Background
In 2014 Telstra announced that it would undertake an off-market share buy-back. The buy-back results were announced on 6 October 2014.
Participating shareholders are taken to have disposed of their shares accepted under the Telstra Buy-Back on 6 October 2014 (capital gains tax (CGT) event A1).
This fact sheet will provide advice for Australian resident investors who hold their shares on capital account and are subject to the CGT provisions.
Component of buy-back price
You received a payment of $4.60 per share you sold. This amount consisted of a:
- fully franked dividend of $2.27 per share
- capital component of $2.33* per share.
* For CGT purposes, participants in the buy-back are deemed to have received $2.77 as the capital component of the buy-back price. For more details, see Class Ruling (CR 2014/90): Income tax: Off-market share buy-back: Telstra Corporation Limited.
What are the tax consequences of my participation in the buy-back?
There are two tax consequences:
- you must include the dividend and the franking credit in your assessable income for 2014-15, and
- the sale of your shares (to Telstra) is a capital gains tax event that may have resulted in a capital gain (or capital loss) for you. Depending on the outcome, you may have to include some details on your 2014–15 tax return.
How do I treat the dividend?
You received a fully franked dividend of $2.27 per share, and a franking credit of $0.97 per share. If you are entitled to the franking credit, include both the franked dividend amount and the franking credit in your income for the 2014–15 income year – show them at Item 11 on your tax return. When we process your return, you will automatically receive a tax offset equal to the franking credit, if you are entitled to this tax offset.
Find out more
You may not be entitled to the franking credit if you acquired your shares on or after 20 August 2015 (because of the 45-day holding rule), You are exempt from this rule if your total franking tax offset entitlements for the year are less than $5,000.
Refund of franking credits
A franking credit reduces the amount of tax you must pay. You may be entitled to a refund of any franking credit in excess of the tax you must pay – if so, you will receive a credit for the excess when you lodge your tax return. If you are not required to lodge a tax return for the 2014–15 income year, Refunding franking credits - individuals explains how to get a refund without lodging a tax return.
End of find out moreWhat are the capital gains tax consequences for me?
A CGT event happened on 6 October 2014 when Telstra accepted your offer of shares for buy-back.
You may have made a capital gain or capital loss on your Telstra shares, depending on their cost base (or reduced cost base) and the amount you received for them.
Work out if you have made a capital gain or capital loss using the capital payment of $2.77 per share (see note 1) you are deemed to have received for each share. The following table will help you.
For each Telstra share with a: |
you have made: |
equal to: |
|---|---|---|
Cost base of less than $2.77 |
a capital gain |
$2.77, minus the cost base of the share |
Reduced cost base of more than $2.25 |
a capital loss |
the reduced cost base of the share, minus $2.25 |
Example
Andrew purchased 1,000 Telstra shares in 2012 for $2,900 ($2.90 per share). His brokerage costs were $50, making his cost base $2,950, or $2.95 per share.
Andrew sold all of his shares in the buy-back and received proceeds of $4,600 (1,000 x $4.60). This amount was made up of:
- the capital proceeds – $2,330, which is deemed to be $2,770*
- a fully franked divided of $2,270.
Her dividend statement showed a fully franked dividend of $2,270 and a franking credit of $970.
Andrew will need to include $3,240 – this comprises both the franked dividend and the franking credit in his assessable income (at item 11). Andrew will receive a tax offset equal to the amount of his franking credit.
Calculating the capital gain or capital loss
Andrew makes a capital loss from the sale of his 1,000 shares as follows:
Capital proceeds (1,000 x $2.77*) |
$2,770 |
Less reduced cost base (1,000 x $2.95) |
$2,950 |
Capital gain/loss |
($ 180) |
* For capital gains tax purposes, Andrew is deemed to have received $2.77 as the capital component of the buy-back price. For more details, see Class Ruling (CR 2014/90): Income tax: Off-market share buy-back: Telstra Corporation Limited.
Andrew has made a capital loss of $180 on the sale of his Telstra shares. He can use this loss to offset his current year capital gains, or, if he has none, carry it forward to use in future years.
End of exampleFind out more
- You and your shares
- Guide to capital gains tax
- Personal investors guide to capital gains tax
- For more information about the 45-day holding rule, or for help applying this information to your own circumstances, phone us on 13 28 61.