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Questions of the Week

Question 1: When looking at a listed investment company (LIC) "discount" or "premium" to NTA, is it calculated on Pre-tax or Post-tax NTA, and why?  Some LIC's have significant difference in pre and post-tax NTA.

Answer (by Peter Switzer): Under ASX Rules, listed investment companies are required to report both pre-tax and post-tax NTAs (net tangible asset values). The post-tax NTA provides for any capital gains tax that would be payable if the assets (securities) were sold, and is usually lower than the pre-tax NTA. If the LIC was wound up, capital gains tax on this basis would be payable – but given that this is such an unlikely situation, the pre-tax NTA is considered by most to be a better guide to the company’s value.

Calculations of premium/discounts are typically made in relation to the pre-tax NTA. This is the number that I look at.