, any tax-deferred distributions he receives in respect of them will give rise to a capital gain.

    So far for the 2010-11 income year, Jack has received the following tax-deferred distributions:

    • 17.36 cents per unit for the six months ended 30 June 2010
    • 0.000000043 cents per unit as a result of the restructure

    As a result, Jack makes the following capital gain:

    • 17.36 cents x 1,000 units = $173.60
    • 0.000000043 cents x 1,000 units = $0.000043 (Jack chooses to disregard this).

    Total capital gain $173*.

    Attention

    *Jack will make a further capital gain on the tax-deferred part of the distribution he received for the six months ending 30 December 2010 (details of the tax-deferred component are not yet known, and will be advised in the annual tax statement he will be sent by the Westfield Group after 30 June 2011).

    End of attention

    For the purpose of this example, assume Jack has no capital gains from any other CGT (capital gains tax) asset, and no current year capital losses or unapplied net capital losses at 30 June 2011.

    Jack would report total capital gains of $173 in his 2010-11 tax return.

    He would report a net capital gain of $86 after reducing the total capital gain by the 50% discount.

    Attention

    The capital gain of $0.000043 made on the tax-deferred distribution received under the restructure (1,000 x $0.000000043) does not increase Jack's capital gain by $1, so he can ignore it.

    End of attention

    Jack will not make a capital gain on his 2,000 Westfield Trust units as the total tax-deferred distributions he received in respect of them in the 2010-11 income year will not exceed their cost base.

    Dividends

    Jack was entitled to a franked dividend of $0.000000043 for each of his 3,000 shares in Westfield Holdings Limited (a component of his Westfield Group stapled securities) as part of the Westfield Group restructure.

    His dividend entitlement was therefore $0.000129 (3,000 x $0.000000043).

    Assume Jack received total dividends of $350.00 in the 2010-11 year from all the shares he owns (including other dividends from Westfield Holdings Limited).

    Jack would include $350 total dividends in his tax return for 2010-11.

    He does not have to include the dividend of $0.000129 because it does not increase his total dividends for the year by $1 (cents are not included at the dividend question on the tax return).

      Last modified: 06 Jul 2011QC 24539