Wesfarmers Limited - Return of capital, dividend and share consolidation

  • Allocation - $1 per Wesfarmers Limited (WES) share held on the record date (on a pre consolidation basis)
  • Cash received in CMA - $1 per WES held on the record date (on a pre consolidation basis)
  • Distribution components:
    • Dividend component (fully franked) - $0.25 per WES share held on the record date
    • Capital return component - $0.75 per WES share held on the record date
  • Share consolidation - every 1 WES share held was consolidated into 0.9827 WES shares (rounded up to the nearest whole share)
  • Record date - 28 November 2014
  • Consolidation date – 1 December 2014
  • Payment date – 16 December 2014
  • Impact on WES shares - Total cost base reduced by $0.75 per WES share held on the record date (on a pre consolidation basis).

WES proposed a distribution, whereby WES shareholders received $1 cash per WES held on the record date, 28 November 2014 (on a pre consolidation basis).

Source: Wesfarmers Limited Notice of Annual General Meeting, Explanatory Notes, dated 2 October 2014.

WES also proposed to consolidate its ordinary shares on issue such that every 1 WES share held was consolidated into 0.9827 WES shares.  Any fractional shares were rounded up to the nearest whole number of WES shares.

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

16 December 2014.

WES shareholders received $1 cash per WES share held on the record date (on a pre consolidation basis).

The tax components of this payment were as follows:

  • Dividend component (fully franked) - $0.25
  • Capital return component - $0.75

WES shareholders continue to hold an investment in WES.  However, the number of shares held will be reduced by the consolidation ratio.  In addition, the capital return component of the distribution will affect the cost base of the WES shares (explained below).

The dividend component of the distribution, along with any franking credits attached, should be included in the assessable income of an Australian resident shareholder.

The dividend component will be equal to $0.25 per WES share held on the record date (that is, on a pre consolidated basis). The attached franking credit will be equal to $0.1071 per WES share held on the record date.

The capital return component will be $0.75 per WES share held on the record date (that is, on a pre consolidation basis).  The capital return component will reduce the cost base of each WES share held on the record date (on a pre consolidation basis), but not below nil.  This will increase any capital gain upon the ultimate disposal of the WES shares.

CGT event G1 may occur where a shareholder holds WES shares on the record date and continues to own the shares on the payment date.  Where the amount of the capital return exceeds the shareholder’s cost base, a shareholder will make a capital gain equal to the excess.

Any CGT event G1 capital gain may be reduced by the CGT discount, provided certain conditions have been satisfied.  For Australian resident individuals and trusts the discount is 50%. For superannuation funds the discount is 33 1/3%.

CGT event C2 may occur where shareholders hold the shares at record date but sell or cease to hold the shares prior to the payment date.

Where this occurs, the right to receive the distribution becomes a separate CGT asset in itself.  The acquisition date of this CGT asset will be the date of acquisition of the original WES shares.  The cost base of the new asset will generally be nil.  The new asset will be ‘disposed’ of for tax purposes on payment date, when distribution is made.  The capital proceeds of the disposal will be the $1 distribution amount per share. 

A capital gain will arise if the capital proceeds from the ending of the right exceed the cost base.  As the cost base of the new asset will generally be nil, the capital gain will be equal to the proceeds.

Any capital gain made as a result of CGT event C2 will be reduced by the amount of any part of the distribution that is included in the taxpayer’s assessable income.  That is, the dividend component of $0.25 per share held on the record date (on a pre consolidated basis).

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

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

As the dividend component paid is fully franked, non-resident shareholders will not be subject to dividend withholding tax.  Non-resident shareholders will also not be entitled to claim a tax offset for any franking credits received.

On 1 October 2014, the ATO released Class Ruling CR 2014/76 Capital management distribution: Wesfarmers Limited.

Capital return component

We processed a return of capital of $0.75 per WES share held on the record date (that is on a pre consolidation basis).  The capital return amount was applied to reduce the cost base of each WES share held on a pre-consolidation basis. We have reported any resulting G1 capital gain in the ‘Excess Assessable Gains’ section of an investor’s Detailed Report.

Dividend amount

We processed a fully franked dividend of $0.25 per WES share held on the record date (that is on a pre consolidation basis).  The attached franking credit was equal to $0.1071 per WES share held on the record date (that is on a pre-consolidation basis). 

C2 capital gain

Where a client held WES shares on record date but sold the WES shares before payment date, we have processed the acquisition of a new CGT asset, being the right to receive the distribution. The acquisition date of the new CGT asset was processed as the original date of acquisition of the underlying WES shares. The cost base for the new CGT asset was nil. The new CGT asset was disposed of on the payment date. The capital proceeds were equal to the capital return component of the distribution of $0.75 per WES share held on record date.

We have reported any resulting C2 capital gain in the ‘Disposal of capital items’ section of an investor's Detailed Report.

Share consolidation

Every 1 WES share held was consolidated to 0.9827 WES shares. Where a fractional entitlement existed, this was rounded up to the nearest whole share.

In our reporting, the following will remain the same for WES shares:

  • Company name
  • Acquisition date
  • Number of parcels held.