Tax free bonanza for shareholders
As customers are battling with branch closures, long queues and costly fees on banking services, the Commonwealth Bank is offering its shareholders millions of dollars — all tax-free. This year the Commonwealth Bank made a whopping half year net (post-tax) profit of $713 million, with a record return of more than 20 per cent on equity. Rolling in money, it has decided to offer shareholders the opportunity to sell up to 15 per cent of their shares back to the bank. It has allocated a maximum of $650 million for the buy-back. This is no ordinary sale of shares. The price being offered is likely to be around $23, depending on movements of the Stock Exchange over the next month or so. The price, is nothing out of the ordinary. Anyone could buy or sell the Bank's shares on the stock market for around that price. It is the taxation provisions surrounding the sale that offer the big bonanza. The capital gain — the difference between the purchase price, which might have been as low as $9 and the selling price (adjusted for inflation) — would normally be subjected to the capital gains tax regime. The Banks says that it has an advanced opinion from the Taxation Office that most shareholders will not be subjected to capital gains tax. Instead of paying capital gains tax on the income per share over and above $9 (possibly in the region of $14), that income will be treated as fully franked dividends (as though tax has already been paid on them) and hence tax free for most people! (For capital gains purposes they will be deemed as having sold their shares for $9. If they paid more than $9, say $15, they will be deemed as having made a capital loss of $6, and credited with that capital loss against other capital gains.) No doubt the Commonwealth Bank's buy-back, like Chika's $1,000 handout, will be used to promote privatisation. Of course, no mention is made of the bank having been sold off cheaply, the decline in services, the miserly one per cent or less that many customers are paid on their savings.