Following the sale of its US onshore oil assets, BHP has announced the return of US$10.4bn to shareholders. Half of this amount, US$5.2bn (approximately A$7.2bn), will be returned to resident Australian shareholders through an off-market share buyback. The other half will be via a payment of a fully franked special dividend in January.
BHP’s decision to offer an off-market share buyback will be welcomed by SMSFs. Due to the high franked dividend component, this is a no brainer from a tax point of view for low rate or zero rate taxpayers to accept.
Deciding whether to accept an off-market share buyback is a pretty straight forward decision. If you are paying tax at a high marginal rate (34.5% or higher), don’t even bother to open the offer document when it hits your mailbox – throw it in the bin. If you are paying tax at 0% (such as an SMSF in pension or an individual with income under the tax free threshold), you are mad if you don’t accept. If you are somewhere in between, such as an SMSF in accumulation, then depending on the tender discount and your ability to use any capital gains tax loss, it will generally make sense to accept.