BHP Billiton Limited – Demerger of South32 Limited

  • Allocation – One share in South32 Limited (S32) for every one share held in BHP Billiton Limited (BHP) on the record date (20 May 2015).
  • Demerger date – 25 May 2015.
  • Record date – 20 May 2015.
  • Market value – $29.44 per BHP share held and $2.25 per S32 share received.
  • Cash received in CMA – Nil. Demerger dividend will not be received in cash, as BHP shareholders received S32 shares.
  • Demerger dividend amount – $2.25 per BHP share. Demerger dividend is non-assessable, non-exempt (NANE) income of the BHP shareholder.
  • Adjusted cost base of BHP – 92.9% of the original BHP cost base just before the demerger.
  • Cost base of S32 – 7.1% of the original BHP cost base just before the demerger.
  • Demerger roll-over relief – choice available.

In May 2015, BHP proposed to implement a demerger and distribute shares it held in S32 to BHP shareholders on a pro rata basis via an in-specie distribution for nil consideration.

An investment in BHP represented an investment in fully paid ordinary shares in BHP.

An investment in S32 represents an investment in fully paid ordinary shares in S32.

BHP shareholders received one S32 share for every one BHP share held on the record date as part of the demerger (20 May 2015). For tax purposes, the acquisition of the S32 shares include a demerger dividend amount (being a dividend paid on each BHP share) of approximately $2.25 per BHP share distributed to BHP shareholders.

A reasonable approximation of the relative market values of BHP and S32 on the demerger date was:

  • $29.44 per BHP share, and
  • $2.25 per S32 share.

25 May 2015.

A BHP shareholder continues to hold their original investment in the BHP shares. However, the demerger will affect the cost base of the BHP shares (explained below).

A BHP shareholder will also be entitled to receive one S32 share for every one BHP share held on the record date as part of the demerger.

Where a shareholder holds BHP shares on the record date and continues to hold the shares on demerger date they may choose demerger roll-over relief to apply where certain criteria are met.

A BHP shareholder who chooses demerger roll-over relief will be able to disregard any capital gain or capital loss made on BHP shares under the demerger.

The cost base of an investor’s original BHP shares must be apportioned over their BHP shares and the new S32 shares received.

A reasonable apportionment accepted by the Australian Taxation Office (ATO) of the original cost base of BHP shares, just before the demerger, is to attribute:

  • 92.9% of the cost base to BHP shares,
  • 7.1% of the cost base to S32 shares.

For CGT discount purposes, regardless of whether CGT rollover is applied, a S32 share received by a BHP shareholder under the demerger will be taken to have been acquired on the date the shareholder acquired the corresponding BHP share.

The demerger dividend will be treated as non-assessable, non-exempt income to the shareholder. Therefore, the demerger dividend will not form part of a BHP shareholder’s assessable income.

The demerger dividend amount was $2.25 per BHP share held. This amount was not received as a cash payment. Please note, this demerger dividend will not be disclosed in an investor’s Tax Report.

CGT event C2 may occur where the shareholder holds BHP shares on the record date but sells or ceases to hold the shares prior to the demerger date.

Where this occurs, the right to receive the demerger distribution becomes a separate CGT asset in itself. The acquisition date of this CGT asset will be the date of acquisition of the original BHP shares. The cost base of the new asset will generally be nil. The new asset will be disposed of on demerger date when the demerger distribution is made (i.e. when the shareholder receives the S32 shares). The capital proceeds will be the market value of the S32 shares on demerger date ($2.25 per S32 share).

A capital gain will arise if the capital proceeds from the ending of the right exceed the cost base. The capital gain will be equal to the excess. This will typically result in a $2.25 capital gain on disposal of the right.

Any CGT event C2 capital gain may be reduced by the CGT discount provided certain conditions have been satisfied. For resident individuals and trusts the discount is 50% and for superannuation funds the discount is 33 1/3%.

The new S32 shares received will be taken to have been acquired for CGT purposes on the demerger date, 25 May 2015. The cost base of the new S32 shares will be the market value of the S32 shares received on demerger date ($2.25 per S32 share).

Where the dividend component paid is classified as non-assessable, non-exempt income, the non-resident shareholders will not be subject to non-resident dividend withholding tax.

The ATO has issued Class Ruling CR 2015/40 Demerger of South32 by BHP Billiton Limited which was released on 10 June 2015.

Cost base apportionment

We have apportioned the BHP cost base and reduced cost base on the demerger date between BHP and S32.

The BHP cost base in relation to the demerger was apportioned on 25 May 2015, as follows:

  • 92.9% to BHP shares
  • 7.1% to S32 shares.

A BHP shareholder was issued one new S32 share for every one BHP share held on record date. There was no change in the number of BHP shares held.

Demerger dividend amount

The demerger dividend amount was $2.25 per BHP share held. This amount was not received as a cash payment. Please note, this demerger dividend will not be disclosed in an investor’s Tax Report.

C2 capital gain

Where a shareholder holds BHP shares on record date but subsequently sells the BHP shares before the demerger date, we have processed the acquisition of a new CGT asset, being the right to receive the demerger distribution. The acquisition date of the new CGT asset has been processed as the original date of acquisition of the underlying BHP shares. The cost base for the new CGT asset (being the right to receive the distribution) is nil. The new CGT asset was disposed of for the distribution amount on the demerger date, 25 May 2015. The capital proceeds are the market value of the S32 shares, in this case $2.25 per S32 share received. The CGT event C2 capital gain arising is processed as the difference between the capital proceeds received and the nil cost base. We have reported any resulting C2 capital gain in an investor’s Realised Gains Report.

The new S32 shares acquired under this circumstance will have an acquisition date of 25 May 2015 for CGT purposes. The cost base and reduced cost base of the new S32 shares will be the market value of S32 on the demerger date, being $2.25 per S32 share.