21. 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. 18. TAA 1953 75. Wesfarmers has obtained a Class Ruling CR 20from the ATO which governs the Australian tax21/87 treatment of the return of capital to Wesfarmers shareholders who hold their shares on capital account. The capital return was completed on 18December 2003. Wesfarmers has confirmed that its share capital account (as defined in section 975-300 of the ITAA 1997) is not tainted (within the meaning of Division 197 of the ITAA 1997). 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. ITAA 1997 116-20(1) 82. The term 'share capital account' is defined in section 975-300 as an account which the company keeps of its share capital, or any other account created on or after 1 July 1998 where the first amount credited to the account was an amount of share capital. The Australian Taxation Office (ATO) has published a Class Ruling in relation to the taxation treatment of the $2.00 per share return of capital to Wesfarmers shareholders, which was paid on 2 December 2021. Corporations Act 2001. ITAA 1997 855-10(1) Section 45B applies where certain capital payments are made to shareholders in substitution for dividends. As the right to receive the payment of the return of capital was inherent in the Wesfarmers share during the time it was owned, the right is considered to have been acquired at the time when the share was acquired (section 109-5 of the ITAA 1997). In November 2007, Coles Group Ltd (Coles Group) was acquired pursuant to a scheme of arrangement. 41. Make sure you have the information for the right year before making decisions based on that information. 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. The assets disposed of were Wesfarmers' interests in Wesfarmers Bengalla Pty Ltd, Wesfarmers Curragh Pty Ltd, Tyre & Auto Pty Ltd and Quadrant Energy Holdings Pty Ltd, as well as 10.1% of Wesfarmers' 15% shareholding in Coles Group Limited. Components of the capital return The capital return was $2.50 per share. Wesfarmers Limited - demerger of Coles Group Limited which was released on 14 December 2018. Specifically, the provision applies where: 48. 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. The purpose which causes section 45B to apply may be the purpose of any party to the scheme. ATO references: Wesfarmers website ATO Class Ruling 2014/76 Capital Management Initiative Key Dates Scenario: The fund held 1000 shares as at the record date. 47. 57. ITAA 1997 104-25 64. Wesfarmers shareholders received a 200 cents per share cash distribution. ITAA 1936 6(1) There was no dividend component as part of this capital management initiative. Record date for determining entitlement to participate in the return of capital. ITAA 1997 104-165(3) 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). Taxation Administration Act 1953. Wesfarmers' retained earnings (on a stand-alone basis) for the year ended 30 June 2021 was $697 million post-payment of the final dividend for the year. The payment of the return of capital to Wesfarmers shareholders will not be a dividend, as defined in subsection 6(1). ITAA 1936 44(1) The table sets out these five categories of CGT assets: 77. A capital benefit was provided to Wesfarmers' shareholders. 19. ITAA 1997 104-25(3) 33. Wesfarmers shareholders received a $1.00 per share cash distribution. ITAA 1936 45B(8) Return of Capital = $750 Fully Franked Dividend = $250 Units on hand after consolidation: 983 (1000 x 0.9827 - rounded to the next whole number of shares - See Point 25 in the ATO Class Ruling 2014/76 ). Since 2009, Wesfarmers has reported the following retained earnings: 17. Did I have the choice to participate in the capital return? It is only to the extent (if any) that the distribution exceeds the cost base of the shares that a capital gain arises. A Wesfarmers shareholder who is a foreign resident just before CGT event C2 happens, disregards any capital gain or capital loss made when CGT event C2 happens if their right to the return of capital is not 'taxable Australian property' (section 855-10 of the ITAA 1997). 57. ITAA 1936 45A(2) 51. The Commissioner will not make a determination under either subsection 45A(2) of the ITAA 1936 or paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to any part of the return of capital of $2.00 per Wesfarmers share you received on the Payment Date. The return of capital was announ The amount of the capital gain is equal to that excess. 16. 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. share capital, Legislative References: The Class Ruling and further details regarding the return of capital can be accessed via the Investor Centre section of the Wesfarmers website at www.wesfarmers.com.au. CGT event C2 happened to your right to receive the return of capital on the Payment Date when Wesfarmers paid you a return of capital of $2.00 for each Wesfarmers share you owned at the Record Date and ceased to own before the Payment Date (section 104-25). ITAA 1997 995-1(1) 36. 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. As announced on Friday, 27 August 2021, the Wesfarmers Board recommended a return of capital to Wesfarmers shareholders of 200cents per share. The ATO Class Ruling confirms that there will be no immediate tax liability relating to the return of capital for most Wesfarmers shareholders. Please find below some information and frequently asked questions in relation to the 2021capital return. 54. ITAA 1997 855-10(1) Wesfarmers expects that dividends will continue to be paid in the future on a regular and sustainable basis in line with its dividend policy. This Ruling applies from 1 July 2013 to 30 June 2014. A fact sheet on the tax consequences for Australian resident shareholders who received a return of capital on their Wesfarmers' shares. 36. 4:00pm (Perth time) Friday, 19 November 2021. 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. Corporations Act 2001 256C. Did the Dividend Investment Plan (DIP) apply? The relevant provisions dealt with in this Ruling are: All subsequent legislative references in this Ruling are to the ITAA 1936, unless otherwise stated. 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 capital return was $2.50 per share. The payment was entirely capital in nature with no dividend component. 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? 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. The only relevant category of taxable Australian property is table item 2 of section 855-15. The Commissioner will not make a determination under either 24. Subsection 975-300(3) provides that an account is generally taken not to be a share capital account if it is tainted. 53. As at 30 June 2021, Wesfarmers' share capital was $15.818 billion. any gain or loss you made on the shares is a capital gain or capital loss - this means that you held your shares as an investment asset. Wesfarmers announced a proposed return of capital on 15 August 2013 with Wesfarmers returning to each shareholder $0.50 per fully paid share. 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. How much did I receive and how was the payment made? In broad terms, section 45B of the ITAA 1936 applies where: 49. The return of capital demonstrated Wesfarmers' commitment to efficient capital management and its focus on providing a satisfactory return to all shareholders. 50. Taxation Administration Act 1953. The total amount of the distribution was approximately $2,268 million and was paid on Thursday, 2December 2021. This publication provides you with the following level of protection: This publication (excluding appendixes) is a public ruling for the purposes of the . 59. She paid $2,200 ($2.20 per share) plus brokerage of $100 - making her cost base $2,300. 15. 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. All Wesfarmers shareholders on 15 December 2003 (the record date) received the capital return. CGT events C1-C3 - end of a CGT asset Sections 45A, 45B and 45C of the ITAA 1936 do not apply 8. 69. The cost base of your right to receive each return of capital is worked out under Division 110 (modified by Division 112). Wesfarmers has consistently maintained a high dividend payout ratio, with an average payout ratio of approximately 90% since 2009, and has also paid special dividends where it has disposed of assets. 46. 3. 9. The Australian Taxation Office (ATO) has published a Class Ruling in relation to the taxation treatment of the $2.00 per share return of capital to Wesfarmers shareholders, which was paid on 2 December 2021. 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. ITAA 1936 45A(2) 64. ITAA 1997 104-135(3) : Yes. 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. This amount represents your capital proceeds. Bunnings Limited shareholders offered $11.20 for each Bunnings share or $25.80 plus 2 Wesfarmers shares plus 1 Wesfarmers option ($12.50) for every 4 Bunnings shares 6 Nov 1989 Renounceable rights offer - 1 for 7 at a price of $4.25 per share 13 Jan 1989 Share split - each $1.00 share split into 2 x 50 cent shares 22 Apr 1987 For more information about this return of capital, see Class Ruling CR 2003/105W: Return of capital: Wesfarmers Limited. ITAA 1997 Div 197 Therefore, Wesfarmers shareholders will obtain a tax benefit from the return of capital. Collectively, shareholders received a total distribution of approximately $2,268million. Therefore, a Wesfarmers shareholder who is a foreign resident or the trustee of a foreign-resident trust for CGT purposes, and who received the return of capital, can disregard any capital gain made if CGT event G1 happened or disregard any capital gain or capital loss if CGT event C2 happened, provided also that your Wesfarmers share or your right to receive the return of capital on the Wesfarmers shares: 44. If the amount of the return of capital of $2.00 per Wesfarmers share is not more than the cost base of your Wesfarmers share, the Cost base / reduced cost base of the share are reduced (but not below nil) by the amount of the return of capital (subsection 104-135(4)). How did the capital return work and what was the effect on the company? The return of capital was an equal reduction of capital under section 256B of the Corporations Act 2001 and required shareholder approval by ordinary resolution under section 256C of the Corporations Act 2001. The return of capital was funded by a combination of Wesfarmers available cash balances and existing debt facilities. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 15 to 38 of this Ruling. 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. 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 Class Ruling does not apply to Wesfarmers shareholders who hold their shares on revenue account or as trading stock. 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. '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. We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations. The return of capital was considered and approved by shareholders at the 2021 AGM. capital gains tax capital reductions Maria received a total of $2,500 (1,000 x $2.50) in the return of capital. ITAA 1997 855-10 Maria must also adjust the cost base and the reduced cost base of her Wesfarmers shares to nil. 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. 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). 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