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Amcor Limited - Demerger of Orora Limited

Factsheet August 2014

Summary

Allocation - 1 share in Orora Limited (ORA) for every 1 share held in Amcor Limited (AMC).

Demerger date - 31 December 2013.

Market value - $10.41 per AMC share and $1.22 per ORA share received.

Cash received in CMA - Nil. Demerger dividend will not be received in cash, as AMC shareholders received ORA shares.

Capital reduction amount - $0.753203 per AMC share.

Demerger dividend amount - $0.467797 per AMC share. Demerger dividend is non-assessable, non-exempt (NANE) income of the AMC shareholder.

Demerger roll-over relief - choice available.

Cost base of ORA - 10.49% of the AMC cost base just before the demerger.

Adjusted cost base of AMC - 89.51% of the AMC cost base just before the demerger.

Background

In November 2013, AMC proposed to implement a demerger and distribute shares it held in ORA to AMC shareholders on a pro rata basis via an in-specie distribution for nil consideration.

What was the structure of an initial investment in AMC?

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

What was the structure of the new direct investment in ORA?

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

What was the structure of the AMC demerger to its shareholders?

AMC shareholders received one ORA share for every one AMC share held on the record date as part of the demerger. The acquisition of the ORA shares consisted of the following tax consequences:

  • A capital reduction amount (being a return of share capital) of approximately $0.753203 for each AMC and
  • A dividend amount (being a dividend paid on each AMC share) of approximately $0.467797 for each AMC share.

A reasonable approximation of the relative market value of AMC and ORA on the demerger date is:

  • $10.41 per AMC share and
  • $1.22 per ORA share.

When was the demerger implemented?

31 December 2013.

What does an AMC shareholder hold after the implementation of the demerger?

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

An AMC shareholder will also hold an interest in the ORA shares they are entitled to as part of the demerger.

What are the CGT consequences of the demerger?

CGT event G1 may occur where a shareholder holds AMC shares on the record date and continues to hold the shares on the demerger implementation date.

AMC shareholders will only make a capital gain where the capital reduction amount ($0.753203 per AMC share) exceeds the cost base of the AMC share. The capital gain will be equal to the amount of the excess. No capital loss will be made from CGT event G1.

If the amount of the return of capital is less than the cost base of the AMC shares, no CGT event G1 capital gain will arise.

Will demerger roll-over relief be available?

An AMC shareholder may choose demerger roll-over relief to apply where certain criteria are met.

What are the CGT consequences of applying demerger roll-over relief?

An AMC shareholder who chooses demerger roll-over relief will be able to disregard any CGT event G1 capital gain made under the demerger.

The cost base of the investor's original AMC shares must be apportioned over the AMC shares and the new ORA shares.

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

  • 89.51% of the cost base to AMC shares
  • 10.49% of the cost base to ORA shares.

This rule replaces the cost base and reduced cost base adjustments in CGT event G1.

What are the CGT consequences of not applying demerger roll-over relief?

An AMC shareholder who does not, or cannot, choose to apply demerger roll-over relief, cannot disregard any CGT event G1 capital gain arising under the demerger.

Any CGT event G1 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 cost base of the investor's original AMC shares must also be apportioned over the AMC shares and new ORA shares in the same manner had demerger roll-over relief been applied, as outlined above.

What is the acquisition date of ORA shares?

For CGT discount purposes, an ORA share received by an AMC shareholder under the demerger will be taken to have been acquired on the date the shareholder acquired the corresponding AMC share. This will be the case regardless of whether or not demerger roll-over relief is chosen.

How does an investor calculate their cost base in AMC after the demerger?

The cost base of each AMC share will be 89.51% of the AMC cost base just before the demerger.

How does an investor calculate their cost base in ORA?

The cost base for each ORA share will be 10.49% of the AMC cost base just before the demerger.

How will the demerger dividend amount be treated for tax purposes for investors?

As part of the demerger distribution, AMC shareholders also received a demerger dividend component. This dividend will be treated as non-assessable, non-exempt income to the shareholder. Therefore, the demerger dividend will not form part of an AMC shareholder's assessable income.

The demerger dividend amount was $0.467797 per AMC share held. This amount was not received as a cash payment.

How will the capital return amount of the transaction be treated for tax purposes for investors that hold AMC shares on the record date but sell the shares before the demerger date?

CGT event C2 may occur where the shareholder holds AMC shares at 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 AMC 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 ORA shares). The capital proceeds will be the market value of the ORA shares on demerger date ($1.22 per ORA 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.

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 ORA shares received will be taken to have been acquired for CGT purposes on the allotment date, 31 December 2013. The cost base of the new ORA shares will be the market value of the ORA shares received on demerger date ($1.22 per ORA share).

How will the demerger be treated for non-resident investors?

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

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.

Has the ATO issued any rulings relating to the demerger?

The ATO has issued Class Ruling CR 2014/11 Demerger of Orora Limited by Amcor Limited which was released on 29 January 2014.

How is the transaction reported by Wrap?

Capital reduction amount

Wrap has applied demerger roll-over relief where possible. As such, any capital gain arising from CGT event G1 will be disregarded.

Cost base/reduced cost base of AMC and ORA

Wrap has apportioned the AMC cost base and reduced cost base just before the demerger between AMC and ORA.

The AMC cost base just before the demerger was apportioned as follows on 31 December 2013:

  • 89.51% to AMC shares
  • 10.49% to ORA shares.

An AMC shareholder was issued one new ORA share for every one AMC share held on record date. There was no change in the number of AMC shares held.

Demerger dividend amount

Wrap processed a non-assessable, non-exempt dividend on 31 December 2013. The dividend amount was $0.467797 per AMC share held on record date. Wrap has reported this amount in an investor's Tax Report as tax exempt under non-assessable income.

C2 capital gain

Where a shareholder holds AMC shares on record date but subsequently sells the AMC shares before the demerger date, Wrap has 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 AMC 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, 31 December 2013. The capital proceeds are the market value of the ORA shares, in this case $1.22 per ORA share received. The CGT event C2 capital gain arising is processed as the difference between the capital proceeds received and the nil cost base. Wrap has processed any resulting C2 capital gain in an investor's Realised Gains Report.

The new ORA shares acquired under this circumstance will have an acquisition date of 31 December 2013 for CGT purposes. The cost base and reduced cost base of the new ORA shares will be the market value of ORA on the demerger date, being $1.22 per ORA share.

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