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Edited version of private ruling

Authorisation Number: 1011593260291

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Ruling

Subject: Capital gains tax (CGT)- shares

1. Do you disregard any capital loss or gain made when receiving shares in exchange for convertible notes under section 26 BB of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes.

2. Are you required to declare your capital gain in your tax return?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a resident of Australia for taxation purposes.

You hold/held shares and notes on capital account.

You acquired a number of Convertible Unsecured Notes (CAAG) issued by a company.

The maturity date was at a later date.

These notes are Traditional Securities.

You disposed of the convertible notes by acceptance of the take over offer by the same company for the consideration of Fully Paid Ordinary shares in the company.

On this date the Market Value of these shares was x.

There was a Net Gain on this disposal of y.

There were no brokerage nor other costs involved in either transaction.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 26BB(2)

Income Tax Assessment Act 1936 section 70B

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 26BB(2) of the ITAA 1936 considers the disposal and redemption of traditional securities.

It states where a taxpayer disposes of a traditional security or a traditional security of a taxpayer is redeemed, the amount of any gain on the disposal or redemption shall be included in the assessable income of the taxpayer of the year of income in which the disposal or redemption takes place.

A loss on the disposal or redemption of a traditional security is deductible, under section 70B of the ITAA 1936, in the income year in which the disposal or redemption takes place. A loss on sale is deductible against ordinary income.

Section 26BB(4)

Subsection (2) does not apply to a gain on the disposal or redemption of a traditional security if:

In your case you have made a gain of y and this is not assessable under section 26BB(4) of the ITAA 1936 as you received ordinary shares in the issuing company.

CGT is the tax that you pay on any capital gain you make on a CGT asset such as shares, land and property.

You can only make a capital gain or a capital loss if a CGT event happens. CGT events are different types of transactions or events that may result in a capital gain or a capital loss.

The most common CGT event is A1, this happens when you dispose of an asset to someone else.

CGT event A1 occurred for you as a convertible note holder when you disposed of your convertible notes under the take over bid. The event happened at the time you exchanged your convertible notes for ordinary shares.

You as a convertible note holder made a capital gain from the disposal of your convertible notes.

In your case you made a capital gain of y on the disposal.

This gain is required to be declared in your tax return.

CGT discount:

Generally, you can use the discount method to calculate your capital gain if:

You will be able to reduce your capital gain by 50% only after you have applied all the capital losses for the year and any unapplied net capital losses from earlier years.

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