Forum Archive Index - November 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

I comment on the Telstra Buy Back tender offer document that was 
sent to NZ shareholders by BK registries early this month.   There was 
very little information on the tax consequences for NZ shareholders 
accepting this offer.

The advice offered in bold print on p16

"It is therefore important that you seek professional tax advice to take 
into account your personal circumstances"

while undoubtedly correct, falls far short of the standard of advice I 
would expect from such a document (for NZ shareholders).    
Particularly so, when the advice offered to Australian shareholders is 
so detailed.

The major point of contention I have with the buyback offer document 
is that nowhere does it mention that the decision to structure the 
payout in the form of  $1.50 of capital value plus approximately $3.30 
as a franked distribution means the franked distribution part is 
technically taxable in the hands of New Zealand shareholders.    In fact 
the offer document suggests the opposite, as on p18 it says

"A non-resident shareholder will not be liable to Australian witholding 
tax on any part of the buy-back price,"

Unfortunately, just because the tax is 'not withheld' does not mean that 
the tax is 'not eventually payable'.

If the same shareholders that accepted this offer had sold their shares 
'on market' there would be legally no tax to pay at all.     And who 
would be better off?   

Putting some numbers on it, let's say you had 1000 Telstra shares and 
had sold them on market at $A4.80 (around $NZ5.40).  This would net 
you $A4800- , net say 1% brokerage which gives you $A4752  'after 
tax' (this transaction being zero rated for tax).

By contrast if you had tendered your shares to Telstra at $A5.40 (the 
highest price you could), and it was accepted, then you would receive 
a capital repayment of $A1500, and a franked (taxable) payment of 
$A3,900.    Based on the lowest 19% marginal tax rate, this would 
deliver the NZ shareholder a net  $A3,159.  Add that to the capital 
proceeds of $A1500 and you end up with $A4,659.   Note that if your 
marginal tax rate is higher than 19% then you would be *significantly 
worse off*  than this!

In summary, sell on market and get $A4,752.   Sell to buyback offer 
and get $A4,659 (best possible case).    This highlights what is so 
disgraceful about this offer document.

Every New Zealand shareholder with a marketable parcel of TLS 
shares is, without exception, whether they be an individual, company 
or trust,  *worse off* if they accept the Telstra offer!     This offer is 
appalling for 99% of NZ shareholders even in the very best case 
scenario!   I guess legally the offer had to be sent out to all 
shareholders.   But I would have expected a covering note to NZ 
shareholders warning them not to take it up, and sell their shares on 
market instead if they wanted out.   Given that I imagine most TLS 
shareholders on the NZ register are indeed New Zealanders, the 
omission of such  warning documentation I would class as 
unforgiveable.

BK Registries and Telstra NZ, I cannot recall a case of any NZ 
company/registry offering such appalling and misleading service to 
their own shareholders .    I just hope that no New Zealand 
shareholders were 'sucked in' by this scandalous offer.

SNOOPY

discl: still hold TLS










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