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Note: BGL do not provide accounting or taxation advice. The following is designed to act as a guide for Simple Fund 360 users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline. Other methods that are more suitable may be used instead of these steps. |
Overview
When there is a takeover or merger, the arrangements usually involve an exchange of shares.
As a result, capital gains tax (CGT) obligation may arise if the fund is required to dispose of the existing shares or the existing shares are cancelled.
In certain circumstances, if the fund acquires new shares in the takeover or merged company, the fund may be able to defer the CGT obligation. This will happen if the arrangement qualifies for the scrip for scrip rollover.
Refer to the ATO website for more information on takeovers and mergers.
Each takeover or merger arrangement will be different, subject to the terms specified in the scheme of arrangement. Refer to the respective scheme of arrangement and ATO Class Ruling for more details.
Simple Fund 360 provides an automated process for most takeovers and mergers where the parent security is listed on the ASX.
In certain scenarios, where the tax treatment of the merger or takoever differs from standard process or if the parent security is not listed on the ASX, a manual process is required.
This article will cover 2 scenarios:
- Processing a Takeover/Merger manually
- Processing a Takeover/Merger where the consideration includes a special dividend
If you are processing the Westfield Merger and Acquisition, see:
Acquisition by Unibail-Rodamco of Westfield Corporation and OneMarket demerger (ASX: WFD)
Navigation
| From the Main Toolbar, go to Investments. |  |
| Select Corporate actions from the list. |
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Alternatively, you can access the Corporate Actions screen from the Transaction List:
Scenario 1: Process a Takeover/Merger
- Select
(If you accessed the Corporate Actions screen from the Transaction List, skip step 1) - Select the Head Security (the security being taken over) to process.
- Select Takeover/Merger as the Corporate Actions Type. The Corporate Action Details panel will appear.
- Select the chart account for the corporate action (for example, 77600/BHP.AX).
- Input the Ex / Balance Date (Corporate Action Ex-Date). Simple Fund 360 will apply the Takeover/Merger to parcels purchased before the ex-date. Next, input the Corporate Action Date (Transaction Date). Simple Fund 360 will create a Takeover/Merger transaction in the Transaction List based on the corporate action date that was entered.
- The Current Units on Hand for the head entity will display.
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Select the new security.
Field Explanation Select Securities Select a fund security from the list (the list will display only securities for this fund). The security you select is the new entity. Add New Investment If the fund does not have the new entity set up in the chart of accounts, select Add New Investment. See Investment Accounts for instructions. 
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Complete the Unit Details.
Units in New Investment Units of the new security received from the Takeover/Merger Total Market Value of Shares Received The Market Value of the new security as at the Corporate action date Total Cash Proceeds Amount of any Cash received from the Takeover/Merger if applicable (does not include any Dividends Received) -
Select YES or NO for Script-for-Script Rollover
The new security will be deemed to have been acquired on the Purchase date of the original security for CGT purposes. The capital gain or loss attributable to the Share (scrip) component will be disregarded. 
The new security will be deemed to have been acquired on the Takeover/Merger date for CGT purposes. The capital gain or loss will be realised for both Share and Cash components. See ATO Website for more information on Scrip for Scrip Rollovers
- Complete the Dividend details. Enter any dividend amounts that were received as a result of the Takeover/Merger
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The Corporate Action Summary will detail the Takeover/Merger transaction. It will display the Units on hand for each entity before and after the demerger; as well as the numerical effect on the cost base of the head entity (reduction) and demerged entity (increase). Any Capital Gain or Loss as a result of the corporate action will also be displayed. Review these details and once confirmed, select
Scenario 2: Scheme consideration includes a special dividend
Tax consequence: a capital gain as a result of the takeover/merger is reduced by the amount of the Special Dividend (excluding any franking credit) that is included in assessable income. This has the effect of reducing (but not below zero) the capital gain by the amount that is assessable.
Step 1: Work out the Cost Base Attributable To Cash Component Percentage and the Special dividend adjustment using the Takeover / Merger screen
- Select
(If you accessed the Corporate Actions screen from the Transaction List, skip step 1) - Select the Head Security to process.
- Select Takeover/Merger as the Corporate Actions Type. The Corporate Action Details panel will appear.
- Select the chart account for the corporate action (for example, 77600/BHP.AX).
- Input the Ex / Balance Date (Corporate Action Ex-Date). Simple Fund 360 will apply the Takeover/Merger to parcels purchased before the ex-date. Next, input the Corporate Action Date (Transaction Date). Simple Fund 360 will create a Takeover/Merger transaction in the Transaction List based on the corporate action date that was entered.
- The Current Units on Hand for the head entity will display.
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Select the new security.
Field Explanation Select Securities Select a fund security from the list (the list will display only securities for this fund). The security you select is the new entity. Add New Investment If the fund does not have the new entity set up in the chart of accounts, select Add New Investment. See Investment Accounts for instructions. 
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Complete the Unit Details.
Units in New Investment Units of the new security received from the Takeover/Merger Total Market Value of Shares Received The Market Value of the new security as at the Corporate action date Total Cash Proceeds* Amount of any Cash received from the Takeover/Merger if applicable (Including any Special Dividends Received) 
*Total Cash Proceeds = Cash consideration + Special Dividend
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Select YES or NO for Script-for-Script Rollover
The new security will be deemed to have been acquired on the Purchase date of the original security for CGT purposes. The capital gain or loss attributable to the Share (scrip) component will be disregarded. 
The new security will be deemed to have been acquired on the Takeover/Merger date for CGT purposes. The capital gain or loss will be realised for both Share and Cash components. See ATO Website for more information on Scrip for Scrip Rollovers
- Complete the Dividend details. Enter any other dividend amounts that were received as a result of the Takeover/Merger
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The Corporate Action Summary will detail the Takeover/Merger transaction. It will display the Units on hand for each entity before and after the demerger; as well as the numerical effect on the cost base of the head entity (reduction) and demerged entity (increase). Any Capital Gain or Loss as a result of the corporate action will also be displayed.
In Corporate Action Summary - Old security / New security section, work out the Cost Base Attributable To Cash Component Percentage
Cost Base Attributable To Cash Component Percentage = 1 - (Cost Base Effect for New security / Cost Base Effect for Old Security).
In this example, it is 1 - (476.22/900) = 47.08%.
Corporate Action Summary - Loss / Gain section, work out the Special Dividend Adjustment amount
Compare the estimated Gross Gain / (Loss) amount with the Special Dividend (excluding any franking credit):
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If Gross Gain /(Loss) > Special Dividend |
Special Dividend Adjustment = Special Dividend |
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If Gross Gain / (Loss) < Special Dividend |
Special Dividend Adjustment = Gross Gain |
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If Gross Gain / (Loss) < 0 |
Special Dividend Adjustment = 0 |
Exit out of Merger / Takeover screen
Step 2: Process a Demerger for the Parent security
See Demergers (Manual) on instructions on how to process a Demerger.
When processing the Demerger, the Head Security % = Cost Base Attributable To Cash Component Percentage
In this example, it is 1 - (476.22/900) = 47.08%.
Step 3: In Transaction Screen, post a journal to:
- Dispose of the Parent security with the proceeds being adjusted for Special Dividend Adjustment
- Record the receipt of a special dividend and cash consideration
- If the disposal results in a loss or if the special dividend reduces the capital gain to 0, a non-deductible expense needs to be created to account for unused Special Dividend
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Account |
Unit |
Dr. |
Cr. |
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Bank 60400 |
Cash consideration + Special Dividend |
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23900 / Dividend Income |
Special Dividend |
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77600/ Parent Investment |
Units on Hand |
Cash consideration + Special Dividend - Special Dividend Adjustment |
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Special Dividend Adjustment - Non-deductible expense account |
+ Special Dividend - Special Dividend Adjustment |
Example:
How to delete a Takeover/Merger
If you are required to change a corporate action, you can delete and re-process the action from the Corporate Action screen.
| From the Main Toolbar, go to Investments. | |
| Select Corporate actions from the list. |
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Alternatively, you can access the Corporate Actions screen from the Transaction List:
Locate the corporate action to delete. Select the checkbox located next to the transaction and Delete.
