58. For those employee shareholders who hold their shares within an Australian Wesfarmers employee share plan, are tax residents of Australia, only work in Australia and hold their shares on capital account at the time the return of capital was paid, the tax implications of the return of capital are as follows: Following the payment date, Wesfarmers provided Australian participants with a statement that set out the taxation implications of the return of capital payment and where applicable information in relation to any cost base adjustments. The Wesfarmers Dividend Investment Plandid not apply to the return of capital payment. Demerger tax relief gives certain Wesfarmers shareholders the choice to defer the Australian capital gains tax (CGT) consequences that arise as a result of a Wesfarmers shareholder receiving Coles shares under the demerger. 47. Shareholders are sent return of capital payment advice. CGT event C2 happened when the return of capital was made. This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953. Sections 45A and 45B of the ITAA 1936 are two anti-avoidance provisions which, if they apply, allow the Commissioner to make a determination that section 45C of the ITAA 1936 applies. 35. NO 1-4UM8A44, Related Rulings/Determinations: The return of capital was not eligible to participate in the DIP. 16. A Wesfarmers shareholder's right to the payment of the return of capital is not an 'indirect Australian real property interest' as defined in section 855-25 of the ITAA 1997. If Maria chooses the discount method, she calculates her capital gain by subtracting her cost base from the amount she received in the return of capital. 23. 78. | August 8, 2022 24. ITAA 1936 45A The method you use to work out the amount to include in your item 17 calculations depends on when you acquired the shares. For your other shares - reduce the cost base and reduced cost base by $2.50 each. 8 December 2021. The Board considered that the return of capital was fair and reasonable to shareholders as a whole, and would not materially prejudice Wesfarmers ability to pay its creditors, or impact on its solvency position. The share consolidation will be undertaken in accordance with section 254H of the Corporations Act such that: 27. 62. If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. 57. If the return of capital of $2.00 per Wesfarmers share you received was not more than the cost base of the share, the Cost base / reduced cost base of each share is reduced by the amount of the return of capital (subsection 104-135(4)). The Commissioner will not make a determination under either Shares in Wesfarmers will be 'an indirect Australian real property interest' if (among other things) they pass the principal asset test in section 855-30. 69. The phrase 'provided with a capital benefit' is defined in subsection 45B(5). ITAA 1936 45A(2) The following tables sets out what method you can use. If the return of capital is approved by shareholders at the 2013 . The capital loss is equal to the amount of the difference (subsection 104-25(3)). On 3November 2003 Wesfarmers Limited announced a return of capital ('capital return'). As announced on Friday, 27 August 2021, the Wesfarmers Board recommended a return of capital to Wesfarmers shareholders of 200 cents per share. Copyright Act 1968 As announced on Friday, 27 August 2021, the Wesfarmers Board recommended a return of capital to Wesfarmers shareholders of 200 cents per share. 22. TAA 1953 55. No capital loss can be made from CGT event G1 (Note 1 to subsection 104- 135(3)). ITAA 1997 104-25(3) 30. Wesfarmers has advised the total market value of its assets that are not taxable Australian real property is greater than the market value of its taxable Australian real property assets. If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice. The right to receive the payment (being an intangible CGT asset) will end by the right being discharged or satisfied when the payment is made. He paid $2,900 ($14.50 per share) plus brokerage of $150 - making his cost base $3,050, or $15.25 per share. This payment was: A CGT event happened on 18 December 2003, when Wesfarmers made a capital return on the shares that you held in the company. CGT event G1 (section 104-135 of the ITAA 1997) happens when. Australian Taxation Office for the Commonwealth of Australia. ITAA 1997 104-165(3) A CGT event will not happen if a company converts its shares into a larger or smaller number of shares (the converted shares) in accordance with section 254H of the Corporations Act in that: While there is a change in the form of the original shares, there is no change in their beneficial ownership. ITAA 1936 45A(3)(b) ITAA 1936 44(1) You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. In working out the capital gain or capital loss when CGT event C2 happens, the capital proceeds are equal to the amount of the return of capital ($2.00 per Wesfarmers share) (subsection 116-20(1)). 48. This will bring the total dividend for the year to $2.1 billion. The Ruling continues to apply after 30 June 2014 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. ITAA 1997 115-25(1) 4 September 2013. Wesfarmers is an Australian-resident company listed on the Australian Securities Exchange since 1984. If there was any residual from the return of capital payment after the payment had been applied to your loan balance, the remaining balance was paid directly into your bank account on Thursday, 2 December 2021. If you did not make a capital gain on the return of capital, there is nothing you need to include on your 2003-04 tax return regarding this CGT event. Wesfarmers credited $12,733 million to its share capital account on the issue of Wesfarmers ordinary shares and partially protected ordinary shares to Coles Group shareholders in part payment for the acquisition of all the issued shares in Coles Group. If you provided your direct credit payment instructions by 4:00pm (Perth time) on Friday, 19November2021, the return of capital payment was made on Thursday, 2 December 2021 by direct credit to your financial institution if your registered address is in Australia, New Zealand or the UK. Make sure you have the information for the right year before making decisions based on that information. Maria must also adjust the cost base and the reduced cost base of her Wesfarmers shares to nil. Shares commence trading on an ex return of capital basis. This is clearly marked. The capital return distribution was paid on Thursday, 2 December 2021. Wesfarmers has advised that, at the time CGT event G1 happens for any foreign resident Wesfarmers shareholder who is entitled to the return of capital, a Wesfarmers share will not be an indirect Australian real property interest (as defined in section 855-25 of the ITAA 1997). The test of purpose is an objective one. A Wesfarmers shareholder who is a foreign resident just before CGT event G1 happens, disregards any capital gain made when CGT event G1 happens if their shares in Wesfarmers are not 'taxable Australian property' (section 855-10 of the ITAA 1997). 81. 34. As discussed in paragraph 52 of this Ruling, the payment of the return of capital to Wesfarmers shareholders will be a capital benefit. No part of the return of capital paid to you by Wesfarmers on the Payment Date is a dividend as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The Commissioner will not make a determination under either ITAA 1936 45B(3)(b) The term 'dividend' is defined in subsection 6(1) of the ITAA 1936 and includes any distribution made by a company to any of its shareholders. ITAA 1936 45B On 27 August 2021, Wesfarmers announced that it will return share capital to Wesfarmers shareholders of $2.00 per Wesfarmers share totalling $2.3 billion (return of capital). The Class Ruling confirms the availability of demerger tax relief for certain Wesfarmers shareholders. The market value of Wesfarmers' assets that are taxable Australian real property within the meaning of section 855-20 is less than the market value of Wesfarmers' other assets for the purposes of section 855-30. Accordingly, the Commissioner will not make a determination under subsection 45B(3) that section 45C applies to the return of capital. The capital gain will be a discount capital gain for shareholders that are an individual, trust or complying superannuation fund and acquired their shares at least 12 months before the payment date. 60. Mark must adjust the cost base and reduced cost base of his Wesfarmers shares by subtracting the amount of the capital return. 56. capital gains tax Australian Taxation Office for the Commonwealth of Australia, Aboriginal and Torres Strait Islander people, An indirect Australian real property interest not covered by item 5, A CGT asset used at any time in carrying on a business through a permanent establishment in Australia and which is not covered by items 1, 2, or 5, An option or right to acquire a CGT asset covered by items 1, 2 or 3. 59. The principal asset test is passed in the case of shares in a company if the sum of the market values of the company's assets that are taxable Australian real property exceed the sum of the market values of the company's other assets. 'Share capital account' is defined in section 975-300 of the ITAA 1997 as an account which the company keeps of its share capital, or any other account created after 1 July 1998 where the first amount credited to the account was an amount of share capital. Income tax: Capital management distribution: Wesfarmers Limited . As a result of the return of capital, you must adjust the cost base of your Wesfarmers shares. 63. Shares may have traded at a lower price from the ex return of capital date than they otherwise would have done had the return of capital not occurred. Collectively, shareholders received a total distribution of approximately $1,143 million. We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations. . 73. Wesfarmers Limited - demerger of Coles Group Limited which was released on 14 December 2018. Accordingly, no part of the return of capital will be taken to be a dividend for income tax purposes. 2. How much did I receive and how was the payment made? As announced on Friday, 27 August 2021, the Wesfarmers Board recommended a return of capital to Wesfarmers shareholders of 200cents per share. . The ruling has determined that the funds will be distributed via a return of capital of 75c per share and a fully franked dividend of 25c. 71. This payment was: The question is whether it would be concluded that a person who entered into or carried out the scheme did so for the purpose of obtaining a tax benefit for the relevant taxpayer in respect of the capital benefit. 41. according to an ATO ruling. All Wesfarmers shareholders on 15 December 2003 (the record date) received the capital return. The Payment Date is anticipated to be late November to early December 2013. shares held within the Deferred Plans at the time of the return of capital payment), the cost base for each share held on behalf of employees was reduced by the return of capital amount. For enquiries, please contact Computershare Investor Services Pty Limited on 1300 558 062 (within Australia) or (+61 3) 9415 4631. The Class Ruling does not apply to Wesfarmers shareholders who hold their shares on revenue account or as trading stock. Mark received a total of $500 (200 x $2.50) in the return of capital. You will make a capital loss if the capital proceeds from the ending of the right are less than the reduced cost base of the right. ITAA 1936 45A(2) Shareholders who did not provide the share registry with their bank account details, may complete a paper Direct Credit Payment Form, which is available from Wesfarmers share registry, Computershare Investor Services Pty Limited, or provide their details online to Computershare at www.computershare.com.au/easyupdate/wes. There was no dividend component as part of this capital management initiative. If, after the Record Date but before the Payment Date, you ceased to own a Wesfarmers share in respect of which the return of capital was payable, the right to receive the return of capital in respect of that share is retained by you and is a separate CGT asset from the Wesfarmers share. The capital gain is equal to the amount of the excess. 74. ITAA 1936 45C 58. A return of capital would ordinarily be subject to the CGT provisions of the income tax law. Without the capital return or some other capital management initiative, we estimate that the ratio would be around 44 per cent at the end of the current financial year." Mr Chaney said the tax office had provided a written draft class ruling at the end of last week, enabling the Board to consider the issue at today's meeting. 4:00pm (Perth time) Friday, 19 November 2021. It is anticipated that shareholder approval will be sought at Wesfarmers' Annual General Meeting (AGM) which is scheduled for 7 November 2013. Wesfarmers share capital has increased from $2.2 billion in July 2007, to $23 billion in June 2012. Accordingly, the principal asset test in section 855-30 will not be satisfied. ITAA 1997 116-20(1) ITAA 1997 104-135 Taking into account Wesfarmers robust credit metrics and continued strong cash flows, the Board considered that the return of capital would not adversely affect Wesfarmers credit rating. 29. The ATO Class Ruling confirms that there will be no immediate tax liability relating to the return of capital for most Wesfarmers . This is clearly marked. Therefore, if the full cost base or reduced cost base of a Wesfarmers share has been previously applied in working out a capital gain or capital loss made when a CGT event happened to that share, the right to receive the return of capital is likely to have a nil cost base. However, paragraph (d) of the definition of dividend excludes a distribution from the meaning of dividend if the amount of the distribution is debited against an amount standing to the credit of the company's share capital account. ITAA 1936 45B(9) 21. Commissioner of Taxation Wesfarmers is committed to efficient capital management and its focus on providing a satisfactory return to all shareholders. 15. CGT event G1 happened when Wesfarmers made the return of capital to you in respect of Wesfarmers shares you owned at the Record Date and continued to own at the Payment Date (section 104-135). For Wesfarmers shares you acquired after 19September 1985* you must: * Shares acquired before 20 September 1985 are pre-CGT assets and you therefore disregard any capital gain or capital loss you make on them. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. TR 2006/10 3. However, the list of relevant circumstances in subsection 45B(8) is not exhaustive and regard may be had to other circumstances on the basis of their relevance. The term 'dividend' in subsection 6(1) includes any distribution made by a company to any of its shareholders. At the Annual General Meeting, held on 21 October 2021, Wesfarmers shareholders approved the return of capital. 38. 10. For the purposes of Subdivision 109-A, you are considered to have acquired the right at the time when you acquired your Wesfarmers share. TD 2000/10, Subject References: ITAA 1936 45B(2)(c) 53. The return of capital was considered and approved by shareholders at the 2021 AGM. ITAA 1936 45B(3) You received $2.50 for each share that you held on the record date. The last date to purchase shares that were eligible to receive the return of capital was Wednesday, 17 November 2021. share capital, Legislative References: 20. ITAA 1936 45A Consequently, receipt of the capital benefit by the Wesfarmers shareholders will be a tax benefit. 3.7 Cash return of capital amount per +security AUD 2.00000000 Part 4 - Changes to option pricing as a result of the cash return of capital 4.1 Will the cash return of capital affect the exercise price of any +entity-issued options? ITAA 1997 Div 197 The right to receive the return of capital, being an intangible asset, ended by the right being discharged or satisfied when the return of capital was made (section 104-25). 56. The return of capital demonstrated Wesfarmers' commitment to efficient capital management and its focus on providing a satisfactory return to all shareholders. ITAA 1936 45B(2)(a) ITAA 1997 Div 110 Section 855-15 sets out the categories of CGT assets that are taxable Australian property: 63. The ATO Class Ruling confirms that there will be no immediate tax liability relating to the return of capital for most Wesfarmers . . To calculate your payment, multiply the number of shares held on the record date by $2.00 per share. Where the original shares were acquired on or after 20 September 1985, subsection 112-25(4) of the ITAA 1997 provides that each element of the cost base and reduced cost base of the converted shares is the sum of the corresponding elements of each original share. The capital return was completed on 18 December 2003. Paragraph 45A(3)(b) of the ITAA 1936 provides that capital benefits include the distribution of share capital. Australian Taxation Office (ATO) Class Ruling . 3.7 Cash return of capital amount per +security AUD 2.00000000 Part 4 - Changes to option pricing as a result of the cash return of capital 4.1 Will the cash return of capital affect the exercise price of any +entity-issued options? 5. You disregard a capital gain or capital loss you made from a CGT event if: 62. work out whether you have made a capital gain (you cannot make a capital loss on a return of capital). If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). In determining whether to recommend to shareholders the approval of the return of capital, the Board reviewed Wesfarmers' assets, liabilities and expected cash flows. How do I adjust the cost base and reduced cost base of my Wesfarmers shares? A CGT asset that is covered by subsection 104-165(3) (choosing to disregard a gain or loss on ceasing to be an Australian resident). Wesfarmers announced a proposed return of capital on 15 August 2013 with Wesfarmers returning to each shareholder $0.50 per fully paid share. ITAA 1936 45C(2) Continued strong cash flow generation and robust credit metrics enabled the return of capital to be undertaken without reducing balance sheet flexibility. Part 5 - Further information 5.1 Has the +entity applied for an ATO class ruling relating to this cash return of . 55. Wesfarmers shareholders received a 200 cents per share cash distribution. 25. No adverse tax consequences resulted for Wesfarmers as a consequence of return of capital. You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). sold their shares while the shares were trading on a cum return of capital basis (i.e., before Wednesday, 17 November 2021); or. 82. 19. For more information about the tax implications of owning shares, see the following publications: For help applying this information to your own situation, phone us on 132861. Although a 'capital benefit' (as defined in paragraph 45A(3)(b)) will be provided to participating Wesfarmers shareholders under the return of capital, the circumstances of the return of capital indicate that there will be no streaming of capital benefits to some shareholders and dividends to other shareholders. ITAA 1936 45B Please refer to the Wesfarmers Limited 2021 Shareholder Tax Information Guide or the ATO class ruling. 26. The return of capital was recorded as a debit to Wesfarmers untainted share capital account. The arrangement involving Wesfarmers return of capital to the Wesfarmers shareholders will constitute a 'scheme' for the purposes of section 45B. This is a Tax Office ruling on the tax consequences arising from this return of capital. How do I provide, update or check my bank account details? Assuming that she has no other capital gains or capital losses for the 2003-04 year, Maria would complete item 17 on the 2004 tax return (supplementary section) as follows: Did you have a capital gains tax event during the year? ITAA 1936 45A(3)(b) Wesfarmers provided separate information in relation to the tax implications of the return of capital payment for participants who were located within Hong Kong and India at the time of the capital return payment. 7. However paragraph (d) of the definition of dividend specifically excludes a distribution from the meaning of 'dividend' if the amount of the distribution is debited against an amount standing to the credit of the company's share capital account. The capital return was completed on 18December 2003. Return of capital is not a dividend for income tax purposes. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. The Commissioner will not make a determination under section 45A or 45B that section 45C applies to the return of capital. Also: No capital gain or capital loss should arise in respect to a share acquired on or before 19September 1985. 25. Will my shares be worth less after the capital return? 23. After the share consolidation, Wesfarmers shareholders will own fewer shares that are proportionately higher priced. ITAA 1997 104-135(3) If a Wesfarmers shareholder makes a capital gain from CGT event G1 happening, the cost base and reduced cost base of the Wesfarmers share is reduced to nil. 33. The application of sections 45A, 45B and 45C to the return of capital. Wesfarmers Ltd. published this content on 08 December 2021 and is solely responsible for the information contained therein. During the years ended 30 June 2018 to 30 June 2020, Wesfarmers disposed of a number of assets and received sale proceeds totalling $4.3 billion. Create your myGov account and link it to the ATO, Help and support to lodge your tax return, Occupation and industry specific income and work-related expenses, Residential rental properties and holiday homes, Instalment notices for GST and PAYG instalments, Your obligations to workers and independent contractors, Encouraging NFP participation in the tax system, Australian Charities and Not-for-profits Commission, Departing Australia Superannuation Payment, Small Business Superannuation Clearing House, Annual report and other reporting to Parliament, Complying with procurement policy and legislation, Wesfarmers Group Limited (Wesfarmers) return of capital. 66. 5. Wesfarmers primary objective is to deliver satisfactory returns to shareholders through financial discipline and strong management of a diversified portfolio of businesses. 31. 39. For example, if you held 1,000 shares as at the record date, you received 1,000 x $2.00 or $2,000 as the return of capital payment. 14. Subsection 975-300(3) of the ITAA 1997 states that an account is not a share capital account if it is tainted. Shareholders voted in favour of the return of capital at the Annual General Meeting ( AGM) on Thursday, 21 October 2021. It is anticipated that the share consolidation will have no effect on the value of each shareholder's shares relative to the total market value of Wesfarmers. The share consolidation is conditional upon the approval by shareholders of an ordinary resolution. What are the capital gains tax consequences for me? The ATO Class Ruling confirms that there will be no immediate tax liability relating to the return of capital for most Wesfarmers shareholders. capital reductions 34. The capital return was undertaken to return a portion of surplus capital equitably to shareholders and to ensure that Wesfarmers has a more efficient capital structure. Annual General Meeting, at which shareholders voted to approve the return of capital. No part of the return of capital paid to you by Wesfarmers on the Payment Date is a dividend as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). She must use the indexed cost base method in all future events affecting these shares. . 24. 2. The return of capital was made possible by the Wesfarmers Groups continued strong cash flow generation and the receipt of approximately $4.3 billion in proceeds from the sales of a number of assets during FY2018 to FY2020. Please find below some information and frequently asked questions in relation to the 2021capital return. Make sure you have the information for the right year before making decisions based on that information. Section 45B applies where certain capital payments are made to shareholders in substitution for dividends. Each of these conditions is considered in this Ruling. 39. At 30 June 2007, Wesfarmers' share capital was $2,256 million, with retained earnings of $1,131 million (effectively $588 million after the final 2007 dividend of $543 million). The return of capital was funded by a combination of Wesfarmers available cash balances and existing debt facilities. 60. ITAA 1936 45B(5) The proportion of funding from each source was determined having regard to the most cost-effective source of funding available as at the date of payment. The payment was made on Thursday, 2 December 2021 into the bank account recorded on the register. Under the return of capital, all shareholders were treated in the same manner. 65. For those shareholders who are not tax residents of Australia and hold their shares on capital account, no Australian income tax implications should arise as a consequence of the return of capital. It applied to each shareholder equally in proportion to the number of shares they held and the terms of the return were the same for each shareholder. As at March 2020, approximately 26.15% of Wesfarmers' shareholders are foreign residents (as defined in subsection 995-1(1)). Maria can apply the CGT discount (50% for individuals) to reduce this amount to $100 ($200x50%). 35. In addition to the return of capital, Wesfarmers proposes to undertake a share consolidation of approximately 1 to 0.9876. For those shareholders who are tax residents of Australia and hold their shares on capital account at the time the return of capital is paid, no part of the return of capital should be treated as a dividend for income tax purposes. However, having regard to the relevant circumstances of the scheme, it cannot be concluded that the scheme was entered into or carried out for a more than incidental purpose of enabling Wesfarmers shareholders to obtain a tax benefit. ITAA 1936 47 The return of capital was debited to Wesfarmers' share capital account and the following accounting entry was recorded: 27. A relevant taxpayer 'obtains a tax benefit' as defined in subsection 45B(9), if: would, apart from the operation of section 45B: if the capital benefit had instead been an assessable dividend. For more information on how to work out the cost base and the reduced cost base of shares, see the Guide to capital gains tax. Mark purchased 200 Wesfarmers shares in December 2000. 37. This method was seen as the most equitable way of returning a portion of surplus capital in cash to all shareholders. The capital return was $2.50 per share. If, after the Record Date but before the Payment Date, a Wesfarmers shareholder ceases to own some, or all, of their shares in Wesfarmers, the right to receive the payment of the return of capital in respect of each of the shares disposed of will be retained by the shareholder and is considered to be a separate CGT asset. Therefore, if the cost base or reduced cost base of the share previously owned by you has been fully applied in working out a capital gain or capital loss on the share, the right to receive the return of capital will have a nil cost base. The effect of such a determination is that all or part of the return of capital received by Wesfarmers shareholders is treated as an unfranked dividend paid by Wesfarmers out of profits. 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Capital benefit Wesfarmers Limited cash return of capital payment 2003 ( the record.... ) that section 45C applies to the Wesfarmers shareholders approved the return of capital all. For certain Wesfarmers shareholders will be no immediate tax liability relating to the return of capital 15. Was funded by a company to any of its shareholders you can ato class ruling wesfarmers return of capital $ 200x50 %.. 104-135 of the excess account details confirms that there will be no immediate tax liability relating the. Calculate your payment, multiply the number of shares held on 21 October 2021, Wesfarmers to! Of businesses an ex return of capital is not a share capital account and the tables! Debited to Wesfarmers shareholders will constitute a 'scheme ' for the right year before making decisions based on that.! Was not eligible to participate in the same manner trading on an ex of! 2.1 billion any of its shareholders return distribution was paid on Thursday, 2 2021! August 2013 with Wesfarmers returning to each shareholder $ 0.50 per fully paid share the Taxation Administration Act 1953 cost. Capital gain is equal to the return of capital at the Annual General,. Loss should arise in respect to a share consolidation is conditional upon the approval by shareholders the! 2013 with Wesfarmers returning to each shareholder $ 0.50 per fully paid share loss can be made from CGT ato class ruling wesfarmers return of capital.