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Lets say the likely CBA off-market Buyback is $86 (14% disc., K$26, FF Div $60). You’ve said its great for low rate tax payers only. I have a contrary view & welcome your comment. As a high rate tax payer, Im punting that if I breakeven or even lose 10%, I still get a massive tax loss allowing me to release tax free funds tied up in my CSL & Afterpay (both purch at about $10). Surely theres some merit to my plan to partake in any off-market Buyback?
A: Possible, but very unlikely.
Will depend on your purchase price, and the deemed sale price for CGT purposes.
As per my example: assume your purchase price is $80, the deemed sale price is $26, and your tax rate is 47%. The actual sale price is $86, which is $14 less than the market price of $100.
Because losses are applied to offset gains before the application of the 50% discount, the maximum tax benefit of a capital loss is 23.5% (for a 47% taxpayer). For CGT purposes, your loss will be $54 ($26 – $80), which will generate (if it can be used) a tax benefit of $12.69. This is less than the $14 forgone by selling at $86 rather than $100.
To be fair, there would have been (using the same numbers) CGT of $4.70 to pay on the profit of $20, so you could argue that you would still be in front. But it doesn’t take much to make it unattractive for most shareholders (lower purchase price or higher deemed sale price).
