How to carry out South32/BHP demerger

Can anybody advise how to carry out a demerge function of a company i.e., BHP into BHP and South32. In Personal Plus 2015 the nearest "Transaction" I can find is "Corporate Securities Spin-Off" but it is not quite right. Any and all help/advice will be greatly appreciated

Comments

William Phillips

Steve,
I'm no expert (my disclaimer), but what I did pending further info from the ATO or BHP's website on the cost base, was to use " Add - shares added" with a zero cost base.
I also tried corporate spin-off but it would not accept a zero cost base.
Cost base can be adjusted later if it is deemed not to be zero by the ATO.
Maybe corporate spin off would work then??
Hope this is right, some one might correct me if I am wrong.
Regards
Forgot to add that you may have to use the original purchase dates and numbers of shares purchased for capital gains tax purposes, but I think that will be spelled out in the ATO ruling
Regards

Steven Vas

William,

Many thanks for your prompt response and as you have stated, it works.

As mergers and demergers are fairly common in the Corporate world, we should ask Reckon to incorporate this task in the Transaction section.

Once again, many thanks, regards.

Reckon FAQs

Hi Steve,

Welcome to the Reckon Community.

Although it is called a "De-merger", which can be handled by Account Personal's Corporate Spin-off, from what I understand of S32 demerger, it is being funded by an "in-specie dividend" rather than a classic demerger of "splitting assets" between the two companies which involves adjusting your cost base for the original company.

The information you need for this transaction should be on the documentation sent you by BHP or call their shareholder information hotline. For your accounting and tax needs please talk to your accountant.

The transactions you will need to do is to receive a dividend payment and then use those funds to Buy S32 shares. Your cost base for S32 is the in-specie dividend value and the share price is that value divided by the number of shares allocated to you.

Hope this helps.

regards,

Steven Vas

Gentlemen,

Sorry for the delayed response to your solution to my problem, but I was awaiting some sort of communications from BHP/South32 on the demerger. Unfortunately nothing to date.

As far as I am aware, an ”in-specie dividend” of $2.13 has been declared by BHP, but I can not find any investor information of this. However, irrespective of the cost of S32 shares, both yours and Mr. Phillips, recommendations have some shortcomings. Using the "Corporate spin-off" results in a "Return of Capita" for BHP, which is quite different from the actual S32 share costs. I believe it takes into the calculations the difference in the actual and calculated BHP share price. This results in the difference in cost price of S32 to that based on actual "Corporate Spin-off" and that the figure calculated by Reckon. Therefore all future "price gain/loss" indications are also incorrect. By adjusting the S32 share price under "Buy - Shares Bought" and the BHP "Capital return" to that of the actual "in-specie dividend" will rectify this problem. However I do not think that this procedure was what was envisaged by Reckon.

Using Mr. Phillips' solution results in no S32 "Cost Basis" and therefore no future "Gain/Loss" nor "Gain/Loss(%)" indication.

Finally, I would appreciate some indication when Reckon will include South32 in the "Download Securities" list.

Regards,

Graham Boast

Hi Steven

The Corporate Securities Spin-off is the correct way to do this, but I don't like it for a number of reasons:

it often results in fractional share quantities, whereas the allocation is usually rounded to a whole number; and
the process won't let you use an existing share. The data to correctly do this transaction is generally released weeks after the event, so most people have already created the share.

To do this manually, the correct process is:

determine the cost basis of your existing ATO Shares;
Apply the ATO ratio (more on this later) to the cost basis of the S32 shares (Original Cost basis x ratio);
Reduce the cost basis of existing BHP shares via a return of capital;
Buy the S32 shares. Total Cost = S32 Cost Basis
I have a step by step procedure on my website here. This talks about the TOL VBA demerger but the BHP S32 demerger has the same process.

The ATO ratio is the sticking point. It is usually based on the weighted average of the first 5 days trading of both stocks post demerger, so it is never available straight away. Keep your eye on the S32 website.

So what do do in the meantime?

I think the ATO ratio will value the S32 cost basis at around 7.5% of your BHP cost basis. My suggestion is:

Buy the S32 shares using the number of shares equal to your allotment and Total Cost = 7.5% x BHP Cost Basis. Date Transaction 25 May 2015.
When the ATO ratio is available, edit this transaction using the ATO Cost Basis (ATO Ratio x BHP Cost Basis)
Enter the Return of Capital transaction dated 25th May

This process will allow you to track your portfolio until the ATO Ratio is published.

Regarding the price download, I have just tested mine and it has downloaded the last 5 days. You will need to manually enter prices before this if you want the full history.

Graham Boast 0409317366
graham@reckonhelp.com.au
Reckon Accredited Consultant

Steven Vas

Hallo Graham,

Thank you very much for you quick response. I shall try to find out the actual BHP cost basis and the ATO factor to find out the true costs for S32 shares.

As far as the price downloading I cannot even get the code using the "Edit security details".. When trying the "Look up Symbol" the "Stock Code Search" gives a message "Your search returned 0 results". All the other investments are downloading their respective prices correctly.

Regards,

Steven Vas

Graham Boast

Hi Steven

If you have entered your transactions correctly, Reckon should show the cost basis of your BHP Shares in the Security Detail View (go to Securities List and doubleclick on BHP.

The ATO ruling hasn't been released yet, but it should be available here when published:
http://www.bhpbilliton.com/home/investors/demerger/Pages/default.aspx
The lookup symbol doesn't work - just type in S32

Graham

Steven Vas

Hello Graham,

Thank you for your response.

My cost basis are correct for both BHP and S32. My only problem is downloading S32 share prices. All other investments download and update correctly. Why I have mentioned the lack of automatic working of South32 "Look up Symbol" function, as I believe that the update of S32 share prices and the finding of the security symbol are somehow connected. I have in fact manually typed it in.

Regards,

Steven Vas

Reckon FAQs

Hi Steven,

Check the configuration of your South 32 shares. My S32 shares are updating OK:

Hope this helps.

regards,
John

Steven Vas

John, Graham,

Many thanks for your prompt responses. My configuration was exactly the same as yours, but I could not get an update of the S32 share price. Finally in great frustration I have deleted all references to South 32 and reinstalled it from sketch and behold, all of a sudden it started to work. I managed to download the last five days of S32 prices. I just have to wait a few days to make certain that it will keep working.

Once again many thanks for persevering with me over the last few days and your very prompt responses.

Regards,

Steven Vas.

Reckon FAQs

Great to hear its finally up and running Steven.

Sounds like the security item became corrupt in some small way. For future reference, If everything is setup correctly and correct procedures are being followed, and the problem persists, Validate and SuperValidate the file and try again.

regards,
John

Graham Boast

Hi John.

This is literally a "Dear John" question. Do you have a knowledge base article link to that?

Graham

Steven Vas

Hello John,

Many thanks for the additional information. I will keep it in mind for the future I case I experience a similar problem.

Regards,

Steven Vas.

Lex Wilson

This reply was created from a merged topic originally titled How+to+enter+an+Allotment+of+Securities.

BHP have issued an Allotment of Securities. I now have Shares in South32 at no cost. How do I enter this?

Using 2015 version

Mirko

Hi Lex, please see posts in this thread relating to same issue.

Angelo Fraietta

I would say that it becomes an asset

Reckon FAQs

Hi Everyone,

Please see BHP's latest communication (10/6/15) at:
http://www.bhpbilliton.com/home/investors/news/Pages/Articles/Demerger-of-South32-Australian-Taxatio...

"Such [Australian resident] shareholders will be sent a letter providing further detail on the class ruling to assist in calculating the tax cost base allocation of BHP Billiton and South32 shares."

The ATO has released its tax ruling on the merger:
http://law.ato.gov.au/pdf/pbr/cr2015-040.pdf

This ruling includes the comment on the value of the distribution:
"26. The value of the BHP distribution amount of $7,226,304,986 was worked out by reference to the volume weighted average price of the South32 shares, $2.25, as traded on the ASX over the five trading days from when deferred settlement trading commenced on 18 May 2015."

Regards,
John

Graham Boast

As per John's advice below, the ATO has now determined that the cost basis for S32 shares is $2.25 per share. So the procedure recommended by me is: - return of capital = allotment x $2.25. - buy shares = allotment @ $2.25 per share Graham

John Campbell

The corporate spin-off information is now available.

I did it as a corporate spin-off as a 1 for 1 spin off on May 25

The value of S32 is $2.25 and the value of BHP is $29.44. (these values are supplied to adjust the capital value of both companies)

Providing this information will adjust the capital value of both sets of shares accordingly (for future capital gains calculations when you sell)

Note that if you have BHP shares in more than 1 account, only do this once, as the share split will be applied to each account.

I would recommend against a more complex approach of doing a capital return and share purchase, as the spin-off does appear to work and adjust your capital value of both companies.

You will need to edit the company information for S32 to check the settings. Just make them the same as BHP.

John

Graham Boast

Hi john If you have a look in the register of the brokerage account, the corporate spinoff is actually processed as a return of capital of BHP @ 2.25 per share, and a buy of S32 @ $2.25 per share. It has exactly the same result whichever way you do it. The price entered for BHP of $29.44 seems to be reflected only in the price history and has no impact on the cost basis. Both methods are correct: the corporate securities spin-off has the advantage of doing multiple holdings at once, and the disadvantages of not being useable if you already have the share set up. In addition, in some spin-offs the ratio can yield a fractional value different from the allotment. The capital return / buy is two transactions, but I like the fact that you can see exactly what is happening and why. Horses for courses I guess. Graham

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Graham Boast

The ATO has now determined that the ratio for determining the cost basis for S32 shares is 7.1%., so the return of capital value is 7.1% of your BHP cost basis - NOT $2.25.

Graham 15/6/15

Graham Boast

Hi Dave

My bad. I misread the info. I was wondering why it was different to previous methods. So scratch my last post.

See corrected method below.

Graham

Graham Boast

Both Methods - Correctly this time!

Method 1

Corporate Securities Spin-Off

Method 2

Return of Capital. The amount = cost basis of BHP shares x 7.1%
Buy. No of Shares = amount allotted. Total Cost = Return of Capital amount calculated above.

With both methods, you should check your BHP Cost Basis before you enter the transactions, then check the cost basis post-demerger and ensure that the amounts are correct. BHP = 92.9% of original cost basis and S32 = 7.1%.

Graham

John Campbell

The key for this is to get the cost base split correctly, which CSO screen provides.

I noticed this since I have 2 accounts with different cost per share of BHP shares, which result in different cost per share of S32 shares.

All this is easy, compared to getting the correct cost base for the Westfield Trust restructure last year !

I still haven't bothered to fix that as yet.

John

Rajesh Shanbhag

Hi

I used the "Corporate Securities spin off" transaction. It reflected BHP as "Return of capital". However i encountered 3 problems:
a. In P&L return of capital shows under "Uncategorised" account. Did I miss something?
b. The reduction of cost of BHP was not uniform across my 300 shares. I expected that it will proportionately reduce cost. It did not. I am not sure what basis it adopted to adjust BHP cost
c.. The ATO ruling mentions that date of acquisition of S32 is the same date as date of acquisition of original BHP shares. However, using above method, all shares will reflect as acquired on 27/5/2015.

Could you please advise?

Rajesh

Graham Boast

Hi Rajesh

a) Have a look in your "Brokerage Account" (in the Accounts List under "Investing Accounts". There will be 2 transactions: a Return of Capital and a Buy. In the Return of Capital, leave the "Transfer Account" blank. In the Buy, ensure "from the accounts cash balance" is selected under "Use Cash from this transaction".
b) hmmm - I will have to test this, but unlike a sell, a return of capital doesn't allow any scope for applying different treatment to different lots of the same shares.
c) if you wanted to, you could backdate the buy date, but if you have different lots, you may have to breakup into different "buys"

Graham Boast
graham@reckonhelp.com.au
Reckon Accredited Consultant
http://www.reckonhelp.com.au/remotesupport.htm

Rajesh Shanbhag

Hi Graham
a. My Accounts are exactly as described. Reckon nevertheless posts entries to "Unspecified"
b. Yes, strange. I could not find anywhere / any report on how the breakdown was calculated
c. If I do backdate it, it posts to previous years. Reckon pops a warning message. It will mess with previous year accounts. Strange problem, not sure if there is a solution.

I have some screenshots from my Reckon. For sake of privacy, I wil not post it online. I will send it to your email.

Thanks

Rajesh

Julie Fichera

Thanks appreciate your explanations of this event.

Dima

Thanks Graham for this advice. However, I am still not sure how I should proceed in Accounts Personal Plus 2015. I am confused by the ATO statement that South32 shares are taken to have been acquired on the same date as the original BHP shares.

I have acquired parcels of BHP shares in July 2006, November 2013 and 6th May 2015. If I choose to use Method 2 do I have to apply it to each individual parcel and calculate the value of returned capital as 7.1% of the cost base of the individual parcel?

Wouldn’t this sort of calculation have to be done in the future to assess any capital gain/loss when any portion of either BHP or South32 shares are sold?

Any help in this regard would be very much appreciated.

Dima Bartels

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Dima

Thanks Diver Dave. I am sorry if I appear a bit obtuse but how do I go about recording the purchase of the three parcels of South32 if they are all acquired on 17th May? Wouldn't it be also contrary to ATO advice that the acquisition date should be the same as for the BHP shares?

Dima

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Dima

Thanks for that, Diver Dave. I understand what you are saying about the capital gains/loss situation but I was not clear on your statement “you could record the purchase of 3 parcels of South 32” and wanted to know how to go about doing it.

This is what I have now done and would appreciate your comment on it:

I have created a Suspense Account although I could have used my Cash Account.
I have followed Method 2 as described by Graham Boast where the cost basis was the sum of costs of my 3 parcels of BHP shares and the amount of capital returned (7.1% of the summated cost) was placed in the Suspense Account.
For each individual original parcel of BHP shares, I have calculated the amount of capital return (i.e. 7.1%).
I have created a South32 account.
I have then entered in the South32 account three separate purchases of shares on the same dates and for the same number of shares as each of the BHP share parcels. Payment for each parcel was that calculated in para 3. The source of funds was the Suspense Account. I am now left with 0 balance in the Suspense Account and the cost basis of the S32 account is equal to the amount calculated as return of capital in para 2.

When I now look at the Security Detail View for BHP the Cost Basis is now 92.9% of the previous figure and for S32 the Cost Base is 7.1% of the previous BHP figure.

Although the total Cost Basis for BHP is now the reduced amount, the individual amounts as appearing in the Inv.Amt. column of the Transaction List have not changed and are still shown at their original values. I don’t understand this because I thought they too would now be shown at their reduced values as you implied when you said: “Reckon will reduce the cost base of each parcel proportionately”. Do you have a comment on this?

Dima

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John Campbell

There has been a lot of discussion about this security spin-off, although I think it is much simpler that is being discussed.

Based on the prices of $2.25 for S32 and $29.44 for BHP, if at some stage you make a profit on the sale of S32 shares, 7.1% of all past BHP purchases can be allocated to the sale in your capital gains calculation; the ATO indicates this.

All that QPP has done is calculate the accumulated cost of shares and allocates 7.1% on the day of the spin-off. You need to keep track of the BHP purchase dates when estimating capital gains. It looks to me that QPP has done this accumulated cost correctly, but will probably incorrectly report the purchase date(s). I don't thing you will get better than that from QPP. Are the dates that complex?

Something for you to remember although I have forgotten what has happened with One-steel, Bluescope or Arrium?

Imagine the complexities of capital gains calculations if we were to ever make a profit on companies like GPT, with all their deferred tax and capital returns. The GFC at least made something simpler.

John

Dima

David, you have not misled me because I myself expected the Cost Base of each individual parcel to change since, as I said in my second last paragraph, the Cost Base of the total of my BHP holdings did reduce by the correct amount. So, if the total had changed, why has the individual value of each parcel not changed? In your case, the individual value of each parcel has changed, albeit not by the same % amount, but it changed. In my case it has not.
I must say that for taxation purposes I do calculate my gain/loss manually anyway.
Thanks.
Dima

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