First Active PLC CGT

Following High Court approval, under Section 73 Companies Act 1963, First Active PLC made a repayment of capital to its shareholders in June 2003. This repayment was achieved by means of a bonus issue of new ordinary shares on a 2 for 1 basis followed by the cancellation of these shares in exchange for a payment of €0.56 per bonus share.

By virtue of Section 584(3) TCA 1997 the bonus shares are deemed to have been acquired at the same time, and at no additional cost, as the shares giving rise to the bonus issue.

A reduction of capital, in accordance with Section 73 Companies Act 1963, is a form of repayment of share capital for the purposes of Section 175 TCA 1997. Consequently, any repayment of share capital so arising would not be treated as a distribution, but would instead represent a disposal for capital gains tax purposes.

• For shareholders who hold ‘free’ shares only there is no base cost. The sum received in respect of the bonus shares is chargeable in full, subject to the availability of allowable losses and the personal exemption.
• FIFO rules will apply where shareholders acquired shares on different occasions. Thus, shares acquired at an earlier date, including the attaching bonus shares, are deemed to have been disposed of first. Where shares were purchased it will be necessary to adjust their base cost for the purpose of calculating the allowable costs.

All chargeable gains arising in the period 1 January 2003 to 30 September 2003 should be aggregated and the tax payable, after allowable losses and the personal exemption, should be remitted to the Collector-General in Limerick by 31 October 2003 - see article on page 1.