This fact sheet applies to those who received shares in IOOF Holdings Ltd (IOOF) as a result of the demutualisation of IOOF Ltd in 2002.
Demutualisation
A mutual company is a company without shareholders and share capital. Demutualisation is a method by which a mutual company changes to a company with shareholders and share capital.
If shares in the demutualised company are listed for trading on an Australian Stock Exchange (ASX) within two years of it demutualising, then certain tax concessions may apply to the original members and shareholders.
IOOF demutualisation
IOOF Ltd was a Friendly Society that was a mutual company.
On 14 June 2002, the members of IOOF Ltd resolved to demutualise.
On 30 June 2002, IOOF Ltd demutualised and shares in IOOF Holdings Ltd (IOOF) were issued to approximately 70,000 members.
IOOF was listed on the ASX on 4 December 2003.
On 23 March 2004, Royal Assent was granted to amendments to the tax law which extend certain tax concessions to taxpayers who receive shares when a friendly society demutualises on or after 1 July 2000. These concessions apply to members of IOOF Ltd who received shares when it demutualised.
Tax consequences for giving up rights as a member of IOOF Ltd
The changes to the law mean that you ignore any capital gain or capital loss you made in the 2001-02 year when your membership interests in IOOF Ltd were cancelled.
Tax consequences when selling IOOF demutualisation shares
The changes to the law mean that:
- you are taken to have acquired your demutualisation shares in IOOF on 14 June 2002 (the demutualisation resolution day)
- the first element of the CGT cost base and reduced cost base of each demutualisation share is $2.53
- capital losses made on the sale of the shares before 4 December 2003 - that is, the date the company was listed on the Australia Stock Exchange (ASX), cannot be claimed. If you have claimed such capital losses and had a net capital gain for the relevant year, or would have had a net capital gain had you not claimed them, you will need to request an amendment.
What to do if you used the wrong cost base
If you:
- received demutualisation shares in IOOF
- sold them in the 2002-03 income year, and
- used an amount other than $2.53 as the first element of the cost base and reduced cost base, and
- declared a net capital gain for 2002-03, or would have had a net capital gain had you used $2.53,
you will need to request an amendment to your 2002-03 assessment.
In other cases where you used an amount other than $2.53 as the first element of the cost base and reduced cost base, you will need to adjust the amount of 'net capital losses carried forward to later income years' you have recorded - no amendment is required your 2002-03 assessment.
Examples
Example 1
Capital gain on the sale of demutualisation shares: no CGT discount
When IOOF Ltd demutualised, Glenn received 800 IOOF shares. He sold them on 31 August 2002 for $2.70 each. There were no brokerage costs associated with the sale. The shares had a cost base of $2.53 each.
Because Glenn did not own his shares for at least 12 months, he did not qualify for the 50% CGT discount. Glenn had a capital gain of $136 [800 X ($2.70 - $2.53)] in the 2002-03 year from the sale of his shares.
Example 2
Capital gain on the sale of demutualisation shares: CGT discount
When IOOF Ltd demutualised, Janine received 1,200 IOOF shares. She sold them on 9 March 2005 for $4.44 each. Janine incurred $50 brokerage costs on the sale. The shares had a cost base of $2.53 each.
Because Janine owned her shares for at least 12 months, she can reduce her capital gain by the 50% CGT discount (after applying any capital losses). Because Janine had no capital losses and no other capital gain for the year, her net capital gain for the year is calculated as follows:
Capital proceeds (1,200 X $4.44) |
$5,328 |
Cost base [(1,200 X $2.53) + $50 brokerage] |
$3,086 |
$2,242 |
|
less: 50% CGT discount |
$1,121 |
Net capital gain |
$1,121 |
Janine includes $1,121 in her 2004-05 tax return.
Example 3
Capital loss on the sale of demutualisation shares before IOOF was listed on the ASX
Barry sold his 500 IOOF shares for $1.10 each in December 2002. Based on an expected reduced cost base of $2.53 per share, Barry worked out he had made a capital loss on the sale of $715 (500 X [$2.53 - $1.10]). Barry subtracted this amount from his other capital gains in working out the net capital gain he included in his 2002-03 tax return.
Because Barry sold his shares before IOOF was listed on the ASX, he was not entitled to the $715 capital loss. He recalculates his net capital gain for 2002-03 ignoring the $715 capital loss he claimed and requests an amendment to his assessment for that year.
What to read/do next
- Guide to capital gains tax (4151-06.2005) - 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 (4152-06.2005) - this is a shorter publication which covers the sale or 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 - you will need to refer to the Guide to capital gains tax.
For help applying this information to your own situation, phone us on 13 28 61.