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Hi Paul,
Regarding the Telstra Buyback – I am reviewing yout report on this buyback and looking at example 3, 14% discount, assumes cost base of $7.40. Can you please explain how the figure $2.55 is derived for the Sale Price for CGT purposes? I can’t work it out
A: Thanks for the question.
The ATO says that the buyback receipt consists of two components – a capital component of $1.78, and the remainder, a fully franked dividend of $2.95.
However, it also says that (in this example) the real market value of the stock is $5.50, so that for CGT purposes, the sale price is deemed to be $5.50 less the fully franked dividend of $2.95 which equals $2.55. Hence, when calculating CGT, you are deemed to have sold the asset at $2.55.
You won’t actually know the sale price for CGT purposes until some weeks after the buyback when the ATO publishes its view of the stock’s adjusted market value.
