in my opinion, TAS has a tax disadvantage, which would explain the discount to EDE
if EDE is taken over, EDE shareholder investors(not traders) who have held shares for over 12 months receive a 50% CGT tax discount. for example, the average share purchase price is around 5 cents (i.e., issued capital in the balance sheet divided by share on issue). if EDE was taken over for $1 per share, the average capital gain would be 95 cents; CGT tax payable at highest rate would be 22 cents. net gain to investor shareholder is 73 cents
if EDE is taken over for $1 per share, TAS would receive $592M. the TAS share capital would (on current terms) be around $35M. TAS would make a profit of $557M or $1.23 per share. as a company, TAS receives no CGT discount. Under section 44 (ordinary case) or 47 (company liquidation) of the ITAA 1936, this $557M profit distributed to shareholders would probably be treated as a dividend(rather than a capital return). shareholders would receive a fully franked distribution of 86 cents. shareholders paying the highest rate of tax would receive a 37 cent franking credit but would also have to pay an additional 21 cents tax. net gain to shareholder is 65 cents
therefore, factoring in the highest tax rate of 47%, the TAS share price should be 90% of the EDE share price
note: this is not professional tax advice. it is just a fallible Hot Copper post
please contact your accountant or tax agent or professional advisor
Example 1: final liquidation distribution with a deemed subsection 47(1) dividend component
20. Bill acquired 100 shares in XYZ Pty Ltd in 1987. XYZ Pty Ltd went into liquidation. Bill's shares have cost bases totalling $10,000 at the time they end on the company's ceasing to exist in September 1999. Bill receives a final liquidation distribution on 1 July 1998 of $18,000 of which $7,000 is deemed to be a dividend by subsection 47(1) of the ITAA 1936. Bill makes capital gains in the income year ended 30 June 2000 of $1,000 (that is, $8,000 [$18,000 - $10,000] less the amount of $7,000 assessed as a dividend under subsection 44(1) of the ITAA 1936).
21. If the subsection 47(1) deemed dividend had been $9,000, Bill would have made no capital gain or capital loss on the ending of his shares.
Distributions by liquidator
(1) Distributions to shareholders of a company by a liquidator in the course of winding-up the company, to the extent to which they represent income derived by the company (whether before or during liquidation) other than income which has been properly applied to replace a loss of paid-up share capital, shall, for the purposes of this Act, be deemed to be dividends paid to the shareholders by the company out of profits derived by it.
(1A) A reference in subsection (1) to income derived by a company includes a reference to:
(a) an amount (except a net capital gain) included in the company's assessable income for a year of income; or
(b) a net capital gain that would be included in the company's assessable income for a year of income if the Income Tax Assessment Act 199
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