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Telstra Corporation Limited (TLS) August 2016 buyback instructions

*While every attempt has been made to record the transaction correctly for tax purposes, please ensure you seek appropriate advice from a licensed professional for your personal circumstances.

Instructions to account for the Telstra Corporation Limited (TLS) $1.25 billion off-market share buyback of 03 October 2016 follow. These instructions will only apply to you if you successfully participated in the off market share buyback.

Key details:

A. Buyback price $4.43 per share
B. Capital component $1.78 per share
C. Dividend component $2.65 per share ($1.13571429 franking per share)
D. CGT (Market) Value (per ATO)  $5.35 per share
E. Deemed Capital proceeds  $2.70 per share

 

Important note for tax purposes: The CGT value of $5.35 is determined by the ATO according views expressed in TD2004/22 and PSLA 2007/9. This CGT value is used to arrive at the ‘Deemed Capital Proceeds’ which is what is important and must be used for tax purposes. The confusing thing is that it is different from what you actually receive. This figure ($2.70) is comprised of:

Capital Component [B] + (CGT Value [D] – Buyback price [A])

$1.78 + ($5.35 - $4.43) = $2.70 

Be sure to read the “Important note regarding reporting at Tax time” at the end of this document in order to understand how the records will look within Stock Doctor. They will be correct for both performance and tax purposes. Feel free to contact our office should you have any questions.

 

Instructions for entering the buyback into Stock Doctor

In this example, let’s say you nominated 1000 shares for the buyback that was accepted.

Step 1:

Select the Portfolio tab and then select the appropriate portfolio under My Portfolio(s) that includes the TLS shares.

Step 2:

Under the Securities Held section, find the row labelled TLS Telstra Corporation Limited.

Select the drop down button next to Transactions on the same line, and select New Buyback.  This will bring up a new dialogue box.

Step 3:

Enter the following details into the General section of the new dialogue box:

  1. Enter the Buy-back date as 03 Oct 2016.
  2. The No. of Shares to rollover is 1,000 (Example only. This should be the number of shares you elected for the buyback).
  3. Enter $4.43 as the Per Share amount for Total Received Including Income ($). The Total ($) will auto-calculate.
  4. Enter $5.35 as the Per Share amount for CGT Market Value deemed by ATO ($). The Total ($) will auto-calculate.  
  5. Select the Enter Income button, which will take you to the Income section of the dialogue box. 

Step 4:

Enter the following values in the Income section of the dialogue box:

  1. Set the Franked Income ($) to $2,650.  i.e. $2.65 per share for 1,000 shares.  
  2. Set the Franking Credit ($) to 1,135.71  i.e. $1.1357142857142 per share for 1,000 shares.
  3. The Total Taxable Income and Total Received will auto-calculate.
  4. Select the Trade Allocation tab to go through to the Trade Allocation section of the dialogue box.

Step 5:

Enter the following details into the Trade Allocation section of the dialogue box:

  1. Allocate the trade by selecting one of these options in the drop down box:
    • Oldest First
    • Newest First
    • Smallest Capital Gain
    • Largest Capital Gain
    • Same Proportion of Each
  2. The value(s) under Quantity to sell will calculate automatically, ensure that this matches the amount you nominated for buyback (or scale back amount).
  3. Select the Save button.

 

You have now accounted for the TLS buyback.  

 

Important note regarding reporting at Tax time

The steps identified above are correct from a performance and what money you received perspective.

However, from a tax perspective it is not that simple. Within the key details table above:

E. Deemed Capital proceeds  $2.70 per share

This is the amount which is important when assessing CGT, as it is the amount the ATO have deemed to be the capital proceeds from the sale. The good news is that Stock Doctor is sophisticated enough to do this elegantly for you.

If you have followed the instructions above, then the capital component will be $1.78 per share for the buy back. It will be displayed in your transactions as follows:

The difference of $0.92 per share is captured within your capital gains report correctly without you having to do anything. You will notice in the screenshot below that the Net Proceeds is calculated using a $2.70 per share price. This correct for tax purposes.

As always, our team in the office are ready and willing to assist you with any questions you have about any of the content above. Please give us a call on 1300 676 333 or email us at support@lincolnindicators.com.au with any questions you may have.

However, we are not licensed to provide tax advice and therefore anything which relates to tax or your personal circumstances we will not be able to answer. In order to have personal tax or finance questions answered, you will need to seek the services of a licensed practitioner who will be qualified to answer your queries.

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