# Cost base and reduced cost base

Last updated 12 August 2012

Whether you choose rollover or not, you must recalculate the cost base and reduced cost base of each of your TCNZ shares and Chorus shares.

The total cost base or reduced cost base of your TCNZ shares, just before the demerger (not including indexation), is spread across your TCNZ shares and the Chorus shares you received under the demerger.

The spread is done by reference to the market value of each of your TCNZ shares and each of your new Chorus shares owned after the demerger, relative to the total market value of your shareholding.

The relative market value of shares in TCNZ and Chorus, expressed as percentages for the purpose of spreading the cost base, is:

• 75.17% for TCNZ
• 24.83% for Chorus.

Example

You acquired a parcel of 5,000 TCNZ shares that had a cost base of NZ\$15,000 (A\$11,121) just before the demerger. Under the demerger you received 1,000 shares in Chorus because you owned these 5,000 TCNZ shares.

The cost base of your shares after the demerger is calculated as follows:

TCNZ

NZ\$15,000 x 75.17% = NZ\$11,275.50

The first element of the cost base (and reduced cost base) of each of your 5,000 TCNZ shares is NZ\$2.25 per share (NZ\$11,275.50 divided by 5,000 shares).

The cost base per share in Australian dollars is A\$1.66 (being NZ\$2.25 divided by the exchange rate of \$1.3536).

Chorus

NZ\$15,000 x 24.83% = NZ\$3,724

The first element of the cost base (and reduced cost base) of each of your 1,000 shares in Chorus is NZ\$3.72 (NZ\$3,724 divided by 1,000 shares).

The cost base per share in Australian dollars is A\$2.75 (being NZ\$3.72 divided by the exchange rate of \$1.3536).

This example illustrates the cost base calculations using the relative market value method (also referred to as the averaging method).

Taxation Determination TD 2006/73Income tax: demergers 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.