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Ruling

Subject: Capital gains tax - disposal of CBA shares

Question: Is the cost base of your Commonwealth Bank of Australia (CBA) shares the original cost base of your Colonial Mutual shares?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Colonial Mutual demutualised in December 1996.

You received a number of shares from the Colonial Mutual demutualisation.

Colonial Mutual has given the Australian Tax Office a figure of $3.31 as the embedded value per share.

On 13 June 2000, the CBA took over Colonial Mutual and you received seven CBA shares for every 20 Colonial Mutual shares.

You chose scrip-for-scrip rollover to apply.

You have disposed of your CBA shares.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 116-20

Income Tax Assessment Act 1997 Section 102-22

Income Tax Assessment Act 1997 Section 109-5

Income Tax Assessment Act 1936 Section 121AA

Income Tax Assessment Act 1993 Section 121AD

Reasons for decision

You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for its disposal or if there is no contract when the change of ownership occurs.

When you disposed of your CBA shares CGT event A1 occurred.

Colonial Mutual shares

Upon demutualisation of Colonial Mutual, members received shares in exchange for their membership rights.

In general, you acquire a CGT asset when you become its owner.

Therefore, you are taken to have acquired your shares in December 1996, when the demutualisation of Colonial Mutual occurred.

Cost base of Colonial Mutual shares

Shares that are received through a demutualisation, although they are allocated free of charge to the member, often have a deemed cost base. This is considered to be the value of the shares at the time that they are allocated to you.

In order to calculate any capital gain or capital loss from these shares it is necessary to know the cost base (or acquisition cost) of the Colonial Mutual shares when demutualisation occurred.

Basically, if an insurance company demutualised and its policyholders or members dispose of their listed shares in the company, for tax purposes the acquisition costs of the shares is based on the lessor of:

· the embedded value or net tangible asset value of the company; and

· the value of the company based on the total first trading day price of all shares in the company.

Colonial Mutual has given the Australian Tax Office a figure of $3.31 as the embedded value per share.

Therefore, you will need to multiply the number of shares that you were issued to you from Colonial Mutual through the demutualisation by $3.31. This amount is the cost base of your Colonial Mutual shares.

For example:

470 shares multiplied by $3.31 equals $1,555.70.

Scrip-for-scrip Rollover Colonial Mutual shares for CBA shares

If the conditions for scrip-for-scrip rollover are met any capital gain made on the exchanging of shares in one company for shares in another company, usually as part of a takeover or merger, is deferred until you dispose of the new shares.

In this instance, the conditions for scrip-for-scrip rollover were met which means that when your Colonial Mutual shares were exchanged for CBA shares and you elected to use the scrip-for-scrip rollover provisions, the capital gain made would not need to calculated until the disposal of your CBA shares.

Cost base of CBA shares

Shareholders need to use the cost base of their Colonial Mutual shares to work out the cost base of their CBA shares if they chose scrip-for-scrip rollover when their Colonial Mutual shares were exchanged for CBA shares.

One of the conditions of the merger was that for every 20 Colonial Mutual shares held shareholders were entitled to seven CBA shares.

Using the above example you would have received 165 CBA shares.

Your overall cost base is still the cost base of your Colonial Mutual shares. The cost base of each CBA share is calculated dividing this cost base by the number of shares you acquired.

Using the same example the cost base of a CBA share is $9.43 (cost base of $1,555.70 divided by 165 shares).

Please note: your cost base will change if you incurred other costs in relation to these shares (for example, brokerage fees).

For more information on how to work out your capital gain or capital loss please see enclosed information which has been taken from the Guide to capital gains tax 2010-11 (NAT 4151-6.2011). Information is also available on our website - www.ato.gov.au.