iShares MSCI Taiwain ETF (ITW) – Consolidation and cash payment

Summary

Consolidation

  • Consolidation date – 8 November 2016
  • Consolidation ratio – every 1 ITW share was consolidated to 0.5 ITW shares

Cash payment

  • No fractional shares were issued through the consolidation.
  • Where fractional entitlements would have arisen, they have been automatically sold down. Shareholders received cash entitlements.
  • Date payment date – 8 November 2016
  • Impact on ITW shares – the sale of the fractional shares will be a disposal for CGT purposes. Capital gains will arise where the proceeds (cash received) are higher than the cost base.


What is the structure of an investment in ITW?

An initial investment in ITW represented an investment in fully paid ordinary shares in ITW. The listed company is an exchange traded fund (ETF).

What is the share consolidation?

ITW consolidated its ordinary shares on issue such that every 1 ITW share held will be consolidated into 0.5 ITW shares. No fractional shares will be issued.

What is the cash payment to ITW shareholders?

Where fractional entitlements have arisen from the consolidation, shareholders have received a cash payment. In effect, their fractional shares have been sold at the date of consolidation.

When were the shares consolidated?

8 November 2016

When was the cash payment made?

8 November 2016

What does a shareholder hold after the consolidation?

ITW shareholders continue to hold an investment in ITW. However, for every 1 ITW share held pre-consolidation, the ITW shareholder will hold 0.5 ITW shares post-consolidation. Any fractional shares will be sold, and cash paid to investors.

How will the cash payment component be treated for tax purposes?

CGT event A1 occurs where a shareholder holds shares in ITW on the date of consolidation and fractional entitlements arise. The capital proceeds will be the cash received from the  immediate disposal of fractional entitlements. The capital gain on these fractional entitlements will be equivalent to the capital proceeds received less the cost base of the fractional shares.

Any capital gain may be reduced by the applicable CGT discount percentage, where certain conditions are satisfied. For Australian residential individuals and trusts, they can obtain a discount of 50%, whilst superannuation funds can gain a 33.33% discount.

A capital loss may arise to the extent the reduced cost base exceeds the capital proceeds.

How will the distribution be treated for tax purposes for non-resident shareholders?

A non-resident shareholder of ITW will be able to disregard any capital gain or capital loss that arises from the disposal of the fractional entitlements of ITW, as their investment in ITW shares are unlikely to constitute taxable Australian Real Property (TARP).

Has the ATO issued any rulings relating to the distribution?

The ATO has not issued any rulings.

How is the return of capital and share consolidation reported by WRAP?

Share consolidation

Wrap has consolidated 1 ITW share to 0.5 ITW shares on the commencement of deferred trading date, 4 November 2016. Fractional entitlements were not issued.

This can be found in the investor’s Investment Transaction Report.

Cash payment

Wrap has reported the cash payment for fractional ITW shares as a result of the consolidation as a sale of those shares on 4 November 2016.

Any resulting capital gain or capital loss was reported in a shareholder’s Realised Gains Report.