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Hi Paul,
I am still trying to get my head around the Telstra buy back that you have written in great detail. We have a SMSF in pension mode and after reading your report many times, am I correct in presuming that it is still only good if you have a capital gain that you can then write the loss off against if you had paid more than the buy back price? We only collect dividends in our fund so have no capital gains tax as we have not sold any shares. Thank you.
A: Thanks for the question.
If you are in pension, any capital gains tax considerations are irrelevant. For you, it is all about the refund-ability of the franking credits.
Take example 1. If you sold your Telstra shares on the ASX at $5.50, you would get to keep $5.50. If you tendered your shares into the buyback with a 14% discount, your effective selling price is $5.99. You would be 49c per share better off.
So, from a tax point of view, you should accept the buyback. Of course, this means selling your Telstra shares, so either:
a) you are happy to sell; or
b) you sell in the buyback, and then buy the Telstra shares back on the ASX
I hope this helps.
