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Ruling

Subject: CGT - shares - In-specie dividend

Question 1

Is any part of the in-specie distribution of Company B shares by Company A assessable to you as a dividend?

Answer

Yes.

Question 2

Is the first element of the cost base of the Company B shares equal to the amount of the dividend that is assessable to you?

Answer

Yes.

Question 3

Is the cost base of your Company A shares reduced due to the distribution of Company B shares to you?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

At various times after 20 September 1985 you purchased several parcels of Company A shares.

At some time during the year you received an amount of Company B shares as an unfranked dividend paid out of the profits of Company A.

You received advice from Company A to include the unfranked dividend in your 2012-13 tax return.

At some time during the year you sold all your Company A shares.

You received a Shareholder dividend statement from Company A which is to be read with and form part of the description of the scheme for the purpose of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1936 - Subsection 6(1)

Income Tax Assessment Act 1936 - Section 6BA

Income Tax Assessment Act 1936 - Section 44

Income Tax Assessment Act 1997 - Section 103-5

Income Tax Assessment Act 1997 - Section 104-135

Income Tax Assessment Act 1997 - Section 110-25

Income Tax Assessment Act 1997 - Subdivision 130-A

Reasons for decision

Question 1

If you own shares in a company, you will generally be paid your share of the company's profits as a dividend. You must declare all assessable dividends paid or credited to you. A dividend is any distribution made by a company to its shareholders whether in money or other property (including shares in that or another company). A dividend is assessable income in the year it was paid or credited to you as shown on your dividend statement.

In your case, you received an unfranked dividend paid by Company A of an amount of Company B shares. You were provided with a dividend statement and advice from Company A that the shares received were an unfranked dividend paid out of the profits of Company A. Therefore, the total amount is assessable to you and needs to be included as an unfranked dividend in your 2012-13 income tax return.

Question 2

The cost base of a CGT asset is generally the cost of the asset when you bought it.

The cost base of a CGT asset is made up of five elements:

1. money or property given for the asset

2. incidental costs of acquiring the CGT asset or that relate to the CGT event

3. costs of owning the asset

4. capital costs to increase or preserve the value of your asset or to install or move it

5. capital costs of preserving or defending your ownership of or rights to your asset.

You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.

In your case, the first element of your cost base is equal to the amount of the dividend that is assessable to you. As the Company B shares you received are a dividend, the consideration for the acquisition of the shares is the amount of the dividend that is included in your assessable income.

Question 3

CGT event G1 happens when you receive a capital payment for your shares, known as non-assessable payments. These payments to shareholders are made only if a company has shareholder approval to reduce its share capital. A payment or distribution can include money and property.

If you receive a non-assessable payment from a company (that is, a payment that is not a dividend or an amount that is taken to be a dividend for tax purposes), you need to adjust the cost base of the shares at the time of the payment. These payments will often be referred to as a return of capital. If the amount of the non-assessable payment is not more than the cost base of the shares at the time of payment, you reduce the cost base and reduced cost base by the amount of the payment.

As the payment you received was a dividend, it cannot be a non-assessable payment. Therefore, your cost base is not reduced. Your capital loss is the difference between your capital proceeds received from the sale of your Company A shares and their cost base. The cost base of your Company A shares is the total of what you paid for them (first element) plus any other costs (as detailed in question 2), adjusted for any events that occurred during your ownership period such as a return of capital.

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