As a shareholder, you may get an offer from a company to purchase back some or all of your shares in the company. If you disposed of shares back to the company under a share buy-back agreement, you may have made a capital gain or capital loss from that capital gains tax (CGT) event.
To work out whether you have complete a capital gain or capital loss, you compare the capital earnings with your cost base and reduced cost base. When you make the capital gain or capital loss will depend on the circumstances of the particular buy-back offer. If shares in a company:
- are not bought back by the company in the ordinary course of business of a stock exchange – for example, the company writes to shareholders offering to buy their shares (commonly referred to as ‘off-market share buy-back’),
- the buy-back price is less than what the market value of the share would have been if the buy-back hadn’t occurred and was never proposed
Then the capital profits are taken to be the market value the share would have been (if the buy-back hadn’t occurred and was never proposed) minus the amount of any dividend paid under the buy-back. In this situation, the company may provide you with that market value or, if the company obtained a class ruling from us, you can find out the amount from the class ruling by search the legal file external link
Under other off-market buy-backs, where a extra is paid as part of the buy-back, the amount paid excluding the bonus is your capital proceeds for the share