ITJ - consolidation and cash payment

Summary

Consolidation

  • Consolidation date – 8 November 2016
  • Consolidation ratio – every 1 ITJ share was consolidated to 0.25 ITJ 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 ITJ 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 ITJ?

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

What is the share consolidation?

ITJ consolidated its ordinary shares on issue such that every 1 ITJ share held will be consolidated into 0.25 ITJ shares. No fractional shares will be issued.

What is the cash payment to ITJ 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?

ITJ shareholders continue to hold an investment in ITJ. However, for every 1 ITJ share held pre-consolidation, the ITJ shareholder will hold 0.25 ITJ 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 ITJ 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 ITJ will be able to disregard any capital gain or capital loss that arises from the disposal of the fractional entitlements of ITJ, as their investment in ITJ 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 ITJ share to 0.25 ITJ 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 ITJ 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.