You cannot make a capital loss.
Any capital gain you make as a result of this transaction is a discountable capital gain in accordance with normal rules provided the corresponding 21CF share was acquired at least 12 months before the date of distribution (28 June 2013).
Example 1: Cost base higher than Capital Proceeds
Jan purchased 1,000 Class A shares in 21CF in 2006 for $8.00 per share (i.e. a total cost of $8,000). Jan continued to hold her shares after 28 June 2013. As a result of the Separation Jan received 250 Class A shares in new News Corp.
The cost base of Jan's new shares in new News Corp is $16.60 per share (i.e. a total cost base of $4,150).
Jan will need to determine if she made a capital gain on her 21CF shares. The capital proceeds of $4.15 per share are less than the cost base of $8.00 per share, therefore Jan did not make a capital gain as a result of the Separation and cannot make a capital loss.
However, Jan will need to adjust the cost base of her 21CF shares as a result of the Separation. The first element of her cost base of each 21CF share will now be reduced to $3.85 per share (being $8.00 per share reduced by the capital proceeds from the Separation of $4.15 per share). Jan’s total new cost base of all her 21CF shares is now reduced to $3,850.
Jan will need to record the cost base of her new News Corp shares and adjust her record of the cost base of her 21CF shares.
Example 2: Cost base less than Capital Proceeds
Julie purchased 1,000 Class B shares in 21CF in 2008 for $3.00 per share (i.e. a total cost of $3,000). Julie continued to hold her shares after 28 June 2013. As a result of the Separation, Julie received 250 Class B shares in new News Corp.
The cost base of Julie's new shares in new News Corp is $16.50 per share (i.e. a total cost base of $4,125).
Julie has made a capital gain as the capital proceeds of $4.12 for each 21CF Class B share exceed the cost base of $3.00 per share. Julie has made a capital gain of $1,120 (being 1,000 shares x ($4.12 - $3.00) = $1,120) as a result of the Separation. As Julie has held her shares in 21CF for more than 12 months, she is able to use the discount method to calculate her capital gain. Therefore, assuming Julie has no current or carried forward capital losses, she would need to include $560 (that is her capital gain of $1,120 multiplied by 50%) as her capital gain amount in relation to this transaction.
Julie also needs to adjust the cost base of her 21CF shares as a result of the Separation. As the capital proceeds of $4.12 per share are greater than her cost base of $3.00 per share, Julie’s cost base of her 21CF shares must be reduced to Nil going forward.
End of example