I purchased the FMG shares in joint names with the wife.
With a company you do not get the benefit of the 50% CGT concession. This made a big difference in tax paid on the parcel I sold.
In the future in the unforeseen event I sell or my estate sells the 50% CG discount still applies.
Buying in a Trust also allows for the CGT discount to be used by the trust beneficiaries on the distribution they receive. With a Trust there is a slight advantage in that you can stream income, e.g. capital gain to one beneficiary and income distribution to another or a combination of both (provided that the Trust Deed has been amended to allow for income streaming or when setup allowed for this. The Tax Office allowed the Deeds to be amended up until the end of last year from memory).
I often get asked in what tax structure shares should be purchased in, the best vehicle is obviously an SMSF especially when you are in pension phase.
In my case I do hold FMG in my fund but only around 12,000 shares with DRP in place.
As I have a margin loan, there is no way a Superfund would be able to borrow to fund purchase of shares.
If you hold in a Trust the franking credits flow through to the beneficiary and if they are at the top marginal tax rate (47.00%), they would need to pay the top up (17.00%) based on a fully franked dividend with the company tax rate being 30.00% (franking rate).
With a company, if it is not running a business its base rate tax remains at 30.00% compared to a base rate of 26.00% for companies whose revenue is no more than 80.00% from passive income (rents, interest, dividends etc.)
When the shareholders a paid a dividend from heir company, they take advantage of the franking credits and assuming they are on the highest tax rate, pay an additional 17.00%.
With a company however when a capital gain is made, the CGT 50% discount does not apply and the company pays 30.00% tax. The benefit of a company is that unlike a Trust it does not distribute either the after tax capital gain or net income.
When id does however down the track the capital gain component will be taxed at 47.00% effectively (300.00% by the company and 17.00% by the individual).
Whereas if the shares are owned by an individual or via a Trust when you apply the 50.00% CGT discount, assuming top rate payable of 47.00%, deducting 50.00% means that 23.50% tax is payable on the gain only.
E,g. $1.0 million gain, less 50.00% = $500,000, taxable income at 47.00% tax rate= $235,0000 or 23.50% of the gain after the discount is applied.
Whereas if held in a company, $1.0 million gain x 30.00% = $300,000 company tax plus top up (17.00% by individual) = $170,000. Total tax payable $470,000.
My preference was to use a margin loan, St George Margin Lending and Macquarie Prime at the time were more comfortable if the loan was in joint names as they took into account our personal income and assets which were not used a security only the shares held which as we all know if you did not meet a margin call would be sold with no chance of recovering the loss (sleepless nights to say the least), and they approved a limit of $4.0 million (plenty of margin calls and pain in the last decade).
On one occasion they rang me in the morning to top up the loan by $1.5 million, because some guru analyst at the time reduced the margin for GMG (huge holding) from 75.00% down to 35.00 from memory. Had to beg borrow and steal and ask for more time. Ended up changing from Macquarie to St George who still had GMG at 65.00% (their analyst was of a different view). Wish I still held some GMG as minimal distributions but huge capital gain over the years.
My thoughts only, everyone's situation is different
FMG Price at posting:
$17.86 Sentiment: Hold Disclosure: Held
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