Personal investors guide to capital gains tax 2008

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Appendixes

Appendix 1: Some major share transactions

You can obtain information on key transactions involving major companies and other institutions from our website www.ato.gov.au . These transactions include mergers, takeovers, demergers, demutualisations, returns of capital, share buy-backs, and declarations by liquidators and administrators that shares are worthless.

Go to the 'Individuals' menu and choose 'Capital gains tax' from the drop-down menu and you will find this information on the ' Capital gains tax essentials ' page under 'Key events for Australian shareholders', for 2007-08 and earlier years.

Check the website for a list of events that may affect your 2008 tax return.

The table below contains information on some major transactions that have given rise to a CGT event for many people. Remember to take into account any capital gains or capital losses from these transactions on your tax return for the relevant income year. Also, make sure you record any changes to the cost base of your shares or units. Check the website for a more complete list of events in earlier years.

If you are affected by a demerger there is a demerger calculator at www.ato.gov.au/demergers .

Table 1.1: Major share transactions

Company	Details of transaction
Alinta Ltd	Acquisition of Alinta Ltd by ES & L Pty Ltd On 23 August 2007, Alinta was acquired by ES & L Pty Ltd resulting in a number of tax consequences. For more information, read Class Ruling CR 2007/107 - Income tax: scrip for scrip roll-over: acquisition of Alinta Limited by ES & L Pty Limited .
AMP Ltd	Demutualisation The acquisition cost for AMP Ltd shares was $10.43 per share and the acquisition date was 20   November 1997. Subsequently there have been a number of CGT events that have had tax consequences: the December 2003 demerger of the United Kingdom operations of AMP (referred to as 'HHG') 16 June 2005 return of capital to shareholders of $0.40 per share 19 June 2006 return of capital to shareholders of $0.40 per share 18 June 2007 return of capital to shareholders of $0.40 per share.
Austar United Communications Limited	Return of capital On 1 November 2007 Austar made a return of capital to shareholders of $0.2368 per share. Shareholders need to reduce the cost base and reduced cost base of each share by $0.2368. For each share that had a cost base of less than $0.2368, the difference is a capital gain in 2007-08. See Class Ruling 2007/90 - Income tax: proposed return of capital: Austar United Communications Limited .
Coles Group	Acquisition of Coles Group Ltd by Wesfarmers Limited in scheme of arrangement On 23 November 2007 the Coles Group Ltd was acquired by Wesfarmers Ltd under a scheme of arrangement. Coles Group Ltd shareholders could elect one of the following consideration alternatives: maximum shares election, or maximum cash election. Shareholders who did not make a valid election receive the standard scheme consideration per Coles Group Ltd share of: $4.00 cash 0.14215 new Wesfarmers ordinary share, and 0.14215 Wesfarmers Partially Protected share (WPP share). Coles Group Ltd shareholders who made a valid maximum cash election received per Coles Group share: $9.6118 cash, and 0.14215 Wesfarmers Partially Protected share (WPP share). Coles Group Ltd shareholders who made a valid maximum shares election received per Coles Group Ltd share: approximately 0.16854 Wesfarmers ordinary shares 0.14215 Wesfarmers Partially Protected share (WPP share), and approximately $2.9583 cash. A Coles shareholder will make a capital gain on the disposal of the Coles shares if the capital proceeds are greater than the cost base. A Coles shareholder will make a capital loss if those capital proceeds are less than the Coles shares' reduced cost base. The capital proceeds for the disposal of each Coles share is any case consideration plus the market value of the Wesfarmers share and WPP share on 23   November 2007. The market value of the Wesfarmers ordinary share on 23   November 2007 was $41.48. The market value of the WPP share was $41.95. Any capital gain or loss on the disposal of Coles shares acquired before 20   September 1985 is disregarded. The acquisition date of Wesfarmers and WPP shares received in exchange for Coles shares is 23   November 2007. The first element of the cost base (and reduced cost base) of the Wesfarmers shares and the WPP shares will be a reasonable portion of the market value of the Coles shares exchanged under the scheme as at 23   November 2007. However, the market value of the Coles Ltd shares must first be reduced by that part of the market value that is reasonably attributable to any cash consideration. If a Coles shareholder is eligible for and chooses a scrip-for-scrip rollover, a capital gain from the disposal of their Coles share is disregarded to the extent that the shareholder receives Wesfarmers shares and WPP shares. The capital gain is not disregarded to the extent that the capital proceeds include cash consideration. If a Coles shareholder chooses a scrip-for-scrip rollover, the first element of the cost base of a replacement Wesfarmers share and the WPP share will be a reasonable portion of the cost base of the Coles share exchanged for those shares under the scheme. However, the cost base of the Coles share must first be reduced by that part of the cost base that is reasonably attributable to any cash consideration. For more information see Class Ruling CR 2007/114 - Income tax: scrip for scrip: acquisition of Coles Group Limited by Wesfarmers Limited .
Commonwealth Bank of Australia Ltd	Public share offer The Commonwealth Bank public shares were acquired on 13   July 1996. For shareholders who use the indexation method in calculating their capital gain, they index their first and final instalments from 13   July 1996.
Foster's Group Limited	Foster's Group share buy-back - October 2007 On 15 October 2007, Foster's completed an off-market share buy-back. Shareholders who took part in the buy-back received $5.82 per share, which included a fully franked dividend of $3.99 per share. For CGT purposes, shareholders are taken to have received $2.27 per share as the capital proceeds in respect of each share bought back. The date the shares were sold under the buy-back was 15   October 2007. If the capital proceeds of $2.27 per share were more than the cost base of the share, the difference is a capital gain to the shareholder in 2007-08. If $2.27 was less than the share's reduced cost base, the difference is a capital loss. See Class Ruling CR 2007/102 - Income Tax: share buy-back: Foster's Group Ltd .
Promina Group Ltd	Merger On 20 March 2007 Promina Group Limited merged with Suncorp-Metway Limited. Promina ordinary shareholders received $1.80 cash plus 0.2703 of a Suncorp share for each Promina share. A CGT event happened as a result of the exchange of Promina shares for shares in Suncorp. The capital proceeds for each Promina share was $1.80 plus the market value of 0.2703 Suncorp share on 20   March 2007. If shareholders make a capital gain they may choose to apply scrip-for-scrip rollover to the extent they received Suncorp shares in exchange for Promina shares. Scrip-for-scrip rollover is not available for the cash amounts received.
Telstra Corporation Limited	Public share offer 3 On 19 November 2006 the Australian Government conducted a sale of shares in Telstra - the T3 share offer. Individual participants were required to pay $2.00 per instalment receipt (IR) with their application. They are liable to pay a final instalment of $1.60 per share on or before 29   May 2008. They have a right to receive one bonus loyalty share for every 25 IRs they hold. Participants who paid the final instalment before 31   March 2008 received a discount on the final instalment but the right to receive 1 bonus loyalty share for every 25 IRs held lapsed. You may make a capital gain or loss in respect of your IRs or bonus loyalty share rights if you: prepay your final instalment sell your instalment receipts, or default on payment of your final instalment. Shareholders will have two CGT events (disposal of the IRs and bonus loyalty share right) if they prepaid the final instalment, sold the IRs or default on the final instalment. For CGT purposes the cost base is $3.46 per share, assuming that the final instalment is not prepaid (and therefore does not qualify for a discount). The cost base of each bonus loyalty share right is $3.46, assuming that the final instalment is not prepaid. Where you prepay your instalment before 31   March 2008 you will make a capital loss in respect of your bonus loyalty share rights, because they will cease to exist. As you are entitled to one bonus loyalty share right for every 25 IRs you hold, your capital loss will be $3.46 for every 25 IRs that you prepay. You make a capital gain or capital loss on your instalment receipts and bonus loyalty share rights if you sell some or all of your instalment receipts before 29   May 2008, depending on your cost base and the amount you received for them. See our fact sheet Telstra Corporation Limited Tranche 3 (T3) Instalment Receipts .

Appendix 2: Consumer price index (CPI)

Table 2.1: Consumer price index (CPI)

All groups - weighted average of eight capital cities

Year	Quarter ending
	31 Mar	30 Jun	30 Sep	31 Dec
1985	-	-	71.3	72.7
1986	74.4	75.6	77.6	79.8
1987	81.4	82.6	84.0	85.5
1988	87.0	88.5	90.2	92.0
1989	92.9	95.2	97.4	99.2
1990	100.9	102.5	103.3	106.0
1991	105.8	106.0	106.6	107.6
1992	107.6	107.3	107.4	107.9
1993	108.9	109.3	109.8	110.0
1994	110.4	111.2	111.9	112.8
1995	114.7	116.2	117.6	118.5
1996	119.0	119.8	120.1	120.3
1997	120.5	120.2	119.7	120.0
1998	120.3	121.0	121.3	121.9
1999	121.8	122.3	123.4	N/A*

* If you use the indexation method to calculate your capital gain, the indexation factor is based on increases in the CPI up to September 1999 only.

Appendix 3: Definitions

Capital gain

You may make a capital gain from a CGT event such as the sale of an asset. Generally, your capital gain is the difference between your asset's cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.

Capital gains tax

Capital gains tax (CGT) refers to the income tax you pay on any net capital gain you make and include on your annual income tax return. For example, when you sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.

Capital loss

Generally, you may make a capital loss as a result of a CGT event if you received less capital proceeds for an asset than its reduced cost base (what you paid for it). Your capital loss is your reduced cost base less your capital proceeds.

Capital proceeds

Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be:

• the amount you receive from the purchaser
• the value of shares (or units) you receive on a demerger
• the value of shares (or units) and the amount of cash you receive on a merger/takeover, or
• their market value if you give them away.

CGT asset

The CGT assets covered by this guide are shares and units. However, CGT assets also include collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property, vacant land or a holiday home). If you have made a capital gain from the sale of one or more of these assets, you may need to read the Guide to capital gains tax 2008 .

CGT-concession amounts

These amounts are the CGT discount component of any actual distribution from a managed fund.

CGT event

A CGT event happens when a transaction takes place such as the sale of a CGT asset. The result is usually a capital gain or capital loss.

Cost base

The cost base of an asset is generally what it costs you. It is made up of five elements:

• money you paid or property you gave for the asset
• incidental costs of acquiring or selling it (for example, brokerage and stamp duty)
• costs of owning it (generally this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions)
• costs associated with increasing or preserving its value or installing or moving it, and
• what it has cost you to preserve or defend your title or rights to it - for example, if you paid a call on shares.

You may need to reduce the cost base for a share or unit by the amount of any non-assessable payment you receive from the company or fund.

Demerger rollover

This may apply to CGT events that happened on or after 1   July 2002 to interests that you own in the head entity of a demerger group where a company or trust is demerged from the group. Generally, the head entity undertaking the demerger will advise owners whether demerger rollover is available but you should seek our advice if you are in any doubt. We may have provided advice in the form of a class ruling on a specific demerger, confirming that the rollover is available.

This rollover allows you to defer your CGT obligation until a later CGT event happens to your original or your new shares or units.

Demutualisation

A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an Australian insurance company (for example, AMP, IOOF or NRMA), you are not subject to CGT until you sell the shares or another CGT event happens.

Usually the company will advise you of your cost base for the shares you received. The company may give you the choice of keeping the shares they have given you or of selling them and giving you the capital proceeds.

If you hold a policy in an overseas insurance company that demutualises, you may be subject to CGT at the time of the demutualisation.

Discount method

The discount method is one of the ways to calculate your capital gain if:

• the CGT event happened after 11.45am (by legal time in the ACT) on 21   September 1999
• you acquired the asset at least 12 months before the CGT event.

If you use the discount method, you do not index the cost base but you can reduce your capital gain by the CGT discount of 50%. However, you must first reduce your capital gains by the amount of any capital losses made in the year and any unapplied net capital losses from earlier years. You discount any remaining capital gain.

If you acquired the asset before 11.45am (by legal time in the ACT) on 21   September 1999, you can choose either the discount method or the indexation method, whichever gives you the better result.

The examples in part B of this guide show you how the discount method works.

Discounted capital gain

A discounted capital gain is a capital gain that has been reduced by the CGT discount. If you received the discounted capital gain from a managed fund you will need to gross up the amount before you apply any capital losses and then the CGT discount.

Dividend reinvestment plans

Under these plans, shareholders can choose to have their dividend used to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset when the shares are issued to you.

Gross up

Grossing up applies to unit holders who are entitled to a share of the fund's income that includes a capital gain reduced by the CGT discount. In this case, you 'gross up' your capital gain by multiplying by two your share of any discounted capital gain you have received from the fund.

Income year

An income year is the same as a financial year - a period of 12 months beginning on 1   July and ending on the next 30   June - and is the period covered by your tax return. (In particular circumstances, the Commissioner may allow a company or other entity to adopt another 12-month period).

Indexation factor

The indexation factor is worked out based on the consumer price index (CPI) at appendix   2 .

The indexation of the cost base of an asset is frozen as at 30   September 1999. For CGT events after that time, the indexation factor is the CPI for the September 1999 quarter (123.4), divided by the CPI for the quarter in which you incurred costs relating to the asset. The result is taken to three decimal places rounding up if the fourth decimal place is five or more. You may have different indexation factors for different amounts included in your cost base.

Indexation method

The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11.45am (by legal time in the ACT) on 21   September 1999. This method allows you to increase the cost base by applying an indexation factor to each item of expenditure in your cost base (based on increases in the CPI up to September 1999).

Some examples in part B of this guide show you how the indexation method works.

You may prefer to use the discount method for CGT events after 11.45am (by legal time in the ACT) on 21   September 1999 if that method gives you a better result.

LIC capital gain amount

This is an amount notionally included in a dividend from a listed investment company (LIC) which represents a capital gain made by that company. The amount is not included as a capital gain at item   18 on the tax return (supplementary section), or item   9 if you use the tax return for retirees. See the instructions for dividend income for question   12 in TaxPack 2008 or question   8 if you use Retirees TaxPack 2008 and example   20 .

Net capital gain

A net capital gain is the difference between your total capital gains for the year and the total of your capital losses for the year and unapplied net capital losses from earlier years, less any CGT discount and small business CGT concession to which you are entitled.

You write the result at A item 18 on your tax return (supplementary section), or A item   9 if you use the tax return for retirees.

Net capital loss

If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. This loss can be carried forward and deducted from capital gains you make in later years. There is no time limit on how long you can carry forward a net capital loss.

You can only use capital losses from collectables to reduce capital gains from collectables. If your total capital losses from collectables for the year are more than your total capital gains from collectables, you have a net capital loss from collectables for the year. This loss is carried forward and deducted from capital gains from collectables in later years. There is no time limit on how long you can carry forward a net capital loss from collectables.

Non-assessable payment

A non-assessable payment is a payment received from a company or fund that is not assessed as part of your income on your tax return. This includes some distributions from unit trusts, managed funds and companies. For more information see Additional information for shares and units .

'Other' method

To calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds. You must use this method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply).

Reduced cost base

The reduced cost base is the amount you take into account when you are working out whether you have made a capital loss when a CGT event happens.

The reduced cost base may need to have amounts deducted from it such as non-assessable payments.

The reduced cost base does not include indexation or costs of owning the asset such as interest on monies borrowed to buy it.

Rollover

A rollover allows a capital gain to be deferred or disregarded until a later CGT event happens.

Scrip-for-scrip rollover

A scrip-for-scrip rollover can apply to CGT events that happened on or after 10 December 1999 in the case of a takeover or merger of a company or fund in which you have holdings. The company or fund would usually advise you if the rollover conditions have been satisfied.

This rollover allows you to defer your CGT obligation until a later CGT event happens to your shares or units.

You may only be eligible for partial rollover if you received shares (or units) plus cash for your original shares. In that case, if the information provided by the company or fund is not sufficient for you to calculate your capital gain, you may need to seek advice from us.

Share buy-back

If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.

Some of the buy-back price may have been treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

Takeovers and mergers

If a company in which you held shares was taken over or merged and you received new shares in the takeover or merged company, you may be entitled to a scrip-for-scrip rollover.

If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.

Tax-deferred amounts

These amounts include indexation received by a managed fund on its capital gains and accounting differences in income. Tax-deferred amounts reduce both the cost base and reduced cost base of your units in a managed fund.

Tax-exempted amounts

These amounts are generally made up of exempt income of the managed fund - such as amounts on which the fund has already paid tax or income you had to repay to the fund. Tax-exempted amounts do not affect the cost base and reduced cost base of your units in a managed fund.

Tax-free amounts

These amounts allow the managed fund to pay a greater distribution to its unit holders. This is due to certain tax concessions funds can receive. Tax-free amounts affect the reduced cost base but not the cost base of your units in a managed fund.

Unapplied net capital losses from earlier years

This is the amount of net capital losses from earlier years remaining after you have deducted any capital gains made between the year(s) when the losses were made and the current year.

You use unapplied net capital losses from earlier years to reduce capital gains in the current year (after those capital gains have been reduced by any capital losses in the current year).

You can only use unapplied net capital losses from collectables from earlier years to reduce capital gains from collectables in the current and future years.

ATO references:
NO NAT 4152