Today TLS announced it is conducting a buyback.
Ziggy said: “For those tendering their shares, the final buyback price will include a fully franked dividend component of between $2.70 and $3.90 per share”
At $3.90 dividend thats an extra $1.67 in franking credits.
That means for every TLS share you own, you can earn $4 income elsewhere effectively tax free. (Theres a little more to it but I dont want to give away all the secrets for free)
Those who were smart enough to realise spending $295 to save thousands of dollars in tax already know about this strategy.
But be careful, having a tax return showing only $8k income can make it hard to get housing finance LOL
Hmmm – looking forward to this buyback. Will do some nice offsetting in next years tax return. Will also give the share price a nice little nudge north for all those T2 investors who decide to hold.
Crashy,
I have to be honest I don’t really understand much of your strategy.
I’m looking at learning a lot more about creative share investing and would like any sites/course/seminars you could recommend.
I’ve recently bought $15KNAB macquarie installment warrants after attending the Macquarie evening. Performance has been up and down and I am currently down 20%.
I earn $150K salary and was tossing up between IP ( doesn’t look all that attractive at the moment), borrow and invest in a Franchise small business that I could have run under management or learn and invest into equities. My leaning is currently toward the last option so I need to know realistically what sort of returns I could expect if i invested $200K (drawn down equity) into various equity vehicles.
I attended a CNBC share seminar about a year ago but it just looked too easy. i was considering doing a Safety In the markets course. I just don’t know whether this is the right tact to take to learn how to “safely” invest in equities.
Any advice you can provide would be greatful.Cheers,
WP.S.: Do you only deal in local equities or do you also trade internationally?
Hi Wolverine
“I’m looking at learning a lot more about creative share investing and would like any sites/course/seminars you could recommend.”
Ummm….I assume you mean other than mine? LOL, not sure I want to recommend the competition, though I know there is nobody promoting my sort of stuff. Check out my site listed at bottom.
“I need to know realistically what sort of returns I could expect if i invested $200K”
Well $200k in a basic bank share will earn around 7%, thats $14k a year…..juice it up with some of my strategies and 40% is not too hard, thats $80k p.a.
I wouldnt worry about the NAB instalments, NAB is a great stock. Maybe buy more?
CNBC – Comedy, Nuthin But Comedy
Those clowns are the laughing stock of the industry.
re international vs local……I teach about local stocks & strategies.
Sorry Paul I didn’t realise you were crashy.
Your course sounds quite interesting.Below is a response I received from another board member regarding investing $200K of drawn down equity:
“If you refinanced $200,000 and wrote covered calls on blue chip shares, you would be looking at about $4,000 to $8000 per month return. And if you used margin you can double that”
I don’t understand much of it, but is that the sort of stuff I can expect to learn from your course?
Its great people like you are prepared to teach others.
CHeers,
W
Hi Wolverine“I’m looking at learning a lot more about creative share investing and would like any sites/course/seminars you could recommend.”
Ummm….I assume you mean other than mine? LOL, not sure I want to recommend the competition, though I know there is nobody promoting my sort of stuff. Check out my site listed at bottom.
“I need to know realistically what sort of returns I could expect if i invested $200K”
Well $200k in a basic bank share will earn around 7%, thats $14k a year…..juice it up with some of my strategies and 40% is not too hard, thats $80k p.a.
I wouldnt worry about the NAB instalments, NAB is a great stock. Maybe buy more?
CNBC – Comedy, Nuthin But Comedy
Those clowns are the laughing stock of the industry.
re international vs local……I teach about local stocks & strategies.
Below is a response I received from another board member regarding investing $200K of drawn down equity:
“If you refinanced $200,000 and wrote covered calls on blue chip shares, you would be looking at about $4,000 to $8000 per month return. And if you used margin you can double that”
Hmmmmmmm, that sounds very high unless writing in the money calls. I would say more like 2000-3000 per month on average.
Writing calls is not as easy or risk free as the course sellers make out. Options are a very complicated instrument. One must have a solid knowledge of “the greeks” before proceeding. If thats gobbleydegook to you, go to your local library and try to get the book “Options” by Guy Bower. It will give you a basic understanding in pretty much laymans terms.
Wayne
“I don’t understand much of it, but is that the sort of stuff I can expect to learn from your course?”
Yes that is one of the more basic strategies. wayne is correct in saying it is not as easy as it looks, but in my experience 2-3% return a month is a likely net return. wayne has not done my course so he cannot judge how well I explain the risks. 5 or 6 of the members from this site have just received the course, and I’m sure they will give you their own opinion of it. I have made a concious effort to expose the risks, because all of the options books I read didnt explain them if at all, and it cost me a lot of money to learn the lessons for myself.
When doing covered calls, you actually receive around 5%, but many times have to give some of it back.
A lot of my course revolves around dividends, much the same as Steve’s course revolves around rental return. Dividends are not widely understood. Today for example, I had to teach a chatroom full of 35 traders with 5-10 years experience why the TLS buyback was a great opportunity, because none of them could see it.
My philosophy is that investing is about yield, not capital gains.
Even if you only use one of the 45 strategies, Im sure you will get your moneys worth.
cheers
“I don’t understand much of it, but is that the sort of stuff I can expect to learn from your course?”Yes that is one of the more basic strategies. wayne is correct in saying it is not as easy as it looks, but in my experience 2-3% return a month is a likely net return. wayne has not done my course so he cannot judge how well I explain the risks. 5 or 6 of the members from this site have just received the course, and I’m sure they will give you their own opinion of it. I have made a concious effort to expose the risks, because all of the options books I read didnt explain them if at all, and it cost me a lot of money to learn the lessons for myself.
When doing covered calls, you actually receive around 5%, but many times have to give some of it back.
A lot of my course revolves around dividends, much the same as Steve’s course revolves around rental return. Dividends are not widely understood. Today for example, I had to teach a chatroom full of 35 traders with 5-10 years experience why the TLS buyback was a great opportunity, because none of them could see it.
My philosophy is that investing is about yield, not capital gains.
Even if you only use one of the 45 strategies, Im sure you will get your moneys worth.
cheers
5% ???????
If you can show me where to get otm option series that regularly pays 5% with a month till expiry, I will do your course, even if just out of curiosity.
Caveat: Except if there is unusually high i.v. of course….and gold shares excluded. Remember we are talking month in, month out.
Hi Crashy,
*** Warning: I know nothing about shares! ***
Will this be the case for every year or is it only the year the buyback happens.
On another note.
If you were to make a net profit of $400,000 in a given financial year, How could you minimise your tax bill to less than $5,000 say?
Pin
Pin
“Will this be the case for every year or is it only the year the buyback happens.”
Only the year the buyback happens. In general one company a year will do a buyback like this. Last year it was IAG.
“If you were to make a net profit of $400,000 in a given financial year, How could you minimise your tax bill to less than $5,000 say?”
Theres no point going below $8000, as the first $8000 is tax free. Trying to get the income down from $400k would be rather difficult, not impossible, but probably not worth the effort. You might save yourself $180k in tax but in the meantime you could miss $250k in easy income. Avoiding tax is far easier for those earning less than $50,000. Like in negative gearing, we should focus on the profit after tax, and not the tax savings.
Hi Crashy,
What do you mean by.
You might save yourself $180k in tax but in the meantime you could miss $250k in easy incomeDo you mind expanding on this a little.
Thanks
Pin
Well to avoid paying $180k in tax, you would need to trade a massive amount of stock, this would use up a lot of your investment capital (not to mention time), which would otherwise be earning a good return.
In the course I show an example where one person avoids paying tax, the effective return for doing so was 13.2% gross. Thats not bad, but he probably would have done much better if he forgot about the tax bill and focused on a strategy returning 20 or 30%. Buybacks like the TLS one are a gift, its like a years worth of dividend trading in one month. Its just a pity that very few people understand the mechanics and benefits of the deal. Lunches dont get any cheaper…..
Thanks for your replies Crashy.
So are the TLS shares only worth it because of the buyback or is it a good investment in and of itself?
Pin
In this situation the quality of the stock is irrelevant, because we are not holding it for long enough to care. TLS is known as the “gorrila” stock because it is so big and profitable. It has a virtual monopoly, but the telecoms sector is not a good place to be at the moment. But all of that is really not essential to know. Stocks should be bought based mainly on their dividend yield when positively gearing. It is therefore possible to ignore the majority of the market noise, and use the dividend yield as a yardstick. Novice investors have a hard enough time walking through the shares minefield without trying to understand the many complex ways to find the right share to buy. An investor should think like a bank. Either the numbers work or they dont. This is why buying based on dividend yield is the single best method.
There are many better stocks than TLS around, like the banks. Use and abuse TLS while it is being generous.
This Telstra offer isn’t quite what you’re making it to seem Crashy, and I have serious concerns about some of your concepts you are touting. If TLS pays $5.40 per share, then $1.50 will be capital, and the rest fully franked dividend of $3.90. This will include an imputation credit of $1.67 as you say, ie a grossed up dividend of $5.57, which will be added to your taxable income. $1.67 just happens to have already been pre-paid towards your tax. You are saying that we can earn another $4 ($3.90) from another source without paying tax on it, owing to the imputation credit, which would be like prepaid tax on our other $4. What about the dividend though? It still attracts tax. As I’ve written before, it’s silly to think of imputation credit as some magical bonus. It’s just part of your dividend that has been taken out to prepay tax. If we earn another $4 elsewhere, then our income will be $5.57 + $4 = $9.57, and if we happen to be in the 48.5% tax bracket then we will owe $4.64 in tax, less the $1.67 already prepaid = $2.97 tax to pay. If we exclude the extra $4, then the net tax payable would be 0.485 * 5.57 – 1.67 = $1.03
Back to the TLS offer: Regardless of how much we paid for TLS, then if the buyback price is $5.40 as shown above, then we’ll have to pay an extra $1.03 in tax if we’re in the max tax bracket. The capital component of $1.50 will be taken from our cost base to determine our capital loss, which can only be offset against other capital gains or carried forward to offset future capital gains.
Let’s see what happens if you bought your shares in the T1 float for $1.95, then we’ll have a capital loss of 0.45c to offset against other CG. That will save 22c tax. Therefore net tax payable will be 81c, ie $1.03 – 22c, so cash in hand after the sale will be $4.59.
If we just sold on the market for $5.40 we would have to pay CGT on a gain of $3.45 (ignoring brokerage). Tax payable will be (0.485 * 3.45)/2 = 84c, so cash in hand after the sale will be $4.56.Now compare with some poor soul who paid $7.40 in T2. With the buyback, capital loss will be $5.90, which will save $2.86 in CGT, so net tax payable will be ($1.83), so net cash in hand after the sale will be $7.23.
If sold on the market for $5.40, capital loss will be $2.00, which will save 97c CGT, so net cash in hand will be $6.37.
These and other tax brackets/ cost bases are shown in the following table:
| Cost |Tax | Cash fr| Cash fr| Buyback |
| Base |Br %| Buyback| Market | - Market|
|
|----|
|
|
|
| 1.95 |15.0| 6.30 | 5.14 | 1.16 |
|
|----|
|
|
|
| 1.95 |31.5| 5.46 | 4.86 | .60 |
|
|----|
|
|
|
| 1.95 |48.5| 4.59 | 4.56 | .02 |
|
|----|
|
|
|
| 6.00 |15.0| 6.91 | 5.49 | 1.42 |
|
|----|
|
|
|
| 6.00 |31.5| 6.73 | 5.59 | 1.14 |
|
|----|
|
|
|
| 6.00 |48.5| 6.55 | 5.69 | .86 |
|
|----|
|
|
|
| 7.40 |15.0| 7.12 | 5.70 | 1.42 |
|
|----|
|
|
|
| 7.40 |31.5| 7.17 | 6.03 | 1.14 |
|
|----|
|
|
|
| 7.40 |48.5| 7.23 | 6.37 | .86 |
|
|----|
|
|
|
NB with regard to capital losses used to offset other capital gains, it is much better if you use the loss to offset short term CG, ie achieved in less than one year. If you offset gain achieved over more than 12 months, then the tax will be on that gain divided by 2. Any loss will be offset before that gain is divided by 2, and hence you only effectively save half as much by the offset. Eg if you have a long term CG of $10, tax will be 0.485 * $10/2 = $2.42. If you have a loss to offset that gain, say $2 loss, tax will be 0.485 * $8/2 = $1.94, so your $2 loss has saved only 48c in tax. If you apply the capital losses from the Telstra buyback to long term capital gain then the table will look like:
| Cost |Tax | Cash fr| Cash fr| Buyback |
| Base |Br %| Buyback| Market | - Market|
|
|----|
|
|
|
| 1.95 |15.0| 6.27 | 5.14 | 1.13 |
|
|----|
|
|
|
| 1.95 |31.5| 5.39 | 4.86 | .53 |
|
|----|
|
|
|
| 1.95 |48.5| 4.48 | 4.56 | (.09) |
|
|----|
|
|
|
| 6.00 |15.0| 6.57 | 5.45 | 1.13 |
|
|----|
|
|
|
| 6.00 |31.5| 6.02 | 5.49 | .53 |
|
|----|
|
|
|
| 6.00 |48.5| 5.46 | 5.55 | (.09) |
|
|----|
|
|
|
| 7.40 |15.0| 6.68 | 5.55 | 1.13 |
|
|----|
|
|
|
| 7.40 |31.5| 6.24 | 5.72 | .53 |
|
|----|
|
|
|
| 7.40 |48.5| 5.80 | 5.89 | (.09) |
|
|----|
|
|
|
Worse still if you never manage to find some capital gain to offset against, the table will look like:
| Cost |Tax | Cash fr| Cash fr| Buyback |
| Base |Br %| Buyback| Market | - Market|
|
|----|
|
|
|
| 1.95 |15.0| 6.23 | 5.14 | 1.09 |
|
|----|
|
|
|
| 1.95 |31.5| 5.32 | 4.86 | .46 |
|
|----|
|
|
|
| 1.95 |48.5| 4.37 | 4.56 | (.19) |
|
|----|
|
|
|
| 6.00 |15.0| 6.23 | 5.40 | .83 |
|
|----|
|
|
|
| 6.00 |31.5| 5.32 | 5.40 | (.08) |
|
|----|
|
|
|
| 6.00 |48.5| 4.37 | 5.40 | (1.03) |
|
|----|
|
|
|
| 7.40 |15.0| 6.23 | 5.40 | .83 |
|
|----|
|
|
|
| 7.40 |31.5| 5.32 | 5.40 | (.08) |
|
|----|
|
|
|
| 7.40 |48.5| 4.37 | 5.40 | (1.03) |
|
|----|
|
|
|
The conclusion is that the buyback may not be worth quite as much as you think, especially if you bought at T1 and you’re in the 48.5% tax bracket. One other important point: These comparisons were all done at the maximum buyback price of $5.40, but the buyback range is $4.20 to $5.40, so if they eventually only pay say $4.80 and you could have sold on the market for $4.99 (Friday’s close) then the buy back will be correspondingly less attractive than the market.
JimSheesh Jim, what a fantastic and detailed post…tables an’ all. well done!!!
Boy am I glad to be a technical trader. Money management mathematics and option greeks is quite enough for this little black duck.
But great to see the effort to explain these complicated issues FULLY[
]Cheers Wayne
Thanks Jim
I must admit I did not do the sums for every scenario crossed with every tax bracket. I simply did one sum based on the average wage. You are right in that some will get less benefit than others.
The normal ‘simple’ explanation of dividend stripping is that the capital loss is roughly equal to the net dividend, which cancels out, leaving the franking credit. I did not make it clear that you must either have other capital gains to offset or else be classed as a stock trader in order to cancel the two out. Nevertheless, the average taxpayer on 30% tax would end up with a $3.50 capital loss (if bought Friday), offset by a $3.90 net dividend (I assumed the capital loss would be the same as the net dividend which actually it is not) thus leaving the $1.67 franking credit. To somebody in the 30% tax bracket, this $1.67 is like tax paid on $5.57 income ($5.67 x 0.3 = $1.67) so that part was correct. Since the $1.67 franking credit counts as income, this means the person can effectively earn $5.57 – $1.67 = $3.90 in extra income tax free. I said $4 rounding up, slight exaggeration. I did make the error with the difference between the dividend and the capital loss, which means there is extra income of 40c, but still we are left with $3.50 of tax free income.
Also I did not make it clear that my sums assumed you bought Friday instead of in the floats. Neither did I make it clear that I used the best case scenario. My bad.
Obviously in your 48.5% example, the results are different. Still, with the $1.67 franking credit and taking into account the 40c dividend/cap loss difference, I get $3.44 of gross income.
Less the $1.67 franking leaving $1.77 of tax free income. Less the 40c difference leaves $1.43. Yes, that is a lot less than the $4 in my example. Still, it is a free lunch for those who take advantage of it.The medicare levy is added to income, but in my example there is no “income” because the cap loss cancels out the dividend. I am too confused now to tell whether you should or shouldnt have allowed for it in your examples.
Cheers
Top post Jim.
The best I have seen so far.
Just one thing I want to add, if anyone has a self managed super fund, the Telstra buy back is ideal. Free capital loss plus refund of excess imputation credits as the fund is taxed at 15%.
My super fund will be selling it’s shares as part of the buyback.
Cheers
John
[email protected]Thanks Taxman, I’ll pop in the 15% scenario as well when I can get my son off the other ‘puter with the db program on it.
Crashy you have to always include Medicare levy in any tax calcs, if your taxable income is over the threshold {$16284), eg you can never use 30% or 47% in any calcs. You know that of course, you’re only joshing!
Jim
What I meant was, medicare is added to the final net assesable income, so until that point, calcs should be done using 30% or 47%……especially when franking credits are involved. Its a minor detail but affects calcs where franking credits offset income. No effective income = no medicare.
]
The topic ‘Paying tax is for suckers’ is closed to new replies.
