Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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Swenani wrote:MaichBlack wrote:Swenani wrote:Mart_Consult wrote:Sparkly et al, help me out on this one kindly...
A more interesting scenario is how will they treat bonus shares issued...for instance, after Longhorn's Bonus isssue in the year just concluded, my average buying price came to 6.5...if I sold today at 10...and considering I bought the whole lot at 16...will they consider it as a Capital loss or recalculate and use 6.5 as the buying price (which is not feasible as I actually paid 16/share, the rest were at 0/share) ???
Same goes for rights issues...my average buying price goes down after most rights...so shouldn't I be claiming Cap losses on all these trades??? Let me try to calculate the gains for you using nominal figures 1.You bought 1,000 shares at Kshs 10 which translates to acquisition value of Kshs10,000 2.While still holding the shares,you are issued with 100 bonus shares 3.One year down the line you dispose off the 1,100 shares at Kshs 11 calculation of CGT(assumption is that transaction costs is 2.5%First 1,000 shares 5%{(1000*11)-(1000*10)-275)}=36.25 Next 100shares
5%{(100*11)-(100*0)-27.5}=53.625Total CGT to be paid=(36.25+53.625)=Kshs 89.875 Aren't bonus shares given in lieu of cash dividends and subjected to withholding tax??? How do you charge withholding tax and CGT on the same shares??? And in any case bonus shares are not free!!! You actually "buy" them "by force". The money you would have been given as dividends pays for the "bonus share". How then do you use an acquisition cost of 0 in your calculations?? For those who have done financial management and corporate finance,Bonus shares are NEVER and SHOULD'NT be issued in lieu of dividend, bonus shares are more of a share split than dividends-they increase the number of shares but not the share capital-If they were dividends you would'nt expect the dilution of the share price and if you were to assume that the bonus shares are dividends. A company has no RIGHT to force you to take a share capital in lieu of a cash dividend;but a company is allowed to provide an option for the shareholders to take either cash dividends or stock dividends.A stock dividend will result in an increase of both share capital and number of shares! But anyway, if you take the bonus issue as dividends, you will still end up paying the same amount of CGT as as the person who considered it as a stock split.Since it will be a capitalized gain which will be taxed at disposal! True Bonus share is not an income. Life is short. Live passionately.
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