Capital Gains Arising From Shares
Transfers of shares between members of wholly owned company groups
The following topics have not yet been prepared - they will be added as and when they are written
Shares acquired under employee shares schemes
Rights to acquire unissued shares
Options to acquire unissued shares
Convertible notes
Asset stripping
Transfers of shares between members of wholly owned company groups
The roll-over relief from capital gains on re-organisation of company groups in described in the topic on
roll-overs
Not every payment received by a shareholder from a company will be included in assessable income.
Section 44 is rather particular about what can be included in assessable income. And before section 44 even gets to do its work, the receipt must come within the definition of a dividend .If such a 'non dividend' payment is made
by a company,
to a shareholder, in respect of shares acquired after 19/9/85
Section 160 ZL deems the taxpayer to have
disposed of the shares at the time of the payment
immediately re-acquired them
In other words, the cost base of the shares will be reduced (by the amount of the payment). As long as the shareholder does not receive more than the cost base of the shares, no gain will be need to be added to assessable income.
(Remember the cost base of the shares is the amount paid, adjusted to reflect inflation )
Refer CCH Master Tax Guide paragraph 12-420.
The definition of dividend in section 6 of the 1936 Income Tax Assessment Act excludes 3 types of distributions from a company to its shareholders.
One of the most common of these is...
(d) payments from share premium accounts (which are not part of tax avoidance arrangement)
These are usually made in the form of bonus shares. These payments are dealt with in the topic on dividends . If you read that topic you will find out that the use of bonus shares to distribute profits in an untaxed manner was the basis of the Curran Scheme, which was the most controversial of the tax avoidance schemes that came to light in the late 1970's
Remedial legislation was introduced in the Income Tax Assessment Act to ensure that only shares issued from genuine share premium accounts escaped from the definition of dividends. Variations of the Curran Scheme, designed to circumvent this legislation existed well into the 1980's, and so a provision was inserted into the capital gains provisions. Section 130-20 ensures that if a bonus share was treated as a dividend, the amount of the dividend included in the taxpayer's assessable income would be treated as part of the cost of the share.
For genuine 'bonus shares issued from share premium accounts', no such relief is necessary.
In the case of an asset being a share in or debenture of a company ...
The redemption in whole or in part ...
Or the cancellation of the share or debenture shall be taken to be a change in ownership
Section 160 M (3) (c)
Summing all of that up, a company does not 'dispose' of shares when it issues them, but if it redeems them it 'acquires' them.
A person acquires shares when they are issued or allotted to him by a company and disposes of them if the company redeems them.
(Section 160 M 3(c) and 5 (a), (aa) applies the same rule to unit trusts )
Roll-overs - deferring capital gains on business reorganisations, etc
Roll-over relief is available to a taxpayer transferring an asset to a company in exchange for shares in the company (sec 160 ZZN)
It is also available where a taxpayer surrenders shares in a company and receives new shares as part of an arrangement under which the company redeemed or cancelled all of its shares of a particular class and issued new shares to replace the old ones. (Sec 160 ZZP)
Under sec 160 ZZN, the asset transferred to a company must be ...
Transferred by a resident to a resident Australian company
a taxable Australian asset (an asset of a non resident which is subject to capital gains rules) which is transferred by a non resident to a resident company, or
a taxable Australian asset which is transferred to a non resident company ( The company must not be exempt from tax)
the asset must be transferred to the company from an individual, partnership or trust
the asset must be exchanged for shares or securities or the company ( if the taxpayer receives any other consideration (eg cash), the deferral of the capital gains tax through roll-over is not permitted)
the taxpayer, partners or trustee (the person(s) transferring the asset ) must own all of the shares in the company immediately after the transfer.
The relief provided is similar to that for the other roll-over provisions.
If the asset was acquired before 20/9/85 - the company will be deemed to have acquired them before 20/9/85.
The person transferring the asset will be deemed to have acquired the shares before 20/9/85.
If the asset was acquired after 19/9/85, the company will be deemed to have acquired it for an amount equal to its cost base to the person who transferred the asset.
The person transferring the asset will be deemed to have acquired the shares at the time the asset was transferred for an amount equal to the cost base of the transferred assets.
Exchange of shares in the same company - sec 160 ZZP
Section 160 ZZP provides the same form of protection from the imposition of capital gains tax ...
Where the taxpayer acquired new shares form the company as part of an arrangement under which the company redeemed or cancelled all of its shares of a particular class and issued to the taxpayer new shares in replacement of the old shares
The relief is allowed to a resident taxpayer.
If the taxpayer is non resident the shares must have been taxable Australian assets.
As for sec 160 ZZN, the new shares must represent the full consideration for the redeemed or cancelled shares
The market value of the new shares must not be less than the market value of the original shares.
Shares acquired under employee shares schemes
Rights to acquire unissued shares
Options to acquire unissued shares
Convertible notes
Asset stripping
Information of these topics has not yet been prepared
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