Products & platforms

Westfield Retail Trust – merger with Westfield Group

Factsheet January 2015

Summary

On 30 June 2014, Westfield Retail Trust (WRT) and Westfield Group (WDC) jointly restructured to create two new listed retail property stapled security groups, Westfield Corporation (WFD), in respect of its international business, and Scentre Group (SCG), in respect of its Australia and New Zealand business.

This fast fact is relevant to holders of WRT stapled securities only. A fast fact in respect of WDC stapled securityholders can be found here.

Prior to the corporate action, the WRT structure was as follows:

Following the corporate action, the SCG structure is as follows:

Allocation – each eligible WRT securityholder received 0.918 SCG stapled securities for every 1 WRT stapled security held as at record date

Cash received in CMA – $ 0.2853 per WRT stapled security

Record date – 27 June 2014

Implementation date – 30 June 2014

ATO class ruling – CR 2014/77

Capital return component – $ 0.2853 per WRT stapled security received in cash. $0.0011 per converted WRT stapled security NOT received in cash.

Cost base of SCG

Where no E4 capital gain arises from the corporate action:

Where E4 capital gain arise from the corporate action:

* Where (WRT1 cost - $0.2853) is less than $0, use $0.

 WRT1 and WRT2 cost above refers to the respective cost base of each underlying security just before the corporate action.

Source: Westfield Retail Trust Securityholder Booklet, dated 14 April 2014.

What is the structure of an initial investment in WRT?

WRT represents an investment in a stapled security. Each WRT stapled security comprised of an interest in the following underlying assets:

  • Westfield Retail Trust 1 (WRT1)
  • Westfield Retail Trust 2 (WRT2)

What is the structure of the new investment in SCG?

SCG represents an investment in a stapled security, SCG stapled units.  Each SCG stapled security will comprise of an interest in the following underlying assets:

  • Westfield Holdings Limited (WHL)
  • Westfield Trust (WT)
  • Westfield Retail Trust 1 (WRT1)
  • Westfield Retail Trust 2 (WRT2)

Whilst SCG stapled securities can only be traded on the ASX as a single instrument, for taxation purposes an interest in a SCG stapled security will represent an interest in four separate capital gains tax (CGT) assets. 

Overview of the WRT corporate action

  1. WRT1 made a capital distribution of $0.2853 per unit in cash to WRT1 unitholders (WRT capital return).
  2. Each original WRT1 unit was converted into 0.918 converted WRT1 units in line with the merger ratio (Capital conversion).
  3. Each original WRT2 unit was converted into 0.918 converted WRT2 units in line with the merger ratio (Capital conversion).
  4. WRT1 made a further capital distribution of $0.0011 per converted WRT1 units which was applied to acquire:
    • One WHL share for $0.001; and
    • One WT unit for $0.0001

         for each converted WRT1 unit held (WRT stapling distribution).

  1. The converted WRT1 and converted WRT2 units were then stapled to the WHL share and WT unit to form SCG.

When is the implementation date?

30 June 2014.

What does a WRT securityholder hold after the implementation of the corporate action?

A WRT securityholder no longer holds their original investment in the WRT stapled securities after the implementation of the corporate action.  Instead, for every 1 WRT stapled security held, a WRT securityholder now holds 0.918 SCG stapled securities.

Fractional entitlements were rounded up to the nearest whole SCG stapled security.

How should the WRT capital return be treated for tax purposes for WRT securityholders?

The capital return component will be $0.2853 per WRT1 unit. This equates to a cost base reduction of $0.2853 for each WRT1 unit held on the record date, but not below nil.

CGT event E4 happened in relation to each of the WRT1 units owned by a WRT securityholder on implementation date, 30 June 2014.

A WRT securityholder made a capital gain from CGT event E4 to the extent the capital return exceeds the WRT1 cost base. No capital loss can be made from CGT event E4.

E4 capital gains can be disregarded where:

  • WRT1 is a pre-CGT asset of a resident Securityholder; or
  • The securityholder is a foreign resident.

Any E4 capital gain may be reduced by the CGT discount, provided certain conditions have been satisfied. For individuals and trusts, the discount is 50% and for superannuation funds, the discount is 33 1/3%.

How will the conversion of WRT1 and WRT2 units be treated for tax purposes for a WRT securityholder?

The conversion of units in WRT1 and WRT2 will not give rise to a CGT event.

The total cost and total reduced cost of the converted units will equal the corresponding cost and reduced cost of the original units. The cost base per unit will decrease. There will be no changes to the acquisition date.

How will the WRT stapling distribution be treated for tax purposes for a WRT securityholder?

WRT1 paid an additional capital distribution of $0.0011 per converted WRT1 unit. This equates to a further cost base reduction of $0.0011 for each converted WRT1 unit, but not below nil.

CGT event E4 happened to each WT unit owned by a WRT securityholder on the implementation date, 30 June 2014.

A WRT securityholder made a capital gain from CGT event E4 to the extent the return of capital amount exceeds the WRT1 cost base. No capital loss can be made from CGT event E4. 

E4 capital gains can be disregarded where:

  • WRT1 is a pre-CGT asset of a resident Securityholder; or
  • The securityholder is a foreign resident.

Any E4 capital gain may be reduced by the CGT discount, provided certain conditions have been satisfied. For individuals and trusts, the discount is 50% and for superannuation funds, the discount is 33 1/3%.

What are the cost bases and reduced cost bases of WHL shares and WT units?

The cost base and reduced cost base of a share in WHL and an unit in WT are as follows:

  • WHL share acquired under the WRT stapling distribution will be $0.001 per share, and
  • WT unit acquired under the WRT stapling distribution will be $0.0001 per unit.

The acquisition date of the WHL share and the WT unit will be the implementation date, 30 June 2014.

What are the CGT consequences of stapling events?

No CGT event will arise as a result of the stapling of WT units, WHL shares, WRT1 units and WRT2 units.

How does a WRT securityholder calculate their cost base in SCG after the restructure?

The cost base of each SCG stapled security after the restructure will be:

Where no E4 capital gain arises from the corporate action:

Where E4 capital gain arise from the corporate action:

* Where (WRT1 cost - $0.2853) is less than $0, use $0.

 WRT1 and WRT2 cost above refers to the respective cost base of each underlying security just before the corporate action.

Has the ATO issued any rulings relating to the restructure?

On 1 October 2014, the ATO released the following Class Ruling confirming the tax treatment for WRT securityholders:

  • CR 2014/77: Westfield Retail Trust – Merger with Westfield Group’s Australian/New Zealand business

Example

Assume you acquired 1,000 WRT stapled securities for $10.00 each (including incidental costs) on 1 March 2014.

Based on the relative net tangible assets as at 31 December 2013, the cost base of each component of each WRT stapled security is set out below:

  • WRT1 unit $9.979 (99.79%)
  • WRT2 unit $0.021 (0.21%)

As part of the WRT capital return, you received $285.30 in cash

Your 1,000 original WRT1 units were converted into 918 converted WRT1 units

Your 1,000 original WRT2 units were converted into 918 converted WRT2 units.

You were entitled to the WRT stapling distribution of $1.0098 (918 x $0.0011) and accordingly you received 918 WHL shares and 918 WT units on 30 June 2014.

Cost base in SCG stapled securities:

The cost base of your Converted WRT1 units is:

  In total Per unit
Cost base – original WRT1 units $9,979 $9.979
($9,979 / 1,000 units)
Less: WRT capital return ($285.30) ($0.2853)
Cost base – after WRT capital return $9,693.70 $9.6937
($9,693.70 / 1,000 units)
Cost base – converted WRT1 units $9,693.70 $10,5596
($9,693.70 / 918 units)
Less: WRT stapling distribution $1.0098 $0.0011
Cost base – converted WRT1 units $9,692.69 $10.5585
($9,692.69 / 918 units)
The cost base of your Converted WRT2 units is:
  In total Per unit
Cost base – original WRT2 units $21 $0.021
($21 / 1,000 units)
Cost base – converted WRT2 units $21 $0.0229
($21 / 918 units)
The cost base of your WHL shares is:
  In total Per share
Cost base – WHL shares $0.92
($0.001 x 918 shares)
$0.001
CGT date of acquisition of converted WHL shares is  30 June 2014
The cost base of your WT units is:
  In total Per unit
Cost base – WT units $0.0918
($0.0001 x 918 units)
$0.0001
CGT date of acquisition of converted WT units is  30 June 2014
The total cost base of your SCG securities is:
  In total Per security
Cost base – SCG securities $9,714.70
($9,692.69+$21+$0.92+$0.0918)
$10.5825
($9,692.78 / 918 securities)

How is the restructure reported by Wrap?

General assumptions:

  • Investors are Australian residents for income tax purposes
  • Investors hold (will hold) their WRT and SCG stapled securities on capital account for income tax purposes
  • Wrap reports WRT on the consolidated security level only (i.e. underlying cost bases of WRT1 and WRT2 are not reported separately).
  • The cost base of WRT has been adjusted for any tax deferred distributions previously paid.

Capital return component:

Wrap has processed a return of capital of $0.2853 per WRT stapled security on 30 June 2014. The capital return amount was applied to reduce the cost of each WRT stapled security held. Wrap has reported any resulting E4 capital gain in an investor’s Excess Assessable Gains section of the Tax Report.

Wrap has made the assumption that no E4 capital gains will arise from the WRT stapling distribution. As Wrap reports WRT on the consolidated security level, the return of capital of $0.0011 per WRT1 unit has not been reported, as this is offset against the acquisition of one WHL share and one WT unit at $0.001 and $0.0001 respectively. We recommend you seek independent tax advice to determine the most appropriate treatment for this distribution.

Each stapled security:

Every one WRT stapled security held was converted to 0.918 SCG stapled securities. Where a fraction existed, this was rounded up to the nearest whole stapled security.

The Wrap Reports will reflect the consolidated position of the SCG stapled securities at the staple level, rather than reflecting the position of the units in WRT1, WRT2, WT and shares in WHL at the underlying cost base level. We recommend investors seek their own independent tax advice to determine the appropriate treatment of the SCG stapled securities specific to their individual circumstances.

Cost base/reduced cost base of SCG:

Wrap has made the assumption that no E4 capital gains will arise from the corporate action. As such, the cost base of each SCG stapled security has been calculated as follows:

WRT cost – $0.2853

At the completion of the corporate action, securityholders no longer own any interests in WRT.

Acquisition date of WFD and SCG:

Wrap has shown SCG stapled securities as acquired on the same date the WRT securityholder acquired their original WRT stapled security.

Please note, due to system limitations and reporting only available on a consolidated SCG stapled level, multiple acquisition dates cannot be reported on the same asset code. This should be taken into consideration on the ultimate disposal of SCG.

Fast facts

2015 Corporate Actions

2014 Corporate Actions

2013 Corporate Actions

2012 Corporate Actions

Non-resident tax issues

Tax administration issues

CGT issues

Specific tax entities

Miscellaneous tax issues