CAPITAL MANAGEMENT

2008 Pro-Rata Entitlement Offer

On 21 April 2008 Wesfarmers announced a 1 for 8 accelerated renounceable entitlement offer.

New Wesfarmers ordinary shares were offered to eligible shareholders at a price of $29.00 per share.

The new shares were not registered under the Securities Act or the securities laws of any state of the United States and were not offered or sold in the US or to, or for the benefit of, US persons, except in transactions exempt from the registration requirements of the Securities Act and applicable state securities laws.

The Prospectus, releases and other material available in regard to this offer can be viewed by selecting the links below:

ASX Releases

Investor presentations

2008 Pro-Rata Entitlement Offer Tax Information

** Please see update below **

September 2008

The following is provided for the information only of Australian resident individuals who hold their Wesfarmers shares on capital account. It does not constitute an advice or a recommendation of any type on any matter whatsoever, including in relation to tax. If you have any queries or concerns relating to the information provided below, or require clarification of any point, you must seek independent advice from a professional advisor. None of Wesfarmers, any of its employees or Greenwoods & Freehills Pty Limited accepts any responsibility whatsoever to any person for the accuracy or reliability of this information.

In Chapter 7 of the prospectus relating to the 1 for 8 Entitlement Offer, it was noted shareholders would be taxed on the value of the rights granted to them unless legislative amendments announced by the Commonwealth Treasurer on 8 April 2008 were enacted. The amending legislation has now been enacted. (Use this link to access the amending legislation)

As a result, you should not be liable to tax in respect of the issue of the rights, if you hold your existing shares on capital account. It is intended that the value of the rights issued to you will be treated as not assessable and not exempt income. (Refer paragraphs 1.9, 1.10 and 1.12 of the Explanatory Memorandum (“EM”) to the amending legislation, which may be accessed by using this link)

If you:

 

Exercised your rights

and acquired Wesfarmers shares, you should be treated as having acquired the new shares for $29 per share when you exercised the rights.

Did not exercise your rights

but instead received $9.75 per lapsed right, this may be included in your assessable income. In this regard, although not beyond doubt, comments in the EM suggest that the lapse of your rights should generally give rise to CGT consequences only. In that case, the amount of the gain that is subject to tax will depend on how long the existing underlying shares had been held at the time the rights lapsed. To the extent that the shares were held for more than 12 months, the amount of the capital gain ($9.75 per lapsed right, less any available capital losses) may be reduced by 50 per cent.

You should be aware that the ATO may take a different view.

Clarification is being sought, and further updates will be provided if the ATO provides further information on the income tax treatment of rights.

19 January 2011 – UPDATE

On 4 February 2009, Wesfarmers applied for a class ruling from the ATO to clarify the tax position for its shareholders who received the Retail Premium in respect of the 2008 Entitlement Offer. However, the class ruling application was withdrawn by Wesfarmers after the ATO indicated that it would be releasing a public ruling on the tax treatment of “Retail Premiums”. 

On 8 December 2010, the ATO released Draft Taxation Ruling TR2010/D8 (use this link to access the Draft Ruling). In the Draft Ruling, the ATO states that a Retail Premium is to be treated for tax purposes as an unfranked dividend or as ordinary income, and not as a capital gain.

If the ATO’s view expressed in the Draft Ruling is correct, shareholders who received the Retail Premium would not be entitled to the CGT discount on the Retail Premium nor be able to offset capital losses against the Retail Premium.

The ATO’s view in the Draft Ruling is consistent with the ATO Taxpayer Alert TA 2009/11 and Fact Sheet released in May 2009. However, if the Draft Ruling is finalised in its current form, it will apply retrospectively to rights granted before that date, including Wesfarmers’ 2008 Entitlement Offer.

Wesfarmers will take part in the consultation on the Draft Ruling, either directly or through appropriate professional and industry bodies. The final ruling may or may not express the same conclusions as the Draft Ruling and shareholders should seek their own professional advice as to whether they should take any action in respect of their 2008 assessments.

This above is general in nature and does not constitute tax advice. We recommend that you seek advice from your own professional advisor in respect of your particular circumstances. None of Wesfarmers, any of its employees or Greenwoods & Freehills Pty Limited accepts any responsibility whatsoever to any person for the accuracy or reliability of this information.

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