BGL does not provide accounting or taxation advice. The following is designed to act as a guide for Simple Fund 360 users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline. Other methods that are more suitable may be used instead of these steps.
Rio Tinto Limited undertook off-market buy-backs of its own shares in April 2015 & similarly in Nov 2018.
For detailed information about the share buy-back in April 2015, you can refer to the following documents. This article has used it as an example.
In Nov 2018, Rio Tinto had a similar off-market share buy-back. Users can read this article and ATO Class Ruling 2018/57 for reference.
Assume that 127 Rio Tinto shares have been bought back in April 2015.
The deemed capital proceeds are $16.78 per share which is the capital component ($9.44 per share) plus $7.34 per share (the amount by which the CGT value exceeds the Buy-Back price).
The dividend component amounts to $39 per share.
Refer to the Payment and Dividend Statement received from Rio Tinto for these details.
SF 360 allows multiple transactions occurring on the same day to be posted as one journal entry. As all of the following transactions happened on the same date, a single journal entry will be used to record them. Please note that you can split this into multiple journals if you wish.
|Step 1||Record the share buy-back ($16.78 per share)||$2131.06|
|Step 2||Enter the Dividend Component ($39 per share)||$4953.00|
|Step 3||Input the Total Bank Receipt||$6151.88|
|Step 4||Record the remaining balance, the difference between the deemed capital proceeds ($16.78 per share) and the capital component ($9.44 per share) = $7.34 per share||$932.18|
In this example, we are going to use Account 37500/RIO to record the difference ($7.34 per share) between the deemed capital proceeds ($16.78 per share) and the capital component ($9.44 per share), so as to balance the transaction. As this is a non-deductible expense, we need to change the tax label of Account 37500/RIO.
If you are already using 37500/RIO to record deductible expenses, you can create a new expense account and change the label following the steps below.
To change the label, follow the steps below:
- Go to Accounting | Chart of Accounts.
- Search for and select 37500/RIO.
- Change the Tax Label to Not Applicable - Permanent Difference.
- Select Save.
You can refer to the Non Tax-Deductible Expenses help for more detailed information.
Step 1 - Record the share buy-back
- Go to Accounting | Transaction List.
- Select New Transaction and then Journal from the drop-down list.
Input 15/04/2015 in the Date field and input a reference and description. Refer to the Payment and Dividend Statement received from Rio Tinto for more details.
Record a disposal to the 77600/RIO account. The consideration amount is $16.78 x Units of shares bought back.
Review the Disposal Details panel. The contract date has been changed to 07/04/2015 which is the date on which the shares were bought back. Refer to the Payment and Dividend Statement from Rio Tinto for this information.
Step 2 - Record the dividend component
Refer to the Payment and Dividend Statement from Rio Tinto for payment details and franked amount.
Dividend amount = $39 x number of shares bought back
To record this, select Add line to add a new transaction line. Under the Account heading, search for the Rio Tinto dividend account by typing 23900/RIO in the Select an account box. Input total dividend amount under the Credit column. ($4,953 in this example) and review the Dividend Details to ensure they are correct.
Step 3 - Record the receipt to the bank
Select Add line to add a new transaction line. Under the Account heading, search for the Bank account by typing 60400 in the Select an account box and input $6,151.88 under the Debit column.
Step 4 - Record the remaining balance
Finally, the remaining balance, the difference ($7.34 per share) between the deemed capital proceeds ($16.78 per share) and the capital component ($9.44 per share) needs to be recorded. This can be processed as a permanent difference under Non-deductible expense. On the next line under the Account heading, click into the Search by Account Code/Name and locate Account 37500/RIO.
Input the debit amount for the difference ($7.34 x 127 = $932.18 in this example).
- Select Post to finalise the transaction