Mr Hodge raises a common question: if a stock you hold is taken over by another company, when does the capital gain occur? Mr Hodge held shares in RHM, which was taken over by Premier Foods. Following the takeover, shareholders in RHM received shares in Premier Foods, plus a cash amount representing the difference in value between the two different shares.

Generally, when one share is exchanged for another, no capital gain will occur until
the new shares are sold. Where cash payments are made for shares they are treated as a capital gain, as if the shares had been sold.

In some corporate actions, companies are now starting to offer shareholders the choice of different options with different tax implications. For example, a shareholder could be offered the choice of a cash or stock adjustment (or a combination of both) that could be treated as either income or as a capital gain.

Information regarding tax implications should be provided within the documentation explaining your options, and investors who are unsure can always contact the company registrar for clarification.