Issue
What is the first element of the cost base under paragraph 110-25(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) of the taxpayer's SingTel shares acquired as a result of the compulsory acquisition of the taxpayer's C & W Optus shares?
Decision
The first element of the cost base of the taxpayer's SingTel shares is the market value of the Optus shares at the time of acquisition of the SingTel shares (paragraph 110-25(2)(b) of the ITAA 1997). The time of acquisition is when the taxpayer signed the notice required under the Corporations Law for compulsory acquisitions.
Facts
The taxpayer acquired shares in C & W Optus under an employee share scheme.
SingTel made an offer to all shareholders to acquire their shares in C & W Optus. SingTel acquired more than 90% of the shares in C & W Optus.
SingTel sent a notice of compulsory acquisition to the taxpayer. The notice set out the terms on which the shareholder could sell their Optus shares.
The taxpayer signed the notice on 12 September 2001.
Reasons for Decision
Paragraph 110-25(2)(b) of the ITAA 1997 provides that the first element of the cost base of an asset is the market value of any property that was given in respect of acquiring it. The market value of the property is worked out at the time of acquisition.
Item 2 in the table in section 109-10 of the ITAA 1997 states that if a company issues or allots a share to a taxpayer, the asset is acquired when the contract is entered into or, if none, when the shares are issued or allotted.
The compulsory acquisition of shares following a takeover bid is regulated by the provisions contained within Part 6A.1 of the Corporations Law. Under these provisions the bidder must dispatch a notice of compulsory acquisition. The shareholder has one month from receiving notification to respond. Notice given by the shareholder gives rise to a contract between the shareholder and the bidder for the sale of the shares.
The taxpayer signed the notice on 12 September 2001. This notice gave rise to a contract between SingTel and the taxpayer for the sale of the Optus shares. Accordingly, the taxpayer acquired the SingTel shares on 12 September 2001.
The taxpayer will need to determine the market value of the Optus shares on 12 September 2001 to calculate the cost base of their SingTel shares.
Amendment History
Date of Amendment Part Comment 15 January 2016 Reasons for Decision Corrected citation
Date of Amendment | Part | Comment
15 January 2016 | Reasons for Decision | Corrected citation