Impact on resident individual shareholders
These questions and answers apply to you if:
- you are an individual taxpayer who is an Australian resident for tax purposes
- you held CSR Ltd shares on 11 April 2003 when CSR Ltd demerged Rinker Group Ltd
- 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 rather than:
- as trading stock
- as part of carrying on a business, or
- to make a short-term or one-off commercial gain.
In this fact sheet a 'pre-CGT' share refers to one acquired before 20 September 1985, and a 'post-CGT' share to one acquired on or after that date.
Under the demerger, Rinker Group Ltd (Rinker) was demerged from CSR Ltd (CSR). The demerger involved a return of capital of $0.84 and a demerger dividend of $0.69 per share in CSR. Pursuant to a scheme of arrangement, these amounts were paid by CSR to Rinker on behalf of shareholders for the issue of shares by Rinker to CSR shareholders. CSR shareholders received one Rinker share for every one of their CSR shares.
1. What do I have to do if I was a shareholder in CSR when Rinker was demerged?
The return of capital resulted in a capital gains tax (CGT) event happening to each of your CSR shares.
There are two things you must do:
- Consider whether you want to choose rollover.
- Recalculate the cost base and reduced cost base of your post-CGT CSR and post-CGT Rinker shares.
2. What are the consequences of choosing rollover?
If you choose rollover and some or all of your CSR shares are pre-CGT, you can treat the corresponding Rinker shares as pre-CGT. This means that any capital gain or capital loss resulting from the sale of these shares is ignored and does not need to be included when calculating your net capital gain or net capital loss.
If a quarter of your 2,000 CSR shares are pre-CGT, then a quarter of the 2,000 Rinker shares (500 shares) you received will also be pre-CGT shares if you choose rollover.
If all of your 2,000 CSR shares are pre-CGT, then the 2000 Rinker shares you received will be pre-CGT shares if you choose rollover.
Therefore any capital gain or capital loss on the sale of the pre-CGT Rinker shares is ignored and does not need to be included when calculating your net capital gain or net capital loss.End of example
If you choose rollover and some or all of your CSR shares are post-CGT, you can disregard any capital gain resulting from the $0.84 return of capital for those post-CGT shares. A capital gain would arise only if the cost base of your CSR shares was less than $0.84, which is unlikely. You cannot make a capital loss on the return of capital.
3. What are the consequences of not choosing rollover?
If you do not choose rollover and you made a capital gain on the return of capital (which is unlikely), you must take the capital gain into account in calculating your net capital gain or net capital loss in your 2002-03 tax return.
Also, if you do not choose rollover, none of your Rinker shares will be treated as pre-CGT shares.
If you owned pre-CGT CSR shares, then the first element of the cost base (and reduced cost base), just after the demerger, of each Rinker share you received in relation to those shares was $1.53. This is the return of capital of $0.84 and demerger dividend of $0.69 per CSR share that was paid to Rinker for the issue of each of your Rinker shares.
You had 1,000 pre-CGT CSR shares just before the demerger. Under the demerger you received 1,000 shares in Rinker for your CSR shares. You did not choose rollover.
You acquired 1,000 Rinker shares on 11 April 2003 and the first element of the cost base (and reduced cost base) is $1.53 per share (total of $1,530).
Your 1,000 pre-CGT CSR shares retain their pre-CGT status.End of example
4. How do I calculate the cost base and reduced cost base of my post-CGT CSR and post-CGT Rinker shares?
Regardless of whether or not you choose rollover, you must recalculate the cost base and reduced cost base of each of your post-CGT CSR shares and each of the post-CGT Rinker shares you received for those shares.
The cost base of these Rinker shares is not $1.53.
The cost base of your post-CGT CSR shares just before the demerger (not including indexation) is spread across those shares and the post-CGT Rinker shares you received for the post-CGT CSR shares. The spread is based on the value of CSR that Rinker represented at that time - that is, 75%. The remaining 25% is spread across your CSR shares.
You bought a parcel of 1,000 post-CGT CSR shares that had a total cost base of $5,000 just before the demerger. Just before the demerger you bought another parcel of 500 post-CGT CSR shares that had a total cost base of $3,000.
Under the demerger you received 1,500 shares in Rinker for these 1,500 CSR shares.
You calculate the cost base of your shares after the demerger as follows:
$8,000 × 25% = $2,000
The first element of the cost base (and reduced cost base) of each of your 1,500 post-CGT CSR shares is $1.33 ($2,000 ÷ 1,500).
$8,000 × 75% = $6,000
The first element of the cost base (and reduced cost base) of each of your 1,500 post-CGT Rinker shares is $4.00 ($6,000 ÷ 1,500).
This example illustrates the cost base calculations using the 'averaging method'. Taxation Determination TD 2006/73 explains that you can use other methods if they are reasonable. For example, in the circumstances of this demerger, it would also be reasonable to use the 'parcel by parcel' method outlined in TD 2006/73. For more information read Demergers: Cost base rules tax determination.End of example
Remember that in working out the cost base (and reduced cost base) just after the demerger you:
- need to know the cost base of each of your CSR shares just before the demerger
- do not reduce the cost base of your CSR shares by the $0.84 per share return of capital associated with the demerger of Rinker
- ignore any pre-CGT shares you have - the calculations are done only for your post-CGT shares, and
- retain these details so that you can work out your capital gains and losses when you sell these shares.
5. What happens if I sold some or all of my CSR or Rinker shares after the demerger?
If you sold any CSR or Rinker shares after the demerger (that is, after 11 April 2003), you calculate any capital gain or capital loss using the normal rules and the cost base you worked out for each share under question 3 or 4 above. You include the capital gain or loss when calculating your net capital gain or net capital loss for the year in which you sold the shares.
Any capital gain or capital loss resulting from the sale of your pre-CGT CSR or Rinker shares is ignored and does not need to be included when calculating your net capital gain or net capital loss.
6. Can I use the CGT discount method for working out my capital gain on CSR or Rinker shares?
If you have owned your CSR shares for at least 12 months, you can use the discount method in working out your capital gain. For your Rinker shares which relate to those CSR shares that you have owned for more than 12 months, you can also use the discount method in calculating your capital gain.
If you have Rinker shares where you calculated the cost base as $1.53 under question 3 above, you can use the discount method to work out your capital gain on these shares only if you sold them after 11 April 2004 - that is, at least 12 months after the demerger.
7. Can I work out my capital gains tax consequences using the demergers calculator on the Tax Office website?
Yes, you can work out your CGT consequences from the CSR demerger by using the online Demergers calculator.
What to read/do next
CSR Ltd demerger Class Rulings: