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  • Rio Tinto Ltd share buy-back 2017

    On the 22 September 2017 Rio announced it would undertake an off-market share buy-back. The buy-back results were announced on 13 November 2014.

    Participating shareholders are taken to have disposed of their shares accepted under the Rio Buy-Back on 13 November 2017 (capital gains tax (CGT) event A1).

    This factsheet 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 $63.67 per share you sold. This amount consisted of a:

    • fully franked dividend of $54.23 per share
    • capital component of $9.441 per share.

    Note 1: For CGT purposes, participants in the buy-back are deemed to have received $16.79 as the capital component of the buy-back price. For more details, see Class Ruling (CR 2017/84): Income tax: Off-market share buy-back: Rio Tinto Limited.

    Tax consequences of participating in the buy-back

    You must:

    • include the dividend and the franking credit in your assessable income for 2017-18, and
    • make a capital gain or loss in 2017–18 year.

    How to treat the dividend

    You received a fully franked dividend of $54.23 per share, and a franking credit of $23.24 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 2017–18 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.

    If you tendered shares you acquired on or after the 26 September 2017 into the buyback, you are not entitled to the franking credit (because of the 45 day holding rule). You are exempt from this rule if your total franking credits entitlements for the year are less than $5,000.

    For entitlement to franking credits in share buyback, the last in first out (LIFO) rule applies. If you are not entitled to the franking credit, you do not return the franking credit as assessable income.

    If you lodge a tax return, the franking credit reduces the amount of tax you must pay.

    If you are not required to lodge a tax return for the 2017–18 income year, Refunding franking credits – individuals explains how to get a refund without lodging a tax return.

    The capital gains tax consequences for me

    A CGT event happened on 13 November 2017 when Rio accepted your offer of shares for buy-back.

    You may have made a capital gain or capital loss on your Rio 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 $16.79 per share you are deemed to have received for each share. The following table will help you.

    For each Rio share with a:

    you have made:

    equal to:

    Cost base of less than $16.79

    a capital gain

    $16.79, minus the cost base of the share

    Reduced cost base of more than $16.79

    a capital loss

    the reduced cost base of the share, minus $16.79

     

    Example

    Andrew purchased 100 Rio shares in 2012 for $4,900 ($49 per share). His brokerage costs were $50, making his cost base $4,950, or $49.50 per share.

    Andrew sold all of his shares in the buy-back and received proceeds of $6,367 (100 x $63.67). This amount was made up of:

    • the capital proceeds – $94.40, which is deemed to be $1,679*
    • a fully franked divided of $5,423.00.

    His dividend statement showed a fully franked dividend of $5,423 and a franking credit of $2,324.14.

    Andrew will need to include $7,747 – 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 100 shares as follows:

    Capital proceeds (100 x $16.792)

    $1,679

    Less reduced cost base (100 x $49.50)

    $4,950

    Capital gain/loss

    ($ 3,253)

    Note 2: For capital gains tax purposes, Andrew is deemed to have received $16.79 as the capital component of the buy-back price. For more details, see Class Ruling (CR 2017/84): Income tax: Off-market share buy-back: Rio Tinto Limited.

    End of example

    See also:

      Last modified: 04 Jun 2018QC 55838