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Cromwell derived significant capital gains in the 2020 financial year from the sale of its 50% stake in Northpoint Tower and sale of 50% of 475 Victoria Avenue, Chatswood. This resulted in the taxable income being attributed to securityholders in the 2020 financial year exceeding the amount of cash actually distributed to investors.
When you invest in Cromwell Property Group, you acquire Cromwell Property Group stapled securities (ASX:CMW). Each stapled security consists of a share in Cromwell Corporation Limited (CCL) and a unit in the Cromwell Diversified Property Trust (CDPT). CCL and CDPT are treated separately for taxation purposes.
CDPT is a trust that holds most of Cromwell’s property investments. CDPT is an Attribution Managed Investment Trust (AMIT) and, as such, its taxable income is attributed to securityholders each year.
The significant capital gains have resulted in CDPT attributing more taxable income to securityholders than the cash actually distributed to investors. The impact of this is that securityholders are compensated with an uplift to the cost base of their securities.
It is very important that you carefully maintain your cost base records in order to benefit from CDPT’s cost base uplift.
Your AMIT Member Annual (AMMA) Statement in Part C states the available cost base uplift. Broadly, if you receive more taxable income than distributions, you will get a cost base increase.
In a typical year, Cromwell distributes more than its taxable income, which results in cost base reductions. You should always update your records for the cost base adjustments each year.
When either you dispose of your securities or where your cost base is reduced to nil you will have a capital gains tax event and be required to calculate a capital gain or loss. For more information, please refer to Cromwell’s Tax Guide, which is available here: www.cromwellpropertygroup.com/securityholdercentre/taxation-information
You should also include your portion of CDPT’s capital gains in your 2020 income tax return. When calculating your net capital gain, you should apply any available prior year or current year capital losses from other assets and to the extent that you are eligible, you should be entitled to discount any remaining capital gains by the relevant discount percentage. Please refer to Cromwell’s 2020 AMMA Statement and AMMA Statement Guide for detailed instructions.
Following an initial 50% investment in Northpoint Tower in December 2013 for $139.35 million, Cromwell undertook a $130 million building programme with its joint venture partner Redefine Properties to meet the retail, dining and leisure needs of the ever-growing professional population in North Sydney. The redevelopment reached practical completion on time and on budget in March 2018.
The lower level of the revitalised retail precinct focuses on convenience, with a supermarket, bank and a suite of speciality retailers. The upper level is dedicated to dining and leisure and is inclusive of a rooftop bar. The project also included the construction of a new, 187-room Vibe Hotel.
Cromwell sold its 50% stake in Northpoint for $300 million, with the sale settling in September 2019, in line with its ‘Invest to Manage’ strategy. The strategy is focused on utilising existing balance sheet liquidity and asset recycling to fund a range of initiatives that are intended to build enterprise value, add to medium-term earnings and generate higher total securityholder return.
If you have any further questions, it’s recommended you speak to your accountant or contact Cromwell’s Investor Services team at firstname.lastname@example.org.
This is general information, not tax advice
The above information has been prepared for general information only and should not be relied upon as tax advice. This information should be read in conjunction with the Australian Taxation Office’s (ATO) instructions and publications. An investment in stapled securities can give rise to complex tax issues and each investor’s particular circumstances will be different. As such we recommend, before taking any action based on this article, that you consult your professional tax adviser for specific advice in relation to the tax implications. This document does not constitute financial product or investment advice, and in particular, it is not intended to influence you in making decisions in relation to financial products including Cromwell Property Group stapled securities. While every effort is made to provide accurate and complete information, Cromwell Property Group does not warrant or represent that this information is free of errors or omissions or is suitable for your intended use and personal circumstances. Subject to any terms implied by law which cannot be excluded, Cromwell Property Group accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in the information provided.