With 30 June clicking over, the managed funds and superannuation industry has been busily producing year end tax reporting on behalf of investors and members. A core element of this is reflecting on whether any major corporate actions took place in the preceding 12 months and the tax implications. This year was no different, but with one major exception being the largest takeover in Australian history between the Westfield Group and Unibail-Rodamco just prior to year end.
This takeover was one of the most complex corporate actions in recent history and the tax outcomes are not straight forward. The ATO released its Class Ruling [CR2018/31] on 4 July 2018 and further guidance [Westfield Group – takeover by Unibail-Rodamco SE (UBR) (2018)] on 13 July 2018 to assist investors in their efforts to process the event.
The Westfield Group is a ‘triple’ stapled security listed on the Australian Securities Exchange (ASX). Each stapled security consists of one share in Westfield Corporation limited (WCL), one unit in WFD Trust (WFDT) and one unit in Westfield America Trust (WAT).
Under the corporate action, investors exchanged their Westfield stapled securities for cash and CHESS Depository Interests (CDIs) in respect of Unibail-Rodamco (also a stapled security comprising a Dutch and French company).
The key tax implications for investors (particularly institutional investors) holding Westfield securities at the time of the event are:
- Only gains relating to the WCL share are eligible for rollover relief. As a result, the cost base of the Westfield stapled security and proceeds received as part of the transaction need to be allocated appropriately between the components of the staple. The construction of the appropriate cost base as between each security in the staple is no small task, particularly where tax deferred distributions have been received on the trust component (not subject to rollover relief).
- Further, despite the Westfield being a stapled structure comprised of three individual securities, it is common industry practice among custodians and platforms to record the holding as one security. This makes the above process of determining cost base across each security particularly challenging.
- Finally, as eligibility for rollover relief is determined at the parcel level, it may be the case that relief is available for some but not all parcels (eg where a capital loss arises). The exercise of recording and tracking different cost bases and acquisition dates across the parcels of the new securities is no small task.
As with any major corporate action, there are a plethora of tax issues that require careful consideration, particularly for fund managers and superfunds that often hold large stakes on behalf of a retail investor base. The balance between improved tax outcomes for investors and practical record keeping limitations and risks must be considered and an appropriate tax treatment adopted.
In the case of the Westfield corporate action, for those that were willing and able to process the corporate action, the investment of time and effort resulted in a material benefit for their ultimate investors.
BY: Natalie Raju, Partner and Edward Tweddle, Senior Manager and Mark Fitzsimmons, Consultant, Superannuation and Funds
Comprehension questions (answers available)
- Did Unibail-Rodamco take over Westfield in the financial year just gone by?
- Was Unibail-Rodamco a double stapled structure?
- Was Westfield a double stapled structure?
- Was the consideration: cash and CHESS Depository Interests?
- Did the ‘cash’ preclude a scrip for scrip rollover?
- Was it sufficient for Westfield holders to calculate their cost base on the whole stapled security?