Qantas Airways Limited (QAN) - Return of capital and share consolidation

Return of capital

  • Distribution – $0.23 per Qantas Airways Limited (QAN) share held on the record date (on a pre consolidation basis)
  • Return of capital payment date – 6 November 2015
  • Cash received in CMA – $0.23 per CBA share held on the record date, 29 October 2015 (on a pre consolidation basis)
  • Impact on QAN shares – Cost base  reduced by $0.23 per QAN share held on the record date (on a pre-consolidation basis)

Consolidation

  • Consolidation date – 30 October 2015
  • Consolidation ratio – every QAN share was consolidated to 0.939 QAN shares 

An initial investment in QAN represented an investment in fully paid ordinary shares in QAN. 

QAN conducted a return of capital distribution, whereby QAN shareholders received $0.23 cash per QAN share held on the record date of 29 October 2015 (on a pre-consolidation basis).

Following the return of capital, QAN also consolidated its ordinary shares on issue such that every 1 QAN share held will be consolidated into 0.939 QAN shares. Any fractional shares held by a shareholder following the consolidation will be rounded up to the nearest whole number of QAN shares. 

6 November 2015.

30 October 2015.

QAN shareholders continue to hold an investment in QAN. However, for every 1 QAN share held pre-consolidation, the QAN shareholder will hold 0.939 QAN shares post-consolidation. Any fractional shares held by a shareholder following the consolidation will be rounded up to the nearest whole number of QAN shares.

CGT event G1 occurs where a shareholder holds QAN shares on the record date and continues to hold the shares on the return of capital payment date.

The capital return will reduce the cost base of QAN shares held on the record date (on a pre-consolidation basis) by $0.23 per QAN, but not below nil. This will increase any capital gain upon the subsequent disposal of the QAN shares (capital gain = Sale price – cost base).

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

Any CGT event G1 capital gain can be reduced, provided that the shareholder has held the QAN share for over 12 months. For Australian residential individuals and trusts, they can obtain a discount of 50%, whilst superannuation funds can gain a 33.33% discount.

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

CGT event C2 may occur where the shareholder holds QAN shares at record date but sells or ceases to hold the shares prior to the return of capital payment date.

Where this occurs, the right to receive the distribution becomes a separate CGT asset. The acquisition date of this CGT asset will be the date of acquisition of the original QAN shares. The cost base of the new asset will generally be nil. The new asset will be ‘disposed’ of on the return of capital payment date. The capital proceeds of the disposal will be $0.23 per share (the return of capital amount).

A capital gain will arise if the proceeds from the disposal of the right exceeds the cost base. The capital gain will be equal to the excess.

Any CGT event C2 capital gain can be reduced, provided certain requirements are met. For Australian residential individuals and trustees, they can obtain a discount of 50%, whilst superannuation funds can gain a 33.33% discount.

A non- resident shareholder of QAN will be able to disregard any CGT event G1 or CGT event C2 capital gain that arises, as their investment in QAN is most likely to be considered as non-taxable Australian Real Property (NTARP). 

On 26 November 2015, the ATO released Class Ruling CR2015/101 Qantas Airways Limited – capital return and share consolidation.

Capital Return Component

Wrap has reported the return of capital of $0.23 per QAN share held on a pre-consolidated basis on the date normal trading resumed ($0.24491772 per post-consolidated QAN share). The capital return amount reduced the cost base of each QAN share held on the record date.

Wrap has subsequently reported any resulting G1 capital gain in the ‘Excess Assessable Gains’ section of an investor’s Detailed Report.

C2 capital gain

In the event that a CGT event C2 occurred, Wrap has processed the acquisition of a new CGT asset (the right to receive the distribution). The new CGT asset was treated as having been acquired on the same date as the underlying QAN shares and having been disposed of on the payment date. The cost base for the new CGT asset was nil. As a result, the capital proceeds from the disposal of the right was equal to the capital return component of the distribution of $0.23 per pre-consolidated QAN share.

Share consolidation

Wrap has consolidated 1 QAN share to 0.939 QAN shares on the consolidation date of 30 October 2015. Fractional entitlements were rounded up to the nearest whole share.

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