Telstra Corporation Limited - Off-Market Share Buy Back

  • Allocation - $4.60 per Telstra Corporation Limited (TLS) share bought back
  • Buy-back components -
Buy-back price per TLS share $4.60 A
Capital component of buy-back price $2.33 B
Fully franked dividend component of buy-back price $2.27 C
Market price per TLS share $5.04 D
Excess tax value component per TLS share (non-cash) $0.44 E = D - A
Deemed capital proceeds per TLS share $2.77 F = B + E

  • Cash received in CMA - $4.60 per TLS share bought back
  • Non cash amounts - $0.44 excess tax value component per TLS share bought back
  • Record date - 22 August 2014
  • Buy-back date - 6 October 2014
  • Payment date - 14 October 2014

An initial investment in TLS represented an investment in fully paid ordinary shares in TLS.

In August 2014, TLS proposed to buy-back approximately $1 billion of TLS shares through an off-market share buy-back. As part of the offer, eligible shareholders were invited to tender some or all of their shares for buy-back (subject to the minimum number of 925 TLS shares) at a discount to the market price of between 6% and 14% inclusive (at 1% intervals), or at a final tender price.

Source: Telstra share buy-back booklet, dated 14 August 2014.

The final price for the buy-back was set at $4.60 per TLS share bought back.

Tenders at a 14% discount or at a final tender price were successful. Tenders at a discount of less than 14% were not accepted.

Tenders up to 925 shares to be bought back

A priority allocation of 925 shares was bought back from eligible shareholders before any scale back was applied. If the shareholders tendered shares were equal to or less than the priority allocation at the buy-back discount, then all of those shares will be bought back.

Tenders of over 925 shares to be bought back

A scaleback of tenders of 69.79% was applied to tenders in excess of the 925 share priority allocation. As a result, successful shareholders had 30.21% of their shares tendered in excess of the 925 share priority allocation, bought back.

Small holding tenders (shareholders left with a residual holding of 370 shares)

Where shareholders were left with a residual holding of 370 shares or less after the 925 share priority allocation and scaleback was applied (a small holding tender), all their shares tendered were bought back.

The implementation date for the buy-back (the date the TLS shares were disposed of for tax purposes) was 6 October 2014.

The payment date for the buy-back was 14 October 2014.

The final buy-back price of $4.60 per TLS share included:

  • a fully franked dividend component of $2.27 per TLS share bought back, and
  • a capital component of $2.33 per TLS share bought back.

The dividend component of the buy-back payment, along with any attached franking credits, should be included in the assessable income of a resident shareholder.

The dividend component was equal to $2.27 per TLS share bought back. As the dividend component was fully franked, the attaching franking credit was equal to $0.97 per TLS bought back.

The capital proceeds were deemed to be $2.77 for each TLS share bought back. This includes the capital component of $2.33 cash and the excess tax value of $0.44 for each TLS share bought back (see below for further information on the deemed capital proceeds and excess tax value).

A TLS shareholder will make a capital gain or loss on disposal of the TLS shares equal to the difference between the deemed capital proceeds of $2.77 per share and the cost base of the TLS shares.

Any capital gain may be reduced by the applicable CGT discount percentage where certain conditions are satisfied. For Australian resident individuals and trusts, the discount is 50%. For superannuation funds the discount is 33 1/3%.

For tax purposes, the deemed capital proceeds must be calculated where the purchase price is less than the market value of the share at the time of the buy-back.

The shareholder is taken to have received in respect of the shares bought back, an amount equal to the difference between the market value of the shares and the buy-back price. This difference is the ‘excess tax value’.

For the purposes of the TLS off-market share buy-back, this is outlined as follows:

  • Market value - $5.04 per TLS share bought back.
  • Purchase price - $4.60 per TLS share bought back.
  • Excess tax value - $0.44 ($5.04 - $4.60).

For tax purposes, the excess tax value of $0.44 must be added to the $2.33 capital component to form the deemed capital proceeds of $2.77 per TLS share bought back.

Please note, the excess tax value of $0.44 is a deemed amount for tax purposes only and will not be paid to shareholders in cash.

On 29 October 2014, the ATO issued Class Ruling CR 2014/90 off-market share buy-back: Telstra Corporation Limited.

Dividend component

We processed a fully franked dividend on 14 October 2014 (the payment date). The dividend amount was $2.27 per TLS share bought back. The attaching franking credit was equal to $0.97 per TLS bought back.

Capital component

We processed a disposal of the relevant TLS shares bought back on 6 October 2014, the implementation date of the buy-back. The deemed capital proceeds were $2.77 per TLS share bought back. We have reported any resulting capital gain or capital loss in an investor’s Realised Gains Report.