• Non-assessable payments

    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

    The cost base of shares or units for capital gains tax calculations may need to be adjusted if you receive a non-assessable payment without disposing of your shares or units. A payment or distribution can include money and property.

    You need to keep accurate records of the amount and date of any non-assessable payments in relation to your shares and units.

    Non-assessable payments from a company (CGT event G1)

    Non-assessable payments to shareholders are not very common and would generally be made only where a company has obtained shareholder approval to reduce its share capital-for example, to refund part of the paid-up value of shares to shareholders. Before 1 July 1998, a company needed court approval to reduce its share capital.

    If you receive a non-assessable payment from a company, you need to adjust the cost base of the shares at the time of the payment. If the amount of the non-assessable payment is not more than the cost base of the shares at the time of payment, the cost base and reduced cost base are reduced by the amount of the payment.

    You make a capital gain if the amount of the non-assessable payment is more than the cost base of the shares. The amount of the capital gain is equal to the excess. If you make a capital gain, the cost base and reduced cost base of the shares are reduced to nil. You cannot make a capital loss.

    When you sell the shares, you compare the capital proceeds from the sale with the cost base or reduced cost base of the shares at the time of sale to see if you have made a capital gain or a capital loss.

    From the 1998-99 income year, payments to shareholders from a liquidator can be disregarded if the company is dissolved within 18 months of the payment. These payments will form part of the capital proceeds for the cancellation of those shares.

    Example
    Non-assessable payments

    Rob bought 1500 shares in RAP Ltd on 1 July 1994 for $2 each. On 30 November 2000, as part of a shareholder-approved scheme for the reduction of RAP's share capital, he received a non-assessable payment of 50 cents per share. At that date, the cost base of each share (without indexation) was $2.20.

    As the amount of the payment is not more than the cost base (without indexation), the cost base of each share at 30 November 2000 is reduced by the amount of the payment to $1.70 ($ 2.20-50 cents). As Rob has chosen not to index the cost base, he can claim the CGT discount if he disposes of the shares in future.

    Non-assessable payments from a unit trust (CGT event E4)

    It is quite common for a unit trust to make non-assessable payments to unit holders. Your capital gains tax obligations in this situation are explained in chapter 4.

    When you sell the units, you must adjust their cost base or reduced cost base. The amount of the adjustment is based on the amount of non-assessable payments you received during the income year up to the date of sale. You use the adjusted cost base or reduced cost base to work out your capital gain or loss.

    Last modified: 31 Aug 2010QC 16195