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Edited version of your written advice
Authorisation Number: 1012925871458
Date of advice: 10 December 2015
Ruling
Subject: Capital gains tax and event G1
Question and answer:
Has a CGT event G1 occurred from the capital management distribution made to you?
Yes
This ruling applies for the following period
Year ended 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts
You were paid a Capital Return to shareholder of X cents per share by Company A Income tax: Capital management distribution
You purchased your shares for more than the capital return of X cents per share.
Relevant legislative provisions
Section 104-135 of the Income Tax Assessment Act 1997
Reasons for decision
Capital Gains Tax is the tax you pay when you make and include a capital gain on your annual income tax return. A capital gain or capital loss arises if and only if a CGT event happens (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
CGT event G1 happens if a company makes a payment to you in respect of a share that you own in the company, some or all of the payment (the non-assessable part) is not a dividend and you continue to own that share after the payment is made (section 104-135 of the ITAA 1997).
Therefore, when Company A made a return of capital payment to you per share CGT event G1 happened (section 104-135 of the ITAA 1997).
If you get a non-assessable distribution from a company, such as a return of capital, you need to adjust the cost base of the shares at the time of the payment. If the amount of the non-assessable distribution is not more than the cost base of the shares at the time of payment, the cost base is reduced by the amount of the payment (subsection 104-135(4) of the ITAA 1997).
In your situation, you will need to reduce the cost base of the shares that you hold in Company A by the amount of the non-assessable payment that you receive. In your case your reset cost base is the original cost base per share minus the return of capital per share.
The amount you received is not otherwise assessable.
When the shares are eventually sold, you compare the capital proceeds from the sale with the reset cost base of the shares to determine whether you have made a capital gain or capital loss.