In the Crown deal with PBL, capital gains liability varied, writes George Cochrane.
REGARDING the takeover of PBL by Crown and subsequent demerger of Consolidated Media Holdings from Crown, how is the capital gain calculated if, as a shareholder, one chose the standard option of $3 cash and a one-for-one exchange of shares? C.M.Under the takeover, PBL shareholders chose one of three options: the standard option of $3 plus one Crown share (14.57 per cent cash); maximum cash, $15.06 plus 0.31 of a Crown share (73.15 per cent cash); or maximum share, 1.17 Crown shares. Total consideration for each PBL share was $20.59.
Under the second part of the restructure, CMH demerged and Crown shareholders received one CMH share (representing a capital return of $3.70) for every Crown share. So two capital gains tax events occurred - disposal of your PBL shares and a share capital reduction on your Crown shares.
If you chose the scrip-for-scrip rollover the share portions of the transactions are not subject to CGT. If you took the standard option the capital gain on the cash portion is the profit above 14.57 per cent of the cost base of your PBL shares. Put simply, your single Crown share (under the standard option) was valued at 85.43 per cent of the cost base of your PBL shares and then reduced by the $3.70 representing the cost base of your new CMH share. Check the ATO website for a detailed worksheet.
Police super uncertainty
I AM a former member of the NSW Police, aged 67. At retirement on July 27, 1994, my superannuation pension was calculated at 72.75 per cent of termination pay. My pension is paid from a taxed superannuation fund. I am subsequently grouped as retiring on or after July 1, 1988 and before July 1, 1997. From July 1, 2000 this group of retirees received a 15 per cent taxation offset but at the same time the gross pension payment was reduced from the original 72.75 per cent. In my case it was reduced to 70.97 per cent of termination pay. With the new superannuation rules, and being over 65, my pension is not a taxable income and I expected it to revert to the original 72.75 per cent of termination pay. This has not occurred and, in reply to my inquiry, I was told there is no provision to increase the percentage. A.H.
As I understand it the police super fund was originally unfunded; that is, the benefits were largely paid from the government's consolidated revenue. When the tax on super funds was introduced from July 1988 such pensions remained fully taxed in your hands. The Commonwealth super scheme is the largest example of this type.
However, by 1997 NSW was able to convert its unfunded police super fund into a funded scheme (I'm not sure the mechanics of it were ever fully explained because, theoretically, it should have involved the NSW Government fronting up with cash for the unfunded liabilities and placing the money into a fund that was then taxed).
Existing police fund pensioners who retired after the concept of a tax on superannuation was introduced in 1988 were given a choice, effective from July 2000, of remaining with a full pension paid from an untaxed source (and thus fully taxed on the pension in their hands) or a slightly reduced pension from a taxed source (still taxed in your hands but now receiving the 15 per cent super tax offset). You took the latter and, as you report, your pension was cut to allow for what appears to have been a theoretical previous tax liability; theoretical because pension funds were, and remained, untaxed on their income.
Before July 2007 I presume you would have paid income tax on your super pension, even after the 15 per cent tax offset.
With the change from July 2007 to tax-free super benefits for the over 60s, you are presumably better off by not having to pay any tax on your super pension. Whether or not you are entitled to have your original pension level restored is subject to the law and regulations governing the fund. For example, if the relevant Act was changed between 1997 and 2000, it might have to be changed again. Write to the Trustee (SAS Trustee Corporation or STC) and, if still unhappy, to the STC's disputes committee.
Close one, open another
YOU suggested amalgamating the money into the pension component of an SMSF at the start of each financial year to have as much as possible within a tax-free account. Can I really do this with my current SMSF transition-to-retirement allocation pension? I thought I would have to close the pension and start another one. L.C.
You are quite right. You - that is, the trustees - officially close the existing pension, amalgamate and start a new pension. Keep your accountant informed and he or she should readily complete the required paperwork.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: bank ombudsman 1300780808; pensions 132800.