Stapled securities are created when two or more different securities are legally bound together so that they cannot be sold separately. Many different types of securities can be stapled together. For example, many property trusts have their units stapled to the shares of companies with which they are closely associated.
The effect of stapling depends on the specific terms of the stapling arrangement. The issuer of the stapled security will be able to provide you with detailed information on their particular stapling arrangement. However, in general, the effect of stapling is that each individual security retains its character and there is no variation to the rights or obligations attaching to the individual securities.
Although a stapled security must be dealt with as a whole, the individual securities that are stapled are treated separately for tax purposes. For example, if a share in a company and a unit in a unit trust are stapled, you:
- continue to include separately on your tax return dividends from the company and trust distributions from the trust
- work out any capital gain or capital loss separately for the unit and the share.
Because each security that makes up your stapled security is a separate CGT asset, you must work out a cost base and reduced cost base for each separately.
If you acquired the securities after they were stapled (for example, you bought the stapled securities on the ASX), you do this by apportioning, on a reasonable basis, the amount you paid to acquire the stapled security (and any other relevant costs) between the various securities that are stapled. One reasonable basis of apportionment is to have regard to the portion of the value of the stapled security that each security represented. The issuer of the stapled security may provide assistance in determining these amounts.
Example 42: Apportionment of cost base and reduced cost base to the separate securities
On 1 September 2002, Cathy acquired 100 JKL stapled securities, which comprised a share in JKL Ltd and a unit in the JKL Unit Trust. She paid $4.00 for each stapled security, and on the basis of the information provided to her by the issuer of the stapled securities, she determined that 60% of the amount paid was attributable to the value of the share and 40% to the value of the unit. On this basis, the first element of the cost base and reduced cost base of each of Cathy’s shares in JKL Ltd will be $2.40 ($4.00 × 60%). The first element of the cost base and reduced cost base of each of Cathy’s units in JKL Unit Trust will be $1.60 ($4.00 × 40%).End of example
If you acquired your stapled securities as part of a corporate restructure you will, during the restructure, have owned individual securities that were not stapled. The way you work out the cost base and reduced cost base of each security depends on the terms of the stapling arrangement.
The stapling does not result in any CGT consequences for you, because the individual securities are always treated as separate securities. However, there may be other aspects of the whole restructure arrangement which will result in CGT consequences for you.
Example 43: CGT consequences associated with the stapling of securities
Jamie acquired 100 units in the Westfield America Trust (WFA) in January 2003. Immediately before the merger of Westfield America Trust with Westfield Holdings Ltd and Westfield Trust (July 2004), the cost base of each of his units was $2.12 (total cost base = $212 ($2.12 × 100)).
Under the arrangement, Jamie’s original units in WFA were firstly consolidated in the ratio of 0.15 consolidated WFA unit for each original WFA unit. After the consolidation, Jamie held 15 consolidated WFA units with a cost base of $14.13 ($212 ÷ 15) each. There were no CGT consequences for Jamie as a result of the consolidation of his units in WFA.
Jamie then received a capital distribution of $1.01 for each consolidated unit he held.
CGT event E4 happens as a result of the capital distribution, see appendix 1. Consequently, Jamie must reduce the cost base of each of his consolidated WFA units by $1.01 to $13.12.
The capital distribution was compulsorily applied to acquire a share in Westfield Holdings Ltd (WSF) for $0.01 and a unit in the Westfield Trust (WFT) for $1.00. The first element of the cost base and reduced cost base of each of Jamie’s new shares in WSF will be $0.01 and, for each new WFT unit, $1.00.
The units and shares were then stapled to form a Westfield Group Security. There were no CGT consequences for Jamie as a result of the stapling of each consolidated WFA unit to each new WFT unit and WSF share.
Following the arrangement, Jamie holds 15 Westfield Group Securities with the following CGT attributes:
- Element: Cost base (initial)
- WFA unit: $13.12
- WFT unit: $1.00
- WSF share: $0.01
- Total: $14.13
When you dispose of your stapled securities, you must:
- divide the capital proceeds (on a reasonable basis) between the securities that make up the stapled security
- then work out whether you have made a capital gain or capital loss on each security.
Other tax provisions may apply upon disposal of some securities. For example, you include a gain made on a traditional security in your assessable income under other tax provisions.
Example 44: Apportioning the capital proceeds between the separate securities
On 1 August 1983, Kelley purchased 100 shares in XYZ Ltd for $4.00 per share. In August 2002, Kelley was allocated 100 units in XYZ Unit Trust under a corporate reorganisation of the XYZ Group. The units were acquired for $1.00 each, with the funds to acquire the units coming from a capital reduction made in respect of her shares. At that same time, Kelley’s shares in XYZ Ltd and units in XYZ Unit Trust were stapled and became known as XYZ stapled securities.
Kelley disposed of all of her XYZ stapled securities on 1 March 2019 for $8.00 per security. On the basis of the information provided by the issuer of the stapled securities, Kelley determined that of this amount, 70% or $5.60 per share ($8.00 × 70%) was attributable to the value of her XYZ Ltd shares, and 30% or $2.40 per unit ($8.00 × 30%) attributable to the value of her units in the XYZ Unit Trust.
Kelley must account for the sale of each share and unit (that make up the stapled security) separately.
As Kelley acquired her XYZ Ltd shares before 20 September 1985, she disregards any capital gain or capital loss she makes on the disposal of these shares.
Kelley will make a capital gain of $1.40 per unit ($2.40 − $1.00) on the disposal of her units in the XYZ Unit Trust. As Kelley owned those units for more than 12 months, she can reduce her capital gain by the CGT discount of 50% after applying any capital losses.End of example