Components of the capital return

The capital return was $0.23 per share. This payment was:

• a capital payment (it was not classed as a dividend for any purpose and had no dividend component).

Are there any tax consequences for me?

There are two tax consequences.

• The capital return on your shares is a capital gains tax (CGT) event that may have resulted in a capital gain for you. Depending on the outcome, you may have to include some details on your 2004-05 tax return.
• As a result of the return of capital, you must adjust the cost base of your Promina shares.

What are the capital gains tax consequences for me?

A CGT event happened on 20 June 2005, when Promina made a capital return on the shares that you held in the company.

You received $0.23 for each share that you held on the record date. This amount represents your capital proceeds.

If you held the shares when the return of capital was received

For Promina shares held at the record date, you must:

• work out whether you have made a capital gain (you cannot make a capital loss on a return of capital), and
• adjust the cost base and reduced cost base of the Promina shares that you held on 20 June.

Did I make a capital gain?

You have made a capital gain on shares that you held on the payment date (20 June 2005) if your cost base per share was less than the amount you received for each share ($0.23). For each of these shares, you have made a capital gain of:

• $0.23 minus the cost base of the share.

For shares with a cost base equal to or greater than $0.23, you have made no capital gain as a result of the return of capital.

For information on how to work out the cost base (and reduced cost base) for shares, see the Guide to capital gains tax 2004-05 (NAT 4151-6.2005).

How do I adjust the cost base and reduced cost base of my Promina shares?

For the shares you made a capital gain on - reduce their cost base and reduced cost base to nil.

For your other shares - reduce the cost base and reduced cost base by $0.23 each. If any of your shares had a cost base of exactly $0.23, their new cost base and reduced cost base will be nil.

For more information on how to work out the cost base and the reduced cost base of shares, see the Guide to capital gains tax 2004-05.

If you no longer held the shares when the return of capital was received

If you disposed of the shares after the record date and before the return of capital was received, the return of capital is a CGT event separate from the CGT event on disposal. The cost base for the return of capital is nil. Therefore, you have made a capital gain from this event of $0.23 per share disposed.

If you acquired the shares disposed of before 20 June 2004, you apply the discount method to work out the capital gain.

How do I treat the capital gain?

If you made a capital gain on this CGT event, you must include it in your calculations when completing item 17 on your 2004-05 tax return (supplementary section).

The method you use to work out the amount to include in your item 17 calculations depends on when you acquired the shares. The following tables sets out what method you can use.

If you acquired your Promina shares:	You calculate your capital gain using the:
before 20 June 2004	discount method (after applying any capital losses - including unapplied capital losses from previous years)
on or after 20 June 2004	'other' method.

For information on the different methods you can use to work out your capital gain, see the Guide to capital gains tax 2004-05.

Note

If you did not make a capital gain on the return of capital, there is nothing you need to include on your 2004-05 tax return regarding this CGT event.

Example 1

Bruce purchased 500 Promina shares in December 2003. At the time of the capital return on 20 June 2005, the cost base of these shares (includes the cost of the shares and brokerage and stamp duty) was $1,600, or $3.20 per share.

Bruce received a total of $115 (500 x $0.23) in the return of capital.

Bruce must adjust the cost base and reduced cost base of his Promina shares by subtracting the amount of the capital return. The new cost base for his share parcel is $1,485 ($1,600 - $115), or $2.97 per share.

Bruce has not made a capital gain on his shares as a result of the capital return so he does not have to put anything on his tax return to reflect this event.

Example 2

Megan sold 500 Promina shares on 15 June 2005. Megan acquired these shares in March 2004. Megan made a $610 capital gain on the sale. As a consequence of this sale, Megan held no Promina shares at the time of the capital return on 20 June 2005.

As Megan held the shares for more than 12 months, she is able to use the discount method to work out her net capital gain on their sale.

Because she held Promina shares on the record date (9 June 2005), Megan is eligible to receive the capital return. Megan received $115 ($500 x $0.23) in the return of capital.

Calculating the capital gain

Megan made a capital gain from the return of capital as follows:

Because Megan had held the shares she sold and for which the capital return was paid for more than 12 months, she applies the CGT discount to her capital gains on both the capital return and the disposal (if she had capital losses he would offset them against her capital gain before applying the discount). If Megan applies the CGT discount, she will include a $362 ($610 + $115) x 50%) net capital gain on her tax return for the year ended 30 June 2005.

Recording the capital gain on the tax return

Assuming that these were her only CGT events for the 2004-05 year, Megan would complete item 17 on her 2004-05 tax return (supplementary section) showing:

Did you have a capital gains tax event during the year?: Yes