Merger deal may come with nasty tax surprise

Many BHP shareholders could be in for a shock at tax time. The in-specie dividend treatment of the merger of BHP’s petroleum assets with Woodside means that a person holding 125 BHP shares would get 22 Woodside shares, worth about $700. This would have a $300 imputation credit, bringing up the gross dividend to $1000. For a person earning more than $180,000, this means that an additional $170 tax needs to be paid. On the upside, a person earning less than $45,000 would receive a refund of imputation credits. BHP is not saying much about this when many of its employees have shares through various employee share schemes, and would be significantly impacted by it. Surely, the earlier they know about it the better they can be prepared to find the additional tax.

A BHP spokesperson points out there are two key points to make relating to the merger. The first is that everything BHP does is for shareholders, and the rationale for the deal is based on what is best for investors and for the company over the long term.

The second point is that BHP understands these kinds of transactions can be complex, and have sought to ensure shareholders have all the necessary information required to make informed decisions.

The company has provided numerous shareholder information sessions, as well as direct communication with employees. These include the fact that tax would be payable on any personal income derived from the in-specie dividend, as would be the case with a cash dividend payment.

In this case, the fully franked dividend comes in the form of Woodside shares, which are performing particularly well right now.

Investors on both sides of the merger will retain their underlying shareholdings in each company.

It is also worth noting that BHP shareholders who are Australian tax residents would be able to use franking credits to offset any tax payable on the dividend.

My husband is 66. 5 years of age and is about to apply for an age pension. I am 62 and work part-time. I have $100,000 in a bank account, which Centrelink says it would assess, even though I am not claiming the pension. Can I transfer some of that money into my superannuation account, using the three-year catch-up rule, and claim a tax deduction to bring our total assets under $901,500? Would this be regarded as a deprived asset?

Members of a couple may transfer money to super, or to each other, without facing any deprivation rules. Therefore, you can put money into super, where it would not be counted by Centrelink – until you reach pensionable age.

Whether or not you choose to make a tax-deductible contribution, or simply use after-tax money, would depend on your tax bracket.

Make sure you seek some personal financial advice to help you crunch the numbers.

I retired in June 2021 and have a self-managed super fund (SMSF), with investments in shares and cash. I have a question regarding cash held in the fund. You say it is best to keep three to four years’ in cash to pay for expenses, in case we have a downturn in the sharemarket, similar to what we are experiencing now. Does the amount of cash held include dividends received in any given year, or are the dividends in addition to the cash amount?

The purpose of keeping three to four years’ planned expenditure in cash is to protect you from a situation where you would need to cash in growth assets at a time when the market is having one of its normal downturns.

Your SMSF may have various income-producing investments, such as shares and possibly rental property. Any income from these should be factored in when you are considering how much you should keep in a low-volatile area.

I am aged 63, my wife is 60, and we are in no rush to retire. We are both working, with a combined salary of $220,000 a year. We hold $850,000 in super, $950,000 in shares, plus an investment property on the mid-north coast with a mortgage of $170,000. Any idea of where to go from here?

I suggest you keep the investment property with an interest-only mortgage, to maintain any tax benefits it may be giving you. This would enable you to maximise the amount you are salary sacrificing to super.

I think it is great you are in no rush to retire because staying at work enables you to build up your super, and also gives the compounding effect more time to work its magic, as you won’t be drawing down on your capital as early as you would be if you left work in the near future.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Noel Whittaker is the author of and numerous other books on personal finance. Email: [email protected] com. au

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