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.