Tax issue

I couldn’t find anywhere, either on the ATO website or in previous posts here, that covers this issue.

On Friday, Aventus Group AVN (a manager of shopping centres) was taken over by Home Consortium HDN (another such manager).

Both included real estate trusts and ordinary shares. I’m only interested in the share side.

For simplicity purposes, let’s say I bought 1,000 AVN shares in Sep-19 at $2.63 per share.

AVN ceased trading last week at $3.41 per share.

The terms of the takeover were
2.20 HDN shares per 1 AVN share
28.5 cents per 1 AVN share

So I received 2,200 HDN shares and $285.

The question is how to determine the tax treatment of the $285 and the cost base of the 2,200 HDN shares.

Since I haven’t done anything myself, I would have thought the $285 is essentially a return of capital on the original purchase of the AVN share, making the cost base for them (ignoring brokerage which will need to be counted), 2630 - 285 = $2,345

And therefore the cost base for the HDN shares $2,345 or $1.067 per share, which will be counted on disposal.

My question is…

Is this the right way to handle it,
Or is the $285 somehow taxable, and the acquisition of the HDN shares and disposal of the AVN shares a separate CGT event?

Any tax experts out there? I have had advice on here about how to calculate CGT before, particularly on how to itemise discountable and non-discountable CGT events, disputed by an accountant.

Talk to a CPA.

I’m not a CPA but I would agree with your assessment of it @Alan_Noonan_10

You’ll have a taxable component, not a return of capital.

Essentially you have a taxable event whereby you receive proceeds equal to the cash and scrip component and you can only get roll-over relief for the scrip component.

Usually these things are covered off in class rulings.

In your example let’s say the HDN shares are worth $1.50 at takeover time.

You’ll get proceeds of $3.585 per AVN share (2.20 x $1.50 plus $0.285 cash)

You have to work out the cost base of the ineligible part which should be about 7.95% (0.285 / 3.585) of your original cost base. So that would be about $209 leaving you with a taxable gain of $76 on the cash component, which could be eligible for the discount.

The example in the relevant section is pretty clear on this methodology.

Your new cost base in the HDN shares will be the balance (92.05%) of the cost base from AVN, so $2,421 in total or $1.10 each (assuming 2,200 shares).

Ultimately the key to all of this is what the market value of the HDN shares are taken to be on completion. It may not be precisely based on the $3.41 AVN value. This is where the class rulings usually come in.



There’s usually a tax ruling available and they have examples.

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If you’ve taken possession of any Russian tanks lately you don’t need to declare this as income as that ■■■■ is worth nothing.

Further, if you hold any assets whatsoever in roubles, well they aren’t assets any more.

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Personally think Noonan should go to prison


Good point! Well made!

Price overnight the night before was $1.505, but price high for the day of the takeover was $1.50.

Sometimes they use a VWAP. Ultimately the price for tax purposes should be communicated to investors, whether or not they get this supported by a tax ruling.

If you want an example of one for a part scrip part cash see below. Probably not written for a wide audience, but at least gives the “value” of the shares being exchanged to help with the calculations.

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