If you received shares in Hibernian Friendly Society (NSW) Limited ('Hibernian') as a result of its demutualisation in 2002, this information applies to you.
Hibernian changed its name to Aevum Limited ('Aevum') in May 2004.
Demutualisation
A mutual company is a company without shareholders and share capital. Demutualisation is a method by which a mutual company changes to a company with shareholders and share capital.
If shares in the demutualised company are listed for trading on the Australian Stock Exchange (ASX) within two years of it demutualising or at such later time as the Commissioner allows, then certain tax concessions may apply to the original members and shareholders.
Hibernian demutualisation
Hibernian was a friendly society that was a mutual company.
On 2 September 2002, the members of Hibernian resolved to demutualise.
On 18 October 2002, Hibernian demutualised and shares in Hibernian were issued to about 6,200 members.
On 23 March 2004, amendments were made to the tax law which extended certain tax concessions to taxpayers who receive shares when a friendly society demutualises on or after 1 July 2000. These concessions apply to members of Hibernian who received shares when it demutualised.
Hibernian changed its name to Aevum in May 2004.
Following its request, the Tax Office granted Hibernian/Aevum an extension of time to list its shares after the two year period from it demutualising, which means the tax concessions are available to Hibernian/Aevum shareholders who were Hibernian members.
Aevum was listed on the Australian Stock Exchange on 18 November 2004.
Tax consequences for giving up rights as a member of Hibernian
You ignore any capital gain or capital loss you made in the 2001-02 year when your membership interests in Hibernian were cancelled in exchange for receiving shares. The cancellation of your membership interests in Hibernian did not affect your policy interests (which are separate interests).
Tax consequences when selling demutualisation shares
As a former member of Hibernian:
- You are taken to have acquired your demutualisation shares in Hibernian (now Aevum) on 2 September 2002 (the demutualisation resolution day).
- The first element of the capital gains tax (CGT) cost base and reduced cost base of each demutualisation share is $1.162.
- Capital losses made on any sale of the shares before 18 November 2004, the date the company was listed on the ASX, cannot be claimed. If you have claimed such capital losses and had a net capital gain for the relevant year, or would have had a net capital gain had you not claimed them, you will need to request an amendment.
What to do if you used the wrong cost base
If you:
- received demutualisation shares in Hibernian (now Aevum)
- sold them in the 2002-03 or 2003-04 income year
- used an amount other than $1.162 as the first element of the cost base and reduced cost base, and
- declared a net capital gain for 2002-03 or 2003-04, or would have had a net capital gain had you used $1.162, you will need to request an amendment to the assessment for that year.
In other cases where you used an amount other than $1.162 as the first element of the cost base and reduced cost base, you will need to adjust the amount of 'net capital losses carried forward to later income years' you have recorded. In this case, no amendment is required your 2002-03 or 2003-04 assessment.
Examples
Example 1
Capital gain on the sale of demutualisation shares: no CGT discount
When Hibernian demutualised, Glenn received 1,000 Hibernian (now Aevum) shares. He sold them on 31 April 2003 for $1.25 each. There was no brokerage costs associated with the sale. The shares had a cost base of $1.162 each.
Because Glenn did not own his shares for at least 12 months, he did not qualify for the 50% CGT discount. Glenn had no other capital gains or capital losses in the 2002-03 year and no unapplied net capital losses from earlier years.
Glenn works out the capital gain from the sale of his shares as follows:
Capital proceeds (1,000 X $1.25) |
$1,250 |
Cost base (1,000 X $1.162) |
$1,162 |
|
$88 |
less: capital losses |
Nil |
Net capital gain |
$88 |
Glenn includes $88 in his tax return for the income year in which he entered into the contract to sell the shares.
Example 2
Capital gain on the sale of demutualisation shares: CGT discount
When Hibernian demutualised, Janine received 1,200 Hibernian (now Aevum) shares. She sold them after 2 September 2004 for $1.38 each. Janine incurred $50 brokerage costs on the sale. The shares had a cost base of $1.162 each.
Because Janine owned her shares for at least 12 months, she can reduce her capital gain by the 50% CGT discount (after applying any capital losses). Because Janine made no other capital gains or capital losses during the year and had no unapplied net capital losses from earlier years, her net capital gain for the year is calculated as follows:
Capital proceeds (1,200 X $1.38) |
$1,656 |
Cost base [(1,200 X $1.162) + $50 brokerage] |
$1,444 |
|
$212 |
less: capital losses |
Nil |
$212 |
|
less: 50% CGT discount |
$106 |
Net capital gain |
$106 |
Janine includes $106 in her tax return for the income year in which she entered into the contract to sell the shares.
Example 3
Capital loss on the sale of demutualisation shares before Hibernian/Aevum was listed on the ASX.
Barry sold his 500 Hibernian shares for $0.90 each in December 2002. Based on an expected reduced cost base of $1.162 per share, Barry worked out he had made a capital loss on the sale as follows:
Reduced cost base (500X $1.162) |
$581 |
Capital proceeds (500 X $0.90) |
$450 |
less: capital loss |
$131 |
Barry subtracted this amount from his other capital gains in working out the net capital gain he included in his 2002-03 tax return.
Because Barry sold his shares before Hibernian/Aevum was listed on the ASX, he was not entitled to the $131 capital loss. He recalculates his net capital gain for 2002-03 ignoring the $131 capital loss he claimed and requests an amendment to his assessment for that year.
Even if you make a net capital gain, in some cases you may not have to pay any tax on the gain. This would be the case if you do not need to lodge a tax return for the year you disposed of the shares - see Do I need to lodge a tax return?, or phone 13 28 61.
What to read/do next
- Guide to capital gains tax 2004-05 (NAT 4151-6.2004) - this publication explains how capital gains tax works and will help you to calculate your net capital gain or net capital loss.
- Personal investors guide to capital gains tax 2004-05 (NAT 4152-6.2004) - this is a shorter publication which covers the sale or gift or other disposal of shares or units, distribution of capital gains from managed funds and non-assessable payments from companies or managed funds. It does not cover CGT consequences for bonus shares, shares acquired under an employee share scheme, bonus units, rights and options, and shares and units where a takeover or demerger has occurred - you will need to refer to the Guide to capital gains tax 2004-05.
For help applying this information to your own situation, phone us on 13 28 61.