ABC will buy the stocks at the lowest cost first – the 14% discount – and then, if one of the $ 6 billion allocated in stocks remains, it will top up with the 13% discount. I consider this option for professionals.
Small investors who see this auction process as beyond their comprehension may choose to accept a fixed price as yet unknown – the “Final Buyout”. However, if you wish, you can set a “Minimum Price” below which none of your shares will be redeemed.
The CBA, which trades on the Australian Securities Exchange (ASX) at around $ 100, estimates the “capital component” of its buyout will be $ 21.66, subject to approval by the Australian Taxation Office – another unknown.
Theoretically, the remainder of the repurchase price is a franked dividend, although there is yet another unknown component, known as “Capital Proceeds”, which is a seizure by the ATO, which does not want to lose the equity. haircut (and was omitted in Woolworth’s note from last week). See page 24 of the CBA buyback book for the formula.
Let’s say, in your case, that a “market price” of $ 100 is reduced by 14% to $ 86. Of this amount, $ 21.66 is a return of capital and the balance, $ 64.34, is a franked dividend.
Now, to distribute a dividend of $ 64.34, the ABC would have paid a 30 percent tax on gross profit of $ 91.91 (i.e. $ 27.57 in tax).
As always, you pay tax on the $ 91.91 per share, and reduce your postage credit tax by $ 27.57 i.e. there is no double taxation .
The tax rates are 15 percent for your SMSF and 34.5% and 21 percent for you and your wife, respectively, including Medicare.
As always when selling shares, CGT should be considered.
Where you paid $ 5.40 per share, you’ve now sold them for a capital value of $ 21.66, plus the proceeds of capital, which we’ll assume to be $ 14 (the difference between $ 100 and $ 86 ).
If you sold your shares to ASX, your capital gain would be ($ 100 – $ 5.40 =) $ 94.60. The 50% reduction in CGT means you would be taxed on half, which is $ 47.30.
Instead, the buyback lets you sell them for ($ 21.66 + $ 14 =) $ 35.66. Subtract $ 5.40 and your personal gain is $ 30.26, so you pay tax on $ 15.13. Your SMSF, which has a 33 percent discount, would be taxed on $ 23.54.
A shareholder with no tax payable should end up with around $ 113 per share. In your case, you are already paying tax on your income.
Due to so many unknowns you are basically buying a pig in a poke but once the postage credits are factored in then if you want to sell you should be better at selling stocks on the free market.
- The advice given in this article is general in nature and is not intended to influence readers’ decisions regarding investment or financial products. They should always seek their own professional advice that takes their personal circumstances into account before making any financial decisions.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.