19 November 2018 Rio Tinto Limited (RIO) Off-Market Buy-Back

Rio Tinto has successfully completed its off-market buy-back, achieving its share purchase target of approximately 41.2 million Rio Tinto Limited shares, for a total consideration of A$2,871 million (US$2,081 million).

The key features of the Buy-Back are as follows: 

For Australian capital gains tax purposes, the deemed capital proceeds are expected to be A$17.55, being the A$9.44 capital component plus A$8.11, which is the amount by which the Tax Value exceeds the Buy-Back Price.

How to process in Simple Fund 360

Example:

Fund has 1,000 units in RIO.AX participating in the buy-back, with a cost base of $5,000.

Deemed Capital Proceeds = $17.55 x 1,000 units = $17,550

Franked Dividend Component = $60.25 x 1,000 units = $60,250

Excess Tax Value over Buy-Back Price = $8.11 x 1,000 units = $8,110

Buy-Back Proceeds = $69.69 x 1,000 units = $69,690

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 capital proceeds

1. Go to Accounting | Transaction List.
2. Select New Transaction and then Journal from the drop down list.
3. Enter the Payment Date as 19/11/2018, reference and description. Refer to the buy-back payment and dividend statement received from Rio Tinto for more details.
4. Record a disposal to the RIO.AX investment account with deemed capital proceeds of $17,550.

Step 2: Record the dividend component

1. Record dividend amount of $60,250 to the linked dividend account under Credit column. Franked Dividend and Franking Credits would be automatically populated in the dividend details.

Step 3: Record the excess tax value over buy-back price

1. The excess tax value over buy-back price ($8.11 per share) i.e. difference between the deemed capital proceeds ($17.55 per share) and the capital component ($9.44 per share) needs to be recorded as a non-deductible expense.
2. The non-deductible expense account needs to have the tax label setup as follows.

• Go to Accounting | Chart of Accounts.
• Search for the linked expense account you are using. In this example we are using 37501/RIO.AX.
• 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.

Enter the excess tax value amount of $8,110. 

Step 4: Record the receipt to the bank

1. Record buy-back proceeds of $69,690 to the bank account.

2. Post the transaction.

All transactions once recorded:

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