• Takeovers and mergers

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    If a company in which you owned shares was taken over or merged with another company, you may have a capital gains tax obligation if you were required to dispose of your existing shares.

    In certain circumstances, if you acquire new shares in the takeover or merged company, you may be able to defer paying capital gains tax until a later CGT event happens. For more information, see Scrip for scrip roll-over.

    Some takeover or merger arrangements involve an exchange of shares. In these cases, when you calculate your capital gain or capital loss, your capital proceeds will be the market value of the shares received in the takeover or merged company.

    If you receive a combination of money and shares in the takeover or merged company, your capital proceeds are the total of the money and the market value of the shares you received at the time of disposal of the shares.

    The cost of acquiring the shares in the takeover or merged company is the market value of your original shares at the time you acquire the other shares, reduced by any cash proceeds.

    To correctly calculate the capital gain or capital loss for your original shares, you will need to keep records (in addition to the usual records) showing the parties to the arrangement, the conditions of the arrangement and the capital proceeds.

    As each takeover or merger arrangement will vary according to its own particular circumstances, you need to obtain full details of the arrangement from the parties involved.

    Example
    Takeover

    We are assuming with this example that scrip for scrip roll-over does not apply.

    Desiree owns 500 shares in ABC Ltd. These shares are currently worth $2 each. Their cost base, with indexation, is $1.50.

    XYZ Ltd offers to acquire each share in ABC Ltd for one share in XYZ Ltd and 75 cents cash. The shares in XYZ Ltd are valued at $1.25 each. Accepting the offer, Desiree receives 500 shares in XYZ Ltd and $375 cash.

    The capital proceeds received for each share in ABC Ltd is $2 ($1.25 market value of each XYZ Ltd share plus 75 cents cash). Therefore, as the cost base of each ABC Ltd share is $1.50, Desiree will make a capital gain of 50 cents ($2-$1.50) on each share, a total of $250.

    The cost base of the newly acquired XYZ Ltd shares is the market value of the shares in ABC Ltd ($2) less the cash amount received ($0.75). That is, $1.25 each or a total of $625 (500 x $1.25).

    Example
    Takeover offer

    Gunther owns 100 shares in Windsor Ltd, each with a cost base of $9. He accepts a takeover offer from Regal Ltd which provides for Gunther to receive one Regal share plus $10 cash for each share in Windsor. Gunther receives 100 shares in Regal and $1000 cash. Just after Gunther is issued shares in Regal, each share is worth $20.

    Gunther has received $10 cash for each of his 100 Windsor shares and so has ineligible capital proceeds of $1000.

    In this case, it is reasonable to allocate a portion of the cost base of the original shares having regard to the proportion that the cash bears to the total proceeds. That is:

    $1000/ 3000 x $900 = $300

    Gunther's capital gain is as follows:

    $1000

    -

    $300

    =

    $700

    Ineligible proceeds (cash)

     

    cost base

     

    capital gain

    Gunther calculates the cost base of each of his Regal shares as follows:

    ($900-$300)/ 100 = $6

    Last modified: 31 Aug 2010QC 16195