National Australia Bank Limited (NAB) – capital reduction by way of in specie distribution of CYBG PLC (CYB)

  • Allocation – 1 CYB CHESS Depository Interest (CDI) for every 4 NAB shares held, rounded down to the nearest whole number of CYB
  • Implementation date – 8 February 2016
  • Cash received in CMA – Nil
  • Return of capital amount – approximately $1.0025 per NAB share
  • Demerger roll-over relief – Not available
  • Cost base of CYB – $4.01 per CYB
  • Adjusted cost base of NAB – reduction in cost base of approximately $1.0025 per NAB

In December 2015, NAB proposed a Demerger Scheme involving a return of capital by way of an in specie distribution of CYBG PLC shares (CYBG) or CYBG CDIs (CYB).

CYBG shares will be listed on the London Stock Exchange and CYB CDIs will be listed on the Australian Securities Exchange.

Eligible NAB shareholders will receive the CYB CDIs under the Wrap platform.

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

An investment in CYB CDI represents an investment in CYBG shares issued by CHESS Depository Nominees Pty Ltd (CDN).

Each CYB CDI represents a beneficial interest in 1 CYBG share and has rights attached that are economically equivalent to the rights attaching to a CYBG share. CDN has legal ownership of each CYBG share, which it holds as trustee for the beneficial owner (i.e. the NAB shareholder).

NAB shareholders received 1 CYB CDI for every 4 NAB shares held on the record date as part of the return of capital.  Any fractional entitlement is rounded down to the nearest whole number of CYB CDIs.

8 February 2016.

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

A NAB shareholder will also hold an interest in the CYB CDIs they are entitled to as part of the in specie distribution.  

CGT event G1 occurs where a shareholder holds NAB shares on the record date and continues to hold the shares on the implementation date.

NAB shareholders will make a capital gain where the return of capital exceeds the cost base of the NAB share. The capital gain is equal to the amount of the excess. No capital loss can be made from CGT event G1.

If the amount of the return of capital is less than the cost base of the NAB shares, a capital gain from CGT event G1 will not arise.

No. The ATO released a Class Ruling (CR 2016/13) confirming demerger rollover relief with respect to the demerger scheme is not available for NAB shareholders.

CYB CDIs received by a NAB shareholder under the in specie distribution are taken to have been acquired on the implementation date of 8 February 2016.

The cost base of NAB shares is reduced by the market value of the allocated CYB CDIs. As the 1 CYB CDI will be allocated for every 4 NAB shares held on record date, any fractional entitlement will be rounded down. As such, the cost base of each NAB share is reduced by approximately $1.0025.

The cost base for each CYB CDI is $4.01. 

CGT event C2 may occur where the shareholder holds NAB shares at record date but sells or ceases to hold the shares prior to the implementation date.

Where this occurs, the right to receive the return of capital becomes a separate CGT asset in itself.  The acquisition date of this CGT asset is taken to be same as the acquisition date of the original NAB shares.  The cost base of the new asset will generally be nil.  The new asset is disposed of on demerger date when the demerger distribution was made (i.e. when the shareholder received the CYB CDIs).  The capital proceeds are the market value of the CYB CDIs on the implementation date ($4.01 per CYB). 

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.

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 CYB CDIs received is taken to have been acquired for CGT purposes on the implementation date, 8 February 2016. The cost base of each new CYB CDI is $4.01, being the market value of the CYB on implementation date.

A non-resident shareholder of NAB shares are able to disregard any CGT event G1 or CGT event C2 capital gain that arises, as their investment in NAB is unlikely to constitute taxable Australian real property (TARP).

The ATO has issued Class Ruling CR 2016/13 Return of capital by way of in specie distribution of shares in CYBG PLC by National Australia Bank Limited.

Return of capital
Wrap has applied return of capital of approximately $1.0025 per NAB share on 8 February 2016.
Any capital gain arising from CGT event G1 or C2 is realised on this date.

Cost base/reduced cost base of CYB and NAB
The cost base and reduced cost base of each CYB is $4.01.
The cost base and reduced cost base of NAB shares is reduced by the amount of the CYB cost base. As such, the cost base and reduced cost base of each NAB share is reduced by approximately $1.0025.

C2 capital gain

Where a shareholder held NAB shares on record date but subsequently sold the NAB shares before the implementation date, Wrap has processed the acquisition of a new CGT asset, being the right to receive the return of capital.  The acquisition date of the new CGT asset has been processed as the original date of acquisition of the sold NAB shares.  The cost base for the new CGT asset was nil.  The new CGT asset was disposed of for the return of capital amount on the implementation date, 8 February 2016.  The capital proceeds of the disposed CGT asset was $4.01 per CYB received, being the market value of the CYB CDI on the implementation date.  The CGT event C2 capital gain arising was reflected as the difference between the capital proceeds received and the nil cost base. Wrap has reported any resulting C2 capital gain in an investor’s Realised Gains Report.

The new CYB CDI acquired under this circumstance will have an acquisition date of 8 February 2016 for CGT purposes. The cost base and reduced cost base of each new CYB CDI was $4.01, being the market value of CYB on the implementation date.