Question: As an SMSF who is going to take up the Telstra buyback option, 
should I now be purchasing Telstra shares on current market while the share price is low?

Answer (By Paul Rickard): Yes, I think this is a good time to consider buying in.

One problem – you don’t know how many shares you will be accepted for. Based on historical experience, you would expect a material scale back and that you won’t be accepted for not much more than the minimum. However, with Telstra shares having come off a fair way, offerees might be a little more reluctant – which might be reflected in both the volume tendered, and the final discount.

Question: I am still trying to get my head around the Telstra buyback that you have written in great details. We have an 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 buyback price. We only collect dividends in our fund so have no capital gains tax as have not sold any shares. Do I have this correct or am I completely on the wrong track?

Answer (by Paul Rickard): No, 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.

Here is a link to the story.

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

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.