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Edited version of private ruling
Authorisation Number: 1011737515002
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Ruling
Subject: Capital gains tax - shares
Question 1
Did you make a capital gain when you received shares in exchange for your original shares as a result of a takeover?
Answer
Yes.
Question 2
Did you make a capital loss when you disposed of your shares?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You purchased shares in company A prior to 20 September 1985.
Company A was taken over by company B after 20 September 1985 and you received some shares in company B in return for giving up your interest in company A.
Company B was subsequently taken over by company C and you received shares in company C in exchange for the shares in company B.
In the income year you received different shares in exchange for your company C shares.
You disposed of those different shares in the income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section Division 115
Reasons for decision
Capital gains tax
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include shares acquired on or after 20 September 1985.
A taxpayer makes a capital gain if their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it.
A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset.
Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate.
A CGT event happened when you disposed of your company A shares, however as the company A shares were acquired before 20 September 1985 the CGT event is disregarded.
You acquired your company B shares after 20 September 1985. CGT event A1 occurred when you disposed of your company A shares for the company B shares. The first element of the cost base is the price you paid for your initial shares in company A.
No roll over is available as no profit was made on the exchange of shares. You just acquired shares in company B of the same value as the initial shares acquired in company A.
You exchanged your company B shares for company C shares after 20 September 1985. CGT event A1 occurred when you exchanged your company B shares for the company C shares.
Once again no roll over is available as no profit was made on the exchange of shares. You just acquired shares in company C of the same value as the company B shares which had the same value as the initial company A shares acquired before 1985.
When you received the company D shares in exchange for company C shares you made a capital gain as the shares were worth more.
The cost of your company C shares was the value of the company B shares you gave in exchange for the company A shares - giving you a profit.
An A1 event occurred when you sold your company D shares which resulted in a capital loss.
This gives a net capital gain.
50% Discount Method
You can reduce your capital gain by the CGT discount if:
· You are an individual, a trust or complying superannuation entity, and
· You owned the asset for at least 12 months, and
· You disposed of the asset after 11.45am on 21 September 1999.
The CGT discount is 50% for individuals. If you choose the CGT discount, you cannot index the cost base.
Your discounted capital gain is calculated as follows:
(capital proceeds - cost base) x 50%
As you held the company C shares for longer than 12 months the 50% discount method is available to you.