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 Mincor Resources NL shares on 23 October 2003 when Mincor Resources NL demerged Tethyan Copper Company 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.
Under the demerger, Tethyan Copper Company Ltd (TCC) was demerged from Mincor Resources NL (Mincor). The demerger involved a return of capital of $0.029 and a demerger dividend of $0.060 per share in Mincor. This amount was compulsorily applied as a consideration for the acquisition of shares in TCC. Mincor shareholders were entitled to one TCC share for every 3.37 of their Mincor shares.
1. What do I have to do if I was a shareholder in Mincor when TCC was demerged?
The return of capital resulted in a capital gains tax (CGT) event happening to each of your Mincor shares.
There are two things you must do:
- consider whether you want to choose rollover relief, and
- recalculate the cost base and reduced cost base of your Mincor and TCC shares.
2. What are the consequences of choosing rollover?
If you choose rollover you can disregard any capital gain resulting from the $0.029 per share return of capital. A capital gain would arise only if the cost base of each of your Mincor shares just before the demerger was less than $0.029. 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 (that is, the cost base of each of your Mincor shares just before the demerger was less than $0.029), you must take the capital gain into account in calculating your net capital gain or net capital loss in your 2004 tax return.
4. Is the dividend of $0.060 per share assessable?
The dividend of $0.060 per share that was distributed as part of the demerger is neither assessable income nor exempt income. Therefore, you do not need to include it in your 2004 tax return.
5. How do I calculate the cost base and reduced cost base of my Mincor shares, and the TCC shares I received in relation to those shares?
Regardless of whether or not you choose rollover, you must recalculate the cost base and reduced cost base of each of your Mincor shares, and each of the TCC shares you received for those shares.
The cost base of these TCC shares is not $0.30 (that is, the cost base is not ((0.029 + 0.060) × 3.37).
The cost base of your Mincor shares just before the demerger (not including indexation) is spread across those shares and the TCC shares you received for the Mincor shares. The spread is based on the value of Mincor that TCC represented at that time - that is, 9.582%. The remaining 90.418% is spread across your Mincor shares.
You acquired a parcel of 10,000 Mincor shares that had a cost base of $2,000 just before the demerger. You later acquired another parcel of 5,000 Mincor shares that had a cost base of $3,500 just before the demerger. Therefore the cost bases of all your Mincor shares is $5,500 (that is, $2,000 + $3,500).
Under the demerger you received 4,451 shares in TCC for these 15,000 Mincor shares.
You calculate the cost base of your shares after the demerger as follows:
$5,500 × 9.582% = $527.01
The first element of the cost base (and reduced cost base) of each of your 4,451 TCC shares is $0.118 ($527.01 ÷ 15,000).
$5,500 × 90.418% = $4,972.99
The first element of the cost base (and reduced cost base) of each of your 15,000 Mincor shares is $0.332 ($4,972.99 ÷ 15,000).
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 Mincor shares just before the demerger
- do not reduce the cost base of your Mincor shares by the $0.029 per share return of capital associated with the demerger of TCC, and
- retain these details so that you can work out your capital gains and capital losses when you dispose of these shares.
6. What happens if I have disposed of some or all of my Mincor or TCC shares after the demerger?
If you sold any Mincor or TCC shares after the demerger (that is, after 23 October 2003), you calculate any capital gain or capital loss using the first element of the cost base or reduced cost base as calculated under question 5 above. You include the capital gain or capital loss when calculating your net capital gain or net capital loss for the year in which you disposed of the shares.
7. Can I use the CGT discount method for working out my capital gain on TCC shares?
You can use the CGT discount method if you sell your TCC shares at least 12 months after you acquired the Mincor shares that relate to those TCC shares.
8. How can I work out my CGT consequences?
You can work out your CGT consequences from the Mincor Resources NL demerger by using the online demergers calculator.
Launch the Demergers calculator.