Fairfax Media (FXJ) separated Domain Holdings Australia Ltd (DHG) on 22 November 2017 under a scheme of arrangement. The record date for the scheme of arrangement is 7.00pm on 17 November 2017. FXJ shareholders will need to account for a capital gains tax event on 22 November 2017.
A participating FXJ shareholder will receive one DHG share for every 10 FXJ shares they held at the scheme record date.
Tax consequences of participating in the Domain separation
- Don't include the value of the DHG shares as assessable income if you did not sell any FXJ shares after 17 November 2017 and before 22 November 2017.
- If you sold your shares after 17 November 2017 and before 22 November 2017, you made a capital gain of $0.233 per FXJ share for the cancellation of the right to a capital reduction entitlement on the sold shares. You will be entitled to a discount if you owned your FXJ shares for 12 months or more.
- The cost base of your DHG shares is calculated by multiplying the number of FXJ shares held on scheme record date by $0.233 and divided by the number of DHG shares you received
- After the scheme implementation date, reduce the cost base of your FXJ shares by $0.233 as a result of the entitlement to a capital reduction.
- The date of acquisition of your DHG shares is 22 November 2017.
Example
Fred bought 12,000 FXJ shares in September 2011 for a total cost of $14,400 including brokerage.
The cost of each FXJ shares is $1.20 (14,400 ÷ 12,000).
He is entitled to receive 1,200 DHG shares (12,000 ÷ 10) on 22 November 2017.
The cost base of each FXJ shares would be reduced to $0.97 (1.20 − 0.23) on 22 November 2017.
The cost base of each DHG share is $2.33 (0.233 × 12,000 ÷ 1200).
If Fred sold 2,000 FXJ shares on 20 November 2017, he will have cancelled his right to the capital reduction entitlement on his sold shares. Hence, Fred will receive 1,000 DHG shares ((12,000 - 2,000 FXJ shares sold) ÷ 10) on 22 November 2017.
Fred's remaining FXJ shares will have a cost base of $0.97 ($1.20 − $0.233)
Fred will have made a gross capital gain of $466 on the cancellation of the right to capital reduction entitlement calculated as follows:
- capital reduction entitlement per FXJ share is $0.233
- cost base of the right to entitlement is $0.00
- capital gain per FXJ share is $0.233
- gross capital gain is $466 (2000 × $0.233).
- Fred is eligible for a 50% discount on the gross capital gain as he has owned the FXJ shares for more than 12 months.
- Fred's net capital gain is $233.
Note: For the purposes of this example, the capital gain or loss on the actual sale of the 2,000 FXJ shares has not been considered.
End of exampleSee also:
- Fairfax Media – Domain SeparationExternal Link
- Visit the Australian Securities Exchange (ASX) and download the ASX release – Fairfax Media separation of Domain (PDF, 14MB)External Link dated 22 September 2018.