Stapled securities are created when two or more different securities are contractually bound together so that they cannot be sold separately but are instead treated as a single security on the Australian Securities Exchange (ASX). Many different types of securities can be stapled together, for example, shares, units or listed property trusts. More commonly, a stapled security will consist of a share in a company and an interest in a trust.
In general, the effect of stapling is that each individual security retains its legal character and there is no variation to the rights or obligations attaching to the individual securities.
A stapled security must be dealt with as a whole, and as such, the individual securities that are stapled cannot be individually traded on the ASX.
Each security comprising a stapled security should be treated as a separate and distinct asset for tax purposes. This means that each underlying share or unit will have to be a separate asset with its own attributes (cost base and acquisition date) for capital gains tax (CGT) purposes.
In some instances, a CGT asset may be stapled to a revenue asset such as a traditional security, which is not subject to the CGT regime. We will use best endeavours to report the components of each underlying security separately where possible. However, in some instances the relevant information may not be available. Where this occurs, we will report on a consolidated basis in respect of the stapled security.
The cost base calculation of the stapled security’s underlying assets will depend on how the stapled security is acquired.
- IPO – the cost base of each underlying security will be based on information provided by the product issuer.
- On-market purchases – the cost base of the component assets is calculated by allocating the purchase price of the stapled security in a reasonable manner across all the underlying assets. This can be done via the information provided by the issuer or through a calculation using the ‘Net Tangible Asset’ split.
- Acquisition through a stapling event – where an investor becomes the owner of a stapled security by taking part in a stapling arrangement involving existing assets, the cost bases of the underlying securities are based upon the terms of the specific arrangement as set out in the offer document. Generally, the purchase price of any securities held prior to a stapling arrangement will be an investor’s cost base in the assets. This may be impacted by non-assessable distributions received as part of the stapling arrangement to purchase additional securities under the arrangement.
Please note, we will report the cost base of each underlying security separately where possible. However, in some instances this information may not be available. Where this occurs, we will report a consolidated cost base in respect of the stapled securities.
We strongly recommend that investors independently maintain the underlying cost bases of stapled securities and that independent taxation advice be sought so as to ensure that an investor’s underlying cost bases are correct.
As stapled securities will generally comprise of a share and a unit, an investor can expect to receive dividends from the company and distributions from the unit trust. As certain stapled securities contain a listed property trust, an investor may receive distributions of non-assessable income (such as tax deferred and return of capital amounts).
Any dividends received from a stapled security are treated as assessable income in the year in which the dividends are paid.
Any trust distributions received from holding a stapled security are treated as assessable in the year in which the distribution is declared.
Therefore, although the income is received as one amount, we treat the components separately in accordance with current tax laws.
As the underlying assets of stapled securities are treated separately for taxation purposes, any non-assessable amounts should be applied against the cost base of the asset to which the non-assessable distribution relates.
It is possible that an investor will crystallise a capital gain where non-assessable distributions have already reduced the cost base to zero. To the extent that the cost base falls to zero, upon any further distributions of non-assessable amounts, a capital gain will crystallise equal to the amount of the non-assessable distribution. The capital gain will be realised at the time of the distribution.
We strongly recommends that investors independently maintain the underlying cost bases of stapled securities and that independent taxation advice be sought so as to ensure that an investor’s underlying cost bases are correct.
Income from stapled securities is reported in both the Managed Investments & Listed Trusts (T) section and the Listed & Unlisted Securities (S) section of the Tax Report – Detailed under the relevant categories of income.
As the underlying assets of stapled securities are treated as separate assets for CGT purposes, there will be a disposal of each underlying asset for CGT purposes.
An investor must apportion the capital proceeds received for the stapled security between each underlying asset. The apportionment should be done on a reasonable basis. Generally, the issuer will provide the underlying entity’s market value in their year-end tax guides. We consider that this information is the most appropriate way to apportion the capital proceeds received.
Where there has been a disposal of a stapled security throughout the year, we report a separate capital gain or capital loss in respect of the underlying assets of certain stapled securities.
For all other stapled securities, we report a consolidated position in respect of the disposal in the Disposal of Capital Items – Cost Base/Proceeds Information (R) section of the Tax Report – Detailed.
‘Converted’ stapled securities are those stapled securities for which we will report at the underlying asset level for both realised capital gains and capital gains arising from the distribution of excessive non-assessable distributions.
Please note that not all stapled securities can be converted, primarily on the basis that the product issuers do not provide us with sufficient details. If we are not told of the underlying asset allocations, we are not able to report accurately the capital gains tax position of individual securities that constitute a stapled security.
For those stapled securities that have been ‘converted’, we will report to investors any capital gains that have been crystallised due to excessive non-assessable distributions. The capital gain will be reported at the underlying asset level and not at the consolidated stapled security level. These will be reported under Excess Assessable Gains (X) in the Tax Report – Detailed.
In reporting on realised capital gains from disposals of stapled securities in the period 1 July 2013 to 30 June 2014, previously reported E4 events will be taken into account. The capital gain reported in the Disposal of Capital Items – Cost Base/Proceeds Information (R) section of the Tax Report - Detailed will be the capital proceeds received less $0 (being the reported cost base). Any applicable discounts or the application of the CGT index factor will also be taken into account where the investor meets the relevant criteria. It is important to note that any previously reported E4 gains will not be double counted when calculating the capital gain realised upon disposal.
We undertake the following steps to determine whether E4 capital gains have arisen during the year.
- Identify a client’s cost of purchase (cost base) in each stapled security held through our platform.
- Based upon information provided by the product issuer, determine the underlying assets’ cost base. To do this, from the date of purchase or transfer in, apply all non-assessable distributions against the assets to which the distributions relate.
- Where the non-assessable distributions exceed an investor’s cost base, the resulting E4 gain will be reported under Excess Assessable Gains (X) in the Tax Report – Detailed.