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Ruling

Subject: CGT assets cost base

Question 1

Is the first element of the cost base of Entity 1 Limited shares, the market value provided by the Australian Stock Exchange (ASX) on the date of acquisition of the shares?

Answer

No.

Question 2

Is the first element of the cost base of the Entity 2 units, the market value provided by the ASX on the date of acquisition of the units?

Answer

No.

Question 3

Is the first element of the cost base of the Entity 3 stapled securities, the market value provided by the ASX on the date of acquisition of the stapled securities?

Answer

No.

Question 4

Is the first element of the cost base of Entity 4 units, the market value provided by the ASX on the date of acquisition of the units?

Answer

No.

Question 5

Is the first element of the cost base of the Entity 5, the market value provided by the ASX on the date of acquisition of the units?

Answer

No.

Question 6

Is the first element of the cost base of Entity 6, the market value provided by the ASX on the date of acquisition of the units?

Answer

No.

This ruling applies for the following periods:

30 June 2010

The scheme commences on:

Year ended 30 June 1994

Relevant facts and circumstances

During year ended 30 June 2010, CGT assets including shares, stapled securities and units purchased by the taxpayer were disposed of by you as executor of the taxpayer's estate.

Due to circumstances beyond your control records relating to the cost base of the financial instruments of the taxpayer have been unable to be obtained.

The financial instruments listed are

1. Entity 1 shares.

2. Entity 2 units.

3. Entity 3 stapled securities. (Initial investment was in trust units which following a take over/merger and name change became stapled securities)

4. Entity 4 stapled securities. (Initial investment was in units which were converted to stapled securities)

5. Entity 5 stapled securities. (Initial investment was in shares which were converted to stapled securities)

6. Entity 5 stapled securities. (Initial investment was in shares which were converted to stapled securities)

7. Entity 6 stapled securities.(Initial investment was in trust units which following a takeover/merger and conversion became stapled securities)

During the time the taxpayer held securities, Entity 1 issued bonus shares on two occasions.

During the taxpayer's time holding the Entity 2 units, there were tax deferred payments made and tax free payments made.

Entity 3 advised that rollover relief was available to unit holders.

During the taxpayer's time holding the Entity 4 units there were tax deferred payments and tax free payments made.

During the taxpayer's time holding Entity 5 stapled securities bonus shares were issued.

During the taxpayer's time holding Entity 6 stapled securities, a number of entities were merged to form one stapled security. A further simplification of the stapling was also made.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 110-25

Income Tax Assessment Act 1997 section 124-780

Income Tax Assessment Act 1997 subsection 128-15(4)

Reasons for decision

Question 1

Detailed reasoning

If a deceased person acquired their asset on or after 20 September 1985, the first element of the cost and reduced cost base is taken to be the deceased person's cost base of the asset on the day the person died.

If the deceased person died on or after 21 September 1999, you cannot use the indexation method and, when you dispose of the asset, you must recalculate the first element of your cost base from the date the person acquired it up until 21 September 1999.

Cost base for Entity 1 shares.

Information offered by Entity 1 at their web site indicates that they issued bonus shares on two occasions. The issue of bonus shares affects the cost base of the original shares. Bonus shares are additional shares a shareholder receives for an existing holding of shares in a company. If you dispose of bonus shares received on or after 20 September 1985, you may make a capital gain. You may also have to modify the cost base and reduced cost base of your existing shares in the company if you receive bonus shares.

During the time the taxpayer held shares, Entity 1 bonus shares were issued which can alter the cost base of the original shares. As a result of this, you cannot use the closing market value provided by the ASX on the date of acquisition as the cost base for the Entity 1 shares.

Question 2

Detailed reasoning

Cost base for Entity 2 units acquired.

Information provided on Entity 2's web site indicates that a number of non-assessable capital payments from Entity 2 were made during the taxpayer's time holding the units, there were a number of tax deferred payments made and a number of tax free payment made during that time.

If you receive non-assessable payments from a trust such as tax exempted or tax free amounts you need to make cost base adjustments to your units. Those adjustments will affect the amount of any capital gain or capital loss made on the unit.

If you received any tax deferred or tax free amounts, you adjust the cost base as follows:

Deduct the tax deferred amounts from the cost base.

During the time the taxpayer held units in Entity 2, tax deferred and tax free amounts were made to the unit holders which will alter the cost base of the original units. As a result of this, you cannot use the closing market value provided by the ASX on the date of acquisition as the cost base for the Entity 2 units.

Question 3

Detailed reasoning

Cost base for Entity 3 units.

The taxpayer initially acquired units in another entity. Entity 3 was then taken over which led to the taxpayer holding units in Entity 3. Unit holders at the time were advised of their eligibility for scrip-for-scrip rollover relief.

Unit holders may be eligible for scrip for scrip rollover relief if they exchange shares in a company or unit or other interest in a fixed trust, or other interests such as options for a similar interest in another entity. This situation would typically arise because of a takeover.

Unit holders can choose rollover relief if they have made a capital gain from such an exchange on or after 10 December 1999. Rollover is only available if the exchange is in consequence of an arrangement that results in the acquiring entity becoming the owner of 80 per cent of more of the original company or trust. Entity 3 trust advised unit holders of their eligibility for rollover relief.

The rollover allows unit holders to disregard the capital gain from the units. Unit holders will be taken to have acquired the trust units for the cost base of the trust units. You calculate the first element of the cost base for each unit received as a result of the exchange by reasonably attributing it to the cost base (original purchase price) of the trust units for which it was exchanged and for which rollover relief was obtained.

The choice to take the relief is reflected in how the income tax return for the relevant year is completed. If a capital gain is not included in the return for the disposal of the Entity 3 units, the choice has been made to apply the scrip-for-scrip rollover relief.

Australian Taxation Office records indicate that a capital gain was recorded for the year in question in the taxpayer's income tax return, it does not specify whether this was in relation to the units. As a result of this, you cannot use the closing market value provided by the ASX on the date of acquisition as the cost base for the Entity 3 stapled securities.

Question 4

Detailed reasoning

Cost base for Entity 4 units.

Information provided on Entity 4 home page indicates that a number of non-assessable capital payments from Entity 4 were made during the taxpayer's time holding the units, there were a number of tax deferred payments made and a smaller number of tax free payments made.

If you receive non-assessable payments from a trust such as tax exempted or tax free amounts you need to make cost base adjustments to your units. Those adjustments will affect the amount of any capital gain or capital loss made on the unit.

If you received any tax deferred or tax free amounts, you adjust the cost base as follows:

Deduct the tax deferred amounts from the cost base.

During the time the taxpayer held units in Entity 4 tax deferred and tax free amounts were made to the unit holders which will alter the cost base of the original units. As a result of this, you cannot use the closing market value provided by the ASX on the date of acquisition as the cost base for the Entity 4 units.

Question 5

Detailed reasoning

Cost base for Entity 5 stapled securities.

Information offered by Entity 5 at their home page indicates that Entity 5 issued bonus shares. The issue of bonus shares affects the cost base of the original shares. Bonus shares are additional shares a shareholder receives for an existing holding of shares in a company. If you dispose of bonus shares received on or after 20 September 1985, you may make a capital gain. You may also have to modify the cost base and reduced cost base of your existing shares in the company if you receive bonus shares.

During the time the taxpayer held stapled securities, Entity 5 bonus shares were issued which can alter the cost base of the original shares. As a result of this, you cannot use the closing market value provided by the ASX on the date of acquisition as the cost base for the Entity 5 stapled securities.

Question 6

Detailed reasoning

Cost base for Entity 6 stapled securities.

Three Entity 6 sub entities, being sub entity A, sub entity B and sub entity C merged to form the Entity 6 stapled security. In the first stage of the merger, reconstruction of sub entity C units was made at a specified ratio for each sub entity C unit.

To take part in the merger unit holders were offered to be paid a capital return of a specified amount per reconstructed unit. This amount would then be applied to subscribe for Entity 6 units at a specified amount each and sub entity A shares at a specified amount each. These would be stapled to the sub entity C units to make the stapled security.

Where the capital return received under the merger was less that the CGT cost base (at the time of the distribution) of the sub entity C units, the distribution would not result in a capital gain and the cost base of the units would be reduced by the amount of any distribution received.

As you have not advised us as to whether an adjustment to the cost base took place as a result of the stapling, you cannot use the closing market value provided by the ASX on the date of acquisition as the cost base for the Entity 6 stapled securities.