Impact on resident individual shareholders
These questions and answers apply to you if you:
- are a Tabcorp Holdings Limited (THL) shareholder
- are an Australian resident
- held shares when the demerger was implemented on 15 June 2011.
This information does not apply if your shares were:
- held as trading stock
- held for resale at a profit
- acquired under an employee share scheme.
Under the demerger, Echo Entertainment Group Limited (Echo) demerged from THL.
The demerger involved a share capital reduction by THL and the transfer to THL shareholders of one Echo share for every THL share they owned on the record date of 10 June 2011.
1. What do I have to do if I was a shareholder in THL when Echo was demerged?
You need to:
- work out the cost base of all of your Tabcorp shares owned before the demerger
- work out if you have made a capital gain as a result of the demerger
- consider if you want to choose demerger rollover if you did make a capital gain
- recalculate the cost base and reduced cost base of your THL and Echo shares.
2. What are the capital gains tax (CGT) consequences of the demerger?
A CGT event happened to each THL share you held at the time THL reduced its share capital.
You may have made a capital gain on your THL shares, if the capital reduction amount attributable to each THL share is more than the cost base of each THL share you held before the demerger.
The capital reduction amount for each THL share was $3.2264.
For information on how to work out the cost base and reduced cost base for shares, see Guide to capital gains tax (NAT 4151).End of further information
Rollover relief is available for this demerger if you made a capital gain.
3. What are the consequences of choosing the rollover?
The rollover allows you to disregard any capital gain resulting from the $3.2264 capital reduction amount.
A capital gain would arise only if the cost base of each of your THL shares was less than $3.2264. You cannot make a capital loss on the share capital reduction.
4. What are the consequences of not choosing the rollover?
If you do not choose the rollover and you made a capital gain on the share capital reduction, you must take the capital gain into account in calculating your net capital gain or net capital loss in your 2010-11 tax return.
The way you prepare your tax return is sufficient evidence of the choice you made.End of attention
5. How do I recalculate the cost base and reduced cost base of my THL shares and Echo shares I received from this demerger?
Even if you do not choose the rollover, you must recalculate the cost base and reduced cost base of each of your THL shares and the Echo shares you received for those shares.
The cost base for your THL shares just before the demerger (not including indexation) is spread across those shares and the Echo shares you received for your THL shares.
The spreading is based on the value that Echo represented of THL at that time using the five-day volume-weighted average price (VWAP) of THL shares and Echo shares from the effective date of the demerger, which is 56.363%. The remaining 43.637% is spread across your THL shares.
Example - Relative Market Value method
You acquired 500 THL shares in 2009 that had a cost base of $3,165 (including brokerage) just before the demerger. Under the demerger you received 500 shares in Echo for these 500 THL shares.
The cost base of your shares after the demerger is calculated as follows:
$3,165 x 43.637% = $1,381.11
The first element of the cost base (and reduced cost base) of each of your 500 shares in THL is $2.76 ($1,381.11 divided by 500).
$3,165 x 56.363% = $1,783.89
The first element of the cost base (and reduced cost base) of each of your 500 shares in Echo is $3.57 ($1,783.89 divided by 500).
This example illustrates the cost base calculations using the relative market value method (also referred to as the averaging method).
Taxation Determination TD 2006/73 explains that you can use other methods if they are reasonable, including the parcel by parcel method. Example 2 in TD 2006/73 provides a calculation of this method.
For more information, read Demergers: Cost base rules tax determination.End of further information
Remember - 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 THL shares just before the demerger (taking into account any other CGT events that happened after you acquired the shares, but before the demerger if they affect the cost base)
- do not reduce the cost base of your THL shares by the $3.2264 per share capital reduction associated with the demerger of Echo
- keep these details so that you can work out your capital gains or losses when you dispose of these shares.
6. What happens if I have disposed of some or all of my THL or Echo shares after the demerger?
If you have sold any THL or Echo shares since the demerger, you calculate any capital gain or capital loss using the normal rules. You include the capital gain or capital loss in the calculation of your net capital gain or net capital loss for the year in which they were disposed of.
7. How do I determine my eligibility for the CGT discount in working out my capital gain on Echo shares?
Even if you do not choose the rollover, for the purposes of determining your eligibility for the CGT discount on the disposal of Echo shares, you are (for CGT purposes) taken to have acquired them on the date that you acquired your corresponding THL shares.
- Class Ruling CR 2011/66 - Income tax: demerger of Echo Entertainment Group Limited by Tabcorp Holdings Limited
- Demergers calculator.