AVZ Discussion 2022

[JNRB]

Well laid out mate. Agreed.
FWIW, I can't see the USA taking their time on this.

Felix needs a fix. Fast. We all know he approached THEM , not the other way around.

He wants a quick fix and is prepared to sell the family jewels (Manono) to get it. WANT THIS. They (Trump) will not like playing 2nd fiddle to anyone, Kobold, Arabs, Europe and definitely NOT the Chinese.

I really believe a deal is not to far away.

GLTAH.

More important than Felix needing a fast win, Trump needs a fast win. As you said, he wants it, and that's what's more likely to move the needle on this thing IMO.

He has declared chaos is the new economic weapon of the US, which has scared the shit out of investors, angered allies and locked him into an escalating trade war with China. China, for their part, has used CRITICAL MINERALS as it's method for retaliation. He has thrown a lot of shit at the wall but still waiting for any of it to stick.

An agreement with DRC would allow Trump to waive around a big win that:
- his strategy on tariff negotiations is working
- his 'minerals-for-security' approach to foreign policy is working
- USA can still be preferred economic partner over CHINA
- USA doesn't need to be threatened by China's dominance in critical mineral supply chains
--- And as a little bonus after gutting foreign aid: that USA is still 'helping' poorer nations around the world.

I could be wrong and it happens and he doesn't really care, but it offers enough propoganda value to TrumpCo. that I'd be surprised if they're not looking to capitalise on it like this.

THIS IS TIME SENSITIVE TO THEM.
A chaos strategy like their tariff bonanza is NOT working until there's proof it DOES. Remember, the precedent for their tariff war lead America into the great depression, so it's a risky strategy. Every week that goes by where Trump has caused financial pain to citizens and destroyed trust with allies without anything tangible to show for it is incredibly damaging. The best argument republicans have is "oh but he wrote 'the art of the deal' so you just have to trust in the majesticalness of Trump'. But trust only last for so long when there's so much chaos.



So pretty much everyone has some sort of incentive to get a deal done prior to ICSID.

everyone - except us.

Our incentive is simply the cold, hard cash, and our position gets stronger as we progress through arbitration.
So pay-up mofos.
$12*


*(regardless what we get, I'm pretty sure once the dust has settled I'm gonna get a '$12' tattoo as a memento)

 

[Shire]

3 months deliberation
then court hands down findings
then awards (think of this as sentencing)
then appeals process (inevitable regardless of who's found to be in violation)
then liquidation of awards
If it goes the full process, we'll definitely be into 2026 (but for the record, I don't believe this will be allowed to proceed in June).

Also, (and my apologies if this sounds negative), we must remember that if all goes to plan, we'll be selling at asset level. This means it's highly likely that proceeds will get returned to SHs as non franked dividends after the exploitation of any relevant local tax breaks and an ATO class ruling (this takes another 3 months). The ROC% will be relatively small.

Unfortunately this is something that the majority of SHs won't care about given they are off shore entities). Forget share buy backs etc. The only way around it as i see it is if its a deal with a RIO whereby we take equity (highly unlikely) or a very small chance of relisting with a similar asset purchased from Manono sale funds (again highly unlikely and a ridiculous amount of red tape) - again majority of large SHs are based off shore and happy with cash.

I've just been through a very similar example with LLL / FFX (forced sale to the Chinese at asset level in Mali) and PSC (sold to Chinese at asset level in Zimb). My asshole has only just recovered after the ATO turned it into a butchers bin. (Although for PSC, I was a non resident so didn't pay any tax).

If you have enough in this (and its in your own name) and it pans out how I expect, its probably worth moving to Dubai and playing golf for 2 years in order to get the non tax residency status for Aus...

Great couple of posts Powerage - very informative thank you.

Just thinking about the dividend distribution; wouldn’t a more beneficial way of distributing capital be a Return of Capital? That way, shareholders could access a capital gains tax deduction, providing the ATO okay it. I know Nigel has millions of reasons to find the most advantageous return of capital mechanism possible.

 

[Jongo]

More important than Felix needing a fast win, Trump needs a fast win. As you said, he wants it, and that's what's more likely to move the needle on this thing IMO.

He has declared chaos is the new economic weapon of the US, which has scared the shit out of investors, angered allies and locked him into an escalating trade war with China. China, for their part, has used CRITICAL MINERALS as it's method for retaliation. He has thrown a lot of shit at the wall but still waiting for any of it to stick.

An agreement with DRC would allow Trump to waive around a big win that:
- his strategy on tariff negotiations is working
- his 'minerals-for-security' approach to foreign policy is working
- USA can still be preferred economic partner over CHINA
- USA doesn't need to be threatened by China's dominance in critical mineral supply chains
--- And as a little bonus after gutting foreign aid: that USA is still 'helping' poorer nations around the world.

I could be wrong and it happens and he doesn't really care, but it offers enough propoganda value to TrumpCo. that I'd be surprised if they're not looking to capitalise on it like this.

THIS IS TIME SENSITIVE TO THEM.
A chaos strategy like their tariff bonanza is NOT working until there's proof it DOES. Remember, the precedent for their tariff war lead America into the great depression, so it's a risky strategy. Every week that goes by where Trump has caused financial pain to citizens and destroyed trust with allies without anything tangible to show for it is incredibly damaging. The best argument republicans have is "oh but he wrote 'the art of the deal' so you just have to trust in the majesticalness of Trump'. But trust only last for so long when there's so much chaos.



So pretty much everyone has some sort of incentive to get a deal done prior to ICSID.

everyone - except us.

Our incentive is simply the cold, hard cash, and our position gets stronger as we progress through arbitration.
So pay-up mofos.
$12*


*(regardless what we get, I'm pretty sure once the dust has settled I'm gonna get a '$12' tattoo as a memento)

Levin explains why the scenario with Trump's tariifs is very different to the tariifs imposed before the Great Depression.

 

[Winenut]

Great couple of posts Powerage - very informative thank you.

Just thinking about the dividend distribution; wouldn’t a more beneficial way of distributing capital be a Return of Capital? That way, shareholders could access a capital gains tax deduction, providing the ATO okay it. I know Nigel has millions of reasons to find the most advantageous return of capital mechanism possible.

The only attraction of the DIV is if it's fully franked....meaning that 30% tax is already paid

If it's not fully franked it would be good at all IMO...especially if it's all in one income year

I'd prefer a share disposal event triggering the 50% CGT discount but we can only really run numbers once the detail of any potential deal is known

There may be many elements that come into play in any final arrangement....CGT discounts, scrip roll-over relief, dividends, franking credits all sorts, royalties........who knows

 

[Powerage]

Great couple of posts Powerage - very informative thank you.

Just thinking about the dividend distribution; wouldn’t a more beneficial way of distributing capital be a Return of Capital? That way, shareholders could access a capital gains tax deduction, providing the ATO okay it. I’m sure Nigel has millions of reasons to find the most advantageous return of capital mechanism possible.

Hi Shire, as I mentioned the ROC% will be a relatively small component, especially if we manage to realise anywhere near full (or even half) value on the sale of the asset.

The ROC component is returned to SHs tax free, essentially you are distributing sunk costs to SHs, easy. The rest of the capital has been derived from the sale of asset (over and above the money you invested to buy and improve the asset). I'm tipping that the ROC component will be less than 5% of the total return to SHs.

So just as an example and theres a couple of big IFs (and completely hypothetical) - but IF we split the north in exchange for compo payment (say USD$500mill) and IF we realise a sale of the south (with all things considered for USD$3.5bill) we'd end up with USD$4bill = AUD$6bill
If our sunk costs were AUD$300mill (assuming 3.5bill SOI) the dist would look something like this:
5,700,000,000 unfranked divvy (unfranked as we've paid no tax in Australia to frank against)
300,000,000 ROC (untaxed)
Or
AUD$1.62 ps unfranked divvy (taxed at your marginal rate as income if held in personal name)
AUD$0.086cps ROC (untaxed)

Now, please don't shoot the messenger with the valuation assumptions, its purely hypothetical (add a zero to each line item for all i care). I want 12 bucks a share as much as anyone...

The only caveat on the above would be the taxation treatment of any awards for compensation - I'm not experienced with this scenario, but I would imagine that once its distributed, it would be taxed as income.

FYI, In the LLL example, they are returning the proceeds of the forced sale to Ganfeng in 2 tranches after paying local CGT and other liabilities. The first tranche was distributed exactly as above (different numbers tho). The company may propose an acquisition to SHs with the second tranche - they claim to have been in DD with several listed entities (i.e. PMT or WR1 as examples). If this was voted on favourably by SHs then an aquisition of the relevant company would take place and eventually the new co would re-list with the acquired company as its main asset / on going concern - SHs could then sell on market triggering a CGT event rather than receive an unfranked divvy that effectively counts as personal income. This takes a long time - think additional 12 months all up...

Hope this clarifies, and please seek your own advice as I'm on my 4th red....

Cheers!

 

[Ashlee]

Great couple of posts Powerage - very informative thank you.

Just thinking about the dividend distribution; wouldn’t a more beneficial way of distributing capital be a Return of Capital? That way, shareholders could access a capital gains tax deduction, providing the ATO okay it. I know Nigel has millions of reasons to find the most advantageous return of capital mechanism possible.

Here is GROK’s take on profit distributions.

In the context of an Australian company, the **difference between a capital return** and an **unfranked dividend** lies in their nature, tax treatment, and purpose. Here's a concise explanation:

### 1. **Capital Return**
- **Definition**: A capital return (or return of capital) occurs when a company distributes part of its share capital back to shareholders, reducing the company's paid-up capital. It is not a profit distribution but a return of the shareholders' original investment.
- **Purpose**: Typically used when a company has excess capital, is winding down, or restructuring. It may occur after asset sales or when the company no longer needs the capital for operations.
- **Tax Treatment**:
- **Not taxable income**: A capital return is generally not treated as a dividend or income for tax purposes.
- **Capital Gains Tax (CGT) implications**: The return reduces the shareholder's cost base for their shares. If the return exceeds the cost base, the excess may trigger a capital gain, subject to CGT.
- **Franking credits**: Capital returns do not carry franking credits, as they are not dividends.
- **Example**: If you paid $10 for a share and receive a $2 capital return, your cost base for the share drops to $8. If the return exceeds $10, the excess is a capital gain.

### 2. **Unfranked Dividend**
- **Definition**: An unfranked dividend is a distribution of a company's profits to shareholders that does not carry franking credits. This typically happens when the company has not paid Australian corporate tax on the profits (e.g., profits from overseas operations or tax losses).
- **Purpose**: Represents a share of the company's after-tax profits distributed to shareholders as income.
- **Tax Treatment**:
- **Taxable income**: Unfranked dividends are included in the shareholder's assessable income and taxed at their marginal tax rate.
- **No franking credits**: Since no Australian corporate tax was paid on these profits, shareholders cannot offset their personal tax liability with franking credits.
- **Withholding tax**: For non-resident shareholders, unfranked dividends may be subject to dividend withholding tax (unless reduced by a tax treaty).
- **Example**: If you receive a $1,000 unfranked dividend and your marginal tax rate is 32.5%, you pay $325 tax on the dividend with no franking credit offset.

### Key Differences
| **Aspect** | **Capital Return** | **Unfranked Dividend** |
|---------------------------|-----------------------------------------------|-----------------------------------------------|
| **Nature** | Return of shareholder's original investment | Distribution of company profits |
| **Source** | Share capital or reserves | After-tax profits |
| **Tax Treatment** | Reduces share cost base; may trigger CGT | Taxable as income at marginal rate |
| **Franking Credits** | None | None |
| **Purpose** | Reduce excess capital or restructure | Share profits with shareholders |
| **Impact on Shares** | Reduces cost base; no direct income | No impact on share cost base; treated as income|

### Practical Notes
- **Shareholder Impact**: A capital return may reduce the value of your shares (as it lowers the company's capital), while an unfranked dividend is income but does not affect your share's cost base.
- **Company Decision**: Companies may choose a capital return to avoid tax implications for shareholders or an unfranked dividend when franking credits are unavailable.
- **Tax Advice**: Always consult a tax professional, as individual circumstances (e.g., holding period, residency status) can affect tax outcomes.

 

[Shire]

Hi Shire, as I mentioned the ROC% will be a relatively small component, especially if we manage to realise anywhere near full (or even half) value on the sale of the asset.

The ROC component is returned to SHs tax free, essentially you are distributing sunk costs to SHs, easy. The rest of the capital has been derived from the sale of asset (over and above the money you invested to buy and improve the asset). I'm tipping that the ROC component will be less than 5% of the total return to SHs.

So just as an example and theres a couple of big IFs (and completely hypothetical) - but IF we split the north in exchange for compo payment (say USD$500mill) and IF we realise a sale of the south (with all things considered for USD$3.5bill) we'd end up with USD$4bill = AUD$6bill
If our sunk costs were AUD$300mill (assuming 3.5bill SOI) the dist would look something like this:
5,700,000,000 unfranked divvy (unfranked as we've paid no tax in Australia to frank against)
300,000,000 ROC (untaxed)
Or
AUD$1.62 ps unfranked divvy (taxed at your marginal rate as income if held in personal name)
AUD$0.086cps ROC (untaxed)

Now, please don't shoot the messenger with the valuation assumptions, its purely hypothetical (add a zero to each line item for all i care). I want 12 bucks a share as much as anyone...

The only caveat on the above would be the taxation treatment of any awards for compensation - I'm not experienced with this scenario, but I would imagine that once its distributed, it would be taxed as income.

FYI, In the LLL example, they are returning the proceeds of the forced sale to Ganfeng in 2 tranches after paying local CGT and other liabilities. The first tranche was distributed exactly as above (different numbers tho). The company may propose an acquisition to SHs with the second tranche - they claim to have been in DD with several listed entities (i.e. PMT or WR1 as examples). If this was voted on favourably by SHs then an aquisition of the relevant company would take place and eventually the new co would re-list with the acquired company as its main asset / on going concern - SHs could then sell on market triggering a CGT event rather than receive an unfranked divvy that effectively counts as personal income. This takes a long time - think additional 12 months all up...

Hope this clarifies, and please seek your own advice as I'm on my 4th red....

Cheers!

Got it, thanks again Powerage, very clear - four reds or not.

That does actually make me see the potential value in AVZ retaining part of the sale proceeds to invest into another project or to collect ongoing royalties, preserving the listed vehicle. This would give shareholders the option to sell shares later and potentially access the CGT discount, rather than being forced to take a large unfranked dividend taxed at marginal rates.

 

[JNRB]

Levin explains why the scenario with Trump's tariifs is very different to the tariifs imposed before the Great Depression.

1. This guy is full of shit.

2. Even if he wants to make an argument the tariffs are 'different' to the ones preceding the great depression it doesn't in anyway invalidate my argument that they are still the closest analogue we have for what's happening today.

3. This guy is full of shit.

4. Even if none of the above are true its irrelevant to my main thesis which was:
Whatever the strategy or aims, Trumps actions are causing chaos, and that chaos can only last for so long before he needs to chalk up some clear wins.

 

[Xerof]

1. This guy is full of shit.

2. Even if he wants to make an argument the tariffs are 'different' to the ones preceding the great depression it doesn't in anyway invalidate my argument that they are still the closest analogue we have for what's happening today.

3. This guy is full of shit.

4. Even if none of the above are true its irrelevant to my main thesis which was:
Whatever the strategy or aims, Trumps actions are causing chaos, and that chaos can only last for so long before he needs to chalk up some clear wins.

5. This guy is full of shit.

 

[oxxa23]

If your AVZ holding is in your SMSF, then if you are old enough, change your super from Accumulation Mode to Pension Mode before the AVZ buy out. This way you will pay zero tax on your AVZ capital gain. This is what I will be doing, but noting that at present my SMSF is still in Accumulation Mode.

Beware, the ato doesn't like people entering an account based pension for tax avoidance purposes... even thought that's a great benefit of it... so be careful about leaving entering account based pension til the last minute... could look very suss... not that I've ever heard of them actually pinging anyone...

But they certainly warn of it...

 

[Carlos Danger]

What are you basing the ‘3 months’ on?

Clearly not the ICSID procedural rules, 9card’s timeframes or Nigel’s comment at the AGM that it will last until late 2026 or early 2027

You smashed me in likes tho lmao

3 months deliberation
then court hands down findings
then awards (think of this as sentencing)
then appeals process (inevitable regardless of who's found to be in violation)
then liquidation of awards
If it goes the full process, we'll definitely be into 2026 (but for the record, I don't believe this will be allowed to proceed in June).

Also, (and my apologies if this sounds negative), we must remember that if all goes to plan, we'll be selling at asset level. This means it's highly likely that proceeds will get returned to SHs as non franked dividends after the exploitation of any relevant local tax breaks and an ATO class ruling (this takes another 3 months). The ROC% will be relatively small.

Unfortunately this is something that the majority of SHs won't care about given they are off shore entities). Forget share buy backs etc. The only way around it as i see it is if its a deal with a RIO whereby we take equity (highly unlikely) or a very small chance of relisting with a similar asset purchased from Manono sale funds (again highly unlikely and a ridiculous amount of red tape) - again majority of large SHs are based off shore and happy with cash.

I've just been through a very similar example with LLL / FFX (forced sale to the Chinese at asset level in Mali) and PSC (sold to Chinese at asset level in Zimb). My asshole has only just recovered after the ATO turned it into a butchers bin. (Although for PSC, I was a non resident so didn't pay any tax).

If you have enough in this (and its in your own name) and it pans out how I expect, its probably worth moving to Dubai and playing golf for 2 years in order to get the non tax residency status for Aus...

I’m aware of what awards are. There are no appeals at the ICSID. 'Liquidation’ of $6.2b USD if needed will take us well beyond 2030 imo

Award - ICSID Convention Arbitration (2022 Rules) | ICSID

There is only one Award in an ICSID case, and it is the Tribunal's last decision which disposes of the entire case. Any other ruling before the final Award, such as a decision on liability without an assessment of damages, is not considered an Award, and recourse under the Convention cannot be...

icsid.worldbank.org

Award - ICSID Convention Arbitration (2022 Rules)

There is only one Award in an ICSID case, and it is the Tribunal's last decision which disposes of the entire case. Any other ruling before the final Award, such as a decision on liability without an assessment of damages, is not considered an Award, and recourse under the Convention cannot be taken against it until after the Award is rendered.

If a Tribunal issues a decision upholding its jurisdiction, such decision forms part of the eventual Award. If a Tribunal decides that it has no jurisdiction, it renders an Award.

The Award is final and binding and can be recognized and enforced in any ICSID Member State (Article 53 of the ICSID Convention). There is no appeal against an Award, but specific post-Award remedies are available under the Convention.

The Tribunal must render the Award as soon as possible after the last submission in a case (e.g., a post-hearing brief) and in any event within certain timeframes depending on the type of Award being issued:

* 60 days on objections that claims are manifestly without legal merit (Arbitration Rule 41(2)(e))
* 180 days if the Tribunal declines jurisdiction in a bifurcated proceeding addressing jurisdiction (Arbitration Rule 44(3))
* 240 days in all other cases (Arbitration Rule 58(1)).

These time limits are counted from the last submission on the matter (or from Tribunal constitution if all submissions were filed before constitution) and the Tribunal must use best efforts to comply with them (Arbitration Rule 12(1)). If the Tribunal cannot comply, it must send a notice explaining the delay and provide an estimate of the date when it will render the Award.

 

[Dijon101]

Hi Shire, as I mentioned the ROC% will be a relatively small component, especially if we manage to realise anywhere near full (or even half) value on the sale of the asset.

The ROC component is returned to SHs tax free, essentially you are distributing sunk costs to SHs, easy. The rest of the capital has been derived from the sale of asset (over and above the money you invested to buy and improve the asset). I'm tipping that the ROC component will be less than 5% of the total return to SHs.

So just as an example and theres a couple of big IFs (and completely hypothetical) - but IF we split the north in exchange for compo payment (say USD$500mill) and IF we realise a sale of the south (with all things considered for USD$3.5bill) we'd end up with USD$4bill = AUD$6bill
If our sunk costs were AUD$300mill (assuming 3.5bill SOI) the dist would look something like this:
5,700,000,000 unfranked divvy (unfranked as we've paid no tax in Australia to frank against)
300,000,000 ROC (untaxed)
Or
AUD$1.62 ps unfranked divvy (taxed at your marginal rate as income if held in personal name)
AUD$0.086cps ROC (untaxed)

Now, please don't shoot the messenger with the valuation assumptions, its purely hypothetical (add a zero to each line item for all i care). I want 12 bucks a share as much as anyone...

The only caveat on the above would be the taxation treatment of any awards for compensation - I'm not experienced with this scenario, but I would imagine that once its distributed, it would be taxed as income.

FYI, In the LLL example, they are returning the proceeds of the forced sale to Ganfeng in 2 tranches after paying local CGT and other liabilities. The first tranche was distributed exactly as above (different numbers tho). The company may propose an acquisition to SHs with the second tranche - they claim to have been in DD with several listed entities (i.e. PMT or WR1 as examples). If this was voted on favourably by SHs then an aquisition of the relevant company would take place and eventually the new co would re-list with the acquired company as its main asset / on going concern - SHs could then sell on market triggering a CGT event rather than receive an unfranked divvy that effectively counts as personal income. This takes a long time - think additional 12 months all up...

Hope this clarifies, and please seek your own advice as I'm on my 4th red....

Cheers!

Appreciate all your replies and information.

 

[Frank]

Splitting the North for Compo ?
I am hoping the US tells DRC if you want protection for minerals that the North must be returned to Dathcom / AVZ.as Comminiere /Zijin have no legal right.
Highly unlikely that the corruption shown by Zijin that they will seek ICC.
Trump will certainly show no compensation towards China.

How can it be sold to Zijin again when they Comminiere / Zijin think they can and are proceeding to mine it.
Need a Presidential decree from Felix to suspend Zijin and Comminiere from Manono.

https://x.com/brendo726/status/1912439054987325592

 

[Frank]

https://x.com/anonymous_seeu/status/1912422662477107541

https://x.com/Twinkle887788/status/1912446018073030807

 

[Aeolian]

3 months deliberation
then court hands down findings
then awards (think of this as sentencing)
then appeals process (inevitable regardless of who's found to be in violation)
then liquidation of awards
If it goes the full process, we'll definitely be into 2026 (but for the record, I don't believe this will be allowed to proceed in June).

Also, (and my apologies if this sounds negative), we must remember that if all goes to plan, we'll be selling at asset level. This means it's highly likely that proceeds will get returned to SHs as non franked dividends after the exploitation of any relevant local tax breaks and an ATO class ruling (this takes another 3 months). The ROC% will be relatively small.

Unfortunately this is something that the majority of SHs won't care about given they are off shore entities). Forget share buy backs etc. The only way around it as i see it is if its a deal with a RIO whereby we take equity (highly unlikely) or a very small chance of relisting with a similar asset purchased from Manono sale funds (again highly unlikely and a ridiculous amount of red tape) - again majority of large SHs are based off shore and happy with cash.

I've just been through a very similar example with LLL / FFX (forced sale to the Chinese at asset level in Mali) and PSC (sold to Chinese at asset level in Zimb). My asshole has only just recovered after the ATO turned it into a butchers bin. (Although for PSC, I was a non resident so didn't pay any tax).

If you have enough in this (and its in your own name) and it pans out how I expect, its probably worth moving to Dubai and playing golf for 2 years in order to get the non tax residency status for Aus...

I seriously hope if there is a deal it’s not like the Leo lithium one and we don’t get the majority paid out as a unfranked dividend.

This would be a terrible result for retail Australian investors who have already been through enough pain. For those in the top tax bracket, losing 48% of any dividend in tax to the ATO would be an absolute kick in the head.

 

[Hudnut]

Having an unfranky divvy could really suck, depending on your situation.

Assuming an investor is on a highest marginal tax rate is 50% for round numbers:

Example 1 - 100% increase in value from original purchase.
- Cost base is $500K (eg. bought for 50c/share)
- Value of return is $1M. (eg. equivalent of $1/share)

Returned as capital
If $1M returned as capital (shares etc) and sold, CGT discount of 50% on $500K gain is $250K.
Tax paid is $125K and Investor keeps $875K.
Overall profit from original $500K investment is $375K.

Returned as divvy
If $1M returned as divvy, then tax is $500K, and Investor keeps $500K.
No profit on original $500K cost base, and Investor has still has a $500K unrealised capital loss from the unsold and unlisted shares.

Example 2 - 400% increase in value
Even at a cost base of $250K and returned value of $1.25M:
Return as capital would mean tax of $250K and Investor keeps $1M with a $750K profit
Return as divvy would be $625K in tax, Investor keeps $625K with a $375K profit and a $250K unrealised capital loss.

Example 3 - 50% increase in value
At a cost base of $500K and returned value of $750K:
Return as capital would mean tax of $75K and Investor keeps $675K with a $175K profit
Return as divvy would be $375K in tax, Investor keeps $375K with a $125K loss and a $500K unrealised capital loss.

Unless I'm missing something, if you are on the top marginal tax rate (again, using 50% for round numbers) not being able to use your cost base as a deduction when you get the proceeds as a dividend (which is income and not capital gain), means you need to make at least a 100% profit just to break even.

Is this correct?

 

[Hudnut]

Having an unfranky divvy could really suck, depending on your situation.

Assuming an investor is on a highest marginal tax rate is 50% for round numbers:

Example 1 - 100% increase in value from original purchase.
- Cost base is $500K (eg. bought for 50c/share)
- Value of return is $1M. (eg. equivalent of $1/share)

Returned as capital
If $1M returned as capital (shares etc) and sold, CGT discount of 50% on $500K gain is $250K.
Tax paid is $125K and Investor keeps $875K.
Overall profit from original $500K investment is $375K.

Returned as divvy
If $1M returned as divvy, then tax is $500K, and Investor keeps $500K.
No profit on original $500K cost base, and Investor has still has a $500K unrealised capital loss from the unsold and unlisted shares.

Example 2 - 400% increase in value
Even at a cost base of $250K and returned value of $1.25M:
Return as capital would mean tax of $250K and Investor keeps $1M with a $750K profit
Return as divvy would be $625K in tax, Investor keeps $625K with a $375K profit and a $250K unrealised capital loss.

Example 3 - 50% increase in value
At a cost base of $500K and returned value of $750K:
Return as capital would mean tax of $75K and Investor keeps $675K with a $175K profit
Return as divvy would be $375K in tax, Investor keeps $375K with a $125K loss and a $500K unrealised capital loss.

Unless I'm missing something, if you are on the top marginal tax rate (again, using 50% for round numbers) not being able to use your cost base as a deduction when you get the proceeds as a dividend (which is income and not capital gain), means you need to make at least a 100% profit just to break even.

Is this correct?

And if the above is correct and you had an SMSF, wouldn't you be better off selling your personally held unlisted AVZ shares to your SMSF for pennies, so the dividend would be taxed at 15% instead? This would also realise your capital loss in personal tax.

 

[Ashlee]

An interesting article

RDC : La plus grande banque suisse bloque les fonds de la famille Tshisekedi, estimés à 8 milliards de dollars, mais les experts soupçonnent qu’une partie de la fortune se trouve au Qatar et aux Émirats arabes unis

Par JeN-LUC KIENGE Dans un coup de théâtre financier qui secoue les milieux bancaires et politiques, la plus grande banque suisse, UBS, a confirmé avoir gelé des fonds appartenant à la famille Tshi…

vacradiointernational.com

 

[JNRB]

An interesting article

RDC : La plus grande banque suisse bloque les fonds de la famille Tshisekedi, estimés à 8 milliards de dollars, mais les experts soupçonnent qu’une partie de la fortune se trouve au Qatar et aux Émirats arabes unis

Par JeN-LUC KIENGE Dans un coup de théâtre financier qui secoue les milieux bancaires et politiques, la plus grande banque suisse, UBS, a confirmé avoir gelé des fonds appartenant à la famille Tshi…

vacradiointernational.com

Good opportunity for Felix to sacrifice Zijin & Cominniere at the alter to show how non-corrupt he is, and sign a framework for 'responisble' development with USA

 

[Azzler]

Having an unfranky divvy could really suck, depending on your situation.

Assuming an investor is on a highest marginal tax rate is 50% for round numbers:

Example 1 - 100% increase in value from original purchase.
- Cost base is $500K (eg. bought for 50c/share)
- Value of return is $1M. (eg. equivalent of $1/share)

Returned as capital
If $1M returned as capital (shares etc) and sold, CGT discount of 50% on $500K gain is $250K.
Tax paid is $125K and Investor keeps $875K.
Overall profit from original $500K investment is $375K.

Returned as divvy
If $1M returned as divvy, then tax is $500K, and Investor keeps $500K.
No profit on original $500K cost base, and Investor has still has a $500K unrealised capital loss from the unsold and unlisted shares.

Example 2 - 400% increase in value
Even at a cost base of $250K and returned value of $1.25M:
Return as capital would mean tax of $250K and Investor keeps $1M with a $750K profit
Return as divvy would be $625K in tax, Investor keeps $625K with a $375K profit and a $250K unrealised capital loss.

Example 3 - 50% increase in value
At a cost base of $500K and returned value of $750K:
Return as capital would mean tax of $75K and Investor keeps $675K with a $175K profit
Return as divvy would be $375K in tax, Investor keeps $375K with a $125K loss and a $500K unrealised capital loss.

Unless I'm missing something, if you are on the top marginal tax rate (again, using 50% for round numbers) not being able to use your cost base as a deduction when you get the proceeds as a dividend (which is income and not capital gain), means you need to make at least a 100% profit just to break even.

Is this correct?

You know it never occurred to me that you wouldn't get to reduce your income with your cost base for a divvy payout, after missing out on the CGT discount, that's just a real kick in the teeth.

However, I suppose going forward, you still get to use that loss to offset future gains, so you don't miss out in the long term.