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ANZ Bonus Option Plan vs. Dividend Reinvestment Plan

Discussion in 'ASX Stock Chat' started by d101, Dec 3, 2013.

  1. d101

    d101

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    I recently bought some ANZ shares that I want to hold for the long term. They have two different types of plans regarding dividends. From what I can tell the main/only difference seems to be with the bonus option plan you don’t pay any tax on the dividend but then they are full CGT (from a $0) base when you sell them, whereas with the dividend reinvestment plan you pay tax on the dividend plus CGT tax on the difference once you sell them. Is this correct? In this case why would anyone not want to defer the tax (i.e. wouldn’t everyone go for the bonus option plan)?
     
  2. Redbeard

    Redbeard

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    Old Post and you probably have worked it out... but for others.
    DRP - You receive shares "in lieu" of cash but the TAX treatment is the same as cash initially. Also later you would have a CGT event when you sell them.
    BOP - You receive shares as if you bought them on the same day as your original shares (With its CGT implications ie pre/post 1985) but you loose any Franking credits and it does not count as income.

    When the BOPs were first issued some people had pre 1985 shares (ie no CGT) so , a benefit.
    For post 1985 acquired shares the DRP was probably better for most because CGT was worked out using CPI increases.. ie very small.
    But then we got CGT discount on gains. Which mean that the BOPs in the long term are probably better off all things considered.

    You mention the cost base ""full CGT (from a $0) base"" . Thats not right. The BOP shares are conceptually thought of being acquired on the same day AND price as your original shares and their numbers has to be added to the Cost Base calculation. ie their cost now becomes part of the "original cost".
    1000 shares @ $1 = $1000. ten years later you have 500 BOP shares and sell the lot.
    $1000 cost base/1500 = 66.66c reduced cost base. then you will pay extra CGT on the 33.33cents difference ON TOP OF whatever profit you did make ...... and thats how the ATO tries to get their money back.

    https://www.ato.gov.au/General/Capi...?anchor=No_amount_assessed#No_amount_assessed

    to answer your question,, Yes , why wouldn't everyone do it.. Unless you need the cash.
     
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  3. Rustee

    Rustee

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    Hey Redbeard! Awesome post and reference! Thanks for that!!

    Quick follow questions:

    For ease of understanding/calculation - if you knew the future value of a share (ie a capital notes etc), you got in at IPO, and you received your distributions in BOPs.. Than really you are deferring your tax until maturity with a 50% CGT discount? Is that conceptually correct?

    And in this situation, are the shares subject to company tax and receive franking credits or are they treated as untaxed while in the 'BOP account'??

    Once again, thanks for the awesome clear explanation and please excuse my ignorance!

    Cheers

    Rustee
     
  4. Redbeard

    Redbeard

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    Hi Rustee,
    In my understanding, Yes. No tax at all is paid on BOP shares when you receive them or while you hold them. Tax only gets paid when you sell them for whatever capital gain you make while adjusting the cost base. How you calculate your Capital Gain is up to you, CPI or discount.. (you can still do either)
    Another way to say..... they dont appear of your TAX form until you sell them!

    (I am not sure why you say "if you knew the future value". That makes no difference to the concept)

    I thought I sort of answered the second part of your question already. "but you loose any Franking credits and it does not count as income."

    Your not the only one that gets confused about this. Hence why I answered a 4 year old post.

    Just remember there is only a few companies out there that issue BOP shares, ANZ is one.

    Argghh
    Redbeard
     
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  5. MAB13

    MAB13

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    Hey Redbeard,

    The information you provided to Rustee was very helpful in answering a question I've been struggling to understand myself. I am however wondering if I provided you with an example could you please share your thoughts?

    I am a first time user of forums so please excuse my ignorance.

    *Lets say, I hold ANZ shares both pre & post CGT

    *100 units on 1/1/85 @ pre CGT ($0-) + 100 units on 1/1/86 @ $410-

    *I choose to receive Bonus Dividends, with first being 10/2/89 - 6 units received in total

    *For CGT purposes, do I apportion the 6 units as follows

    *103 units now held on 1/1/85 @ pre CGT ($0-) + 103 units now held on 1/1/86 @ $410-

    Just wanting to see if I am on the right track?

    Much appreciated!
     
  6. HelloU

    HelloU

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  7. Redbeard

    Redbeard

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    I also answered you PM, but in short IMHO, yes.

    Oh one addition, It appears there is also a cutoff date for CPI CGT. The cutoff was
    • acquired before 11.45am (by legal time in the ACT) on 21 September 1999
    (https://www.ato.gov.au/general/capi...l-gain-or-loss/working-out-your-capital-gain/)

    after that you always use the discount method.

    Thats the place HelloU
     
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  8. MAB13

    MAB13

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