Question of the Week

Questions of the Week

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Question

What is the price I should use to calculate capital gains if I were to sell Domain Holdings? I received shares as part of the split from Fairfax.

Answer

Your cost base for each Fairfax share held will be reduced by $0.233. Your cost base for each Domain share will be very close to $2.33 (i.e. 10 times $0.233). See below from the Fairfax website:

“Tax Information – FXJ and DHG

For eligible FXJ shareholders issued DHG shares under the scheme of arrangement, as at the Implementation Date of 22 November 2017:

  • The tax cost base of FXJ shares should be reduced by $0.233 per share.
  • The tax cost base per DHG share can be calculated by taking your Capital Reduction Entitlement ($0.233 times by the number of FXJ Shares held on Scheme Record Date) and dividing it by the number of DHG shares received. Subject to rounding, your DHG shares should have a tax cost base of approximately $2.33 per share.
  • The Scheme Record Date is 7:00pm on 17 November 2017.
  • For further questions relating to your holding – please contact the Fairfax Shareholder Information Line on +61 1300 888 062 between the hours of 8.30am and 5.30pm (Sydney time), Monday to Friday.”

Question

Enjoyed your article “A yield of 7.0% on commercial property.” I am thinking of investing some funds as an alternative to fixed deposit. From your experience with unlisted property trusts, how secure are they? Is it easy to redeem the units if one invests $300 thousand, say after six months?

Answer

With unlisted property trusts, you shouldn’t have to worry about the “security” because they are backed by real assets (property). That doesn’t mean that the unit price can’t go down and you could lose some of your capital – but if the asset is sound and is supported by quality rental returns, you should be ok over the medium term.

Liquidity? There is no liquidity with an unlisted trust. There are no redemption facilities. In most cases, you have to wait until the trust is wound up – which usually means selling the property – and the monies are returned to the unitholders.

Question

Given the personal debt, business debt and government debt, what is the long-term impact of such a growing debt on our optimism regarding the share market?

In other words, given the size of the Australian economy (GDP), is this debt 150% to 200% of GDP, sustainable?

When there is downturn, will Australia be more severely impacted because of this relatively high debt level compared to other countries?

Answer

I am not an economist – but I don’t lose any sleep over this stuff.

It is not the size of the debt – but the ability to service the interest that counts.

Sure, in a downturn that hurts growth and probably the demand for commodities. Australia will be more impacted than some other countries.

That said, If you want some external validation – why do of S&P, Moody’s and Fitch assign Australian sovereign debt a AAA rating?

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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