Share buyout with Cash Considersation and Shares

Elliot's Avatar

Elliot

20 May, 2019 09:53 PM

Hi,

On Moneydance, how would I account for a company being bought out with cash being offered for shares as well as shares in the new company?

I.e. for every share you have in the original company you get £5 and 0.25 shares in the new company?

Can't seem to work this out on Moneydance

  1. 1 Posted by dwg on 20 May, 2019 10:33 PM

    dwg's Avatar

    I'm a fellow user.

    I'll start by saying it is not pretty. There are various factors at play to be able to record it correctly.

    With Moneydance there is currently no stock for stock transaction, nor a Return of Capital transaction which could be used to handle such a situation, so it is necessary to use Sell and Buy transactions as a basis, but how to process this also depends on if you use or need to use lot matching in your country (some tax situations demand its use) whether you have a capital gains tax and if so does this transaction attract this or if there is capital gains roll over relieve available. Countries often have very specific ways of handling such transactions.

    At a very basic level in MD you sell your current shares, transfer the funds out that you receive and use the remaining funds to buy the replacement shares.

    You need though to know the details I have mentioned to work out what actual numbers to use and what specific transactions you need

  2. 2 Posted by Elliot on 28 May, 2019 09:23 PM

    Elliot's Avatar

    I am in the UK so I believe capital gains tax will be payable on the cash received immediately and on the profit when the new shares end up being sold based on those. How would I account for that capital gains in Moneydance?

  3. 3 Posted by dwg on 28 May, 2019 09:57 PM

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    CGT is normally taxed on the difference between the cost of shares + fees and the sale Price less fees, so taxes based on a cash component received does not appear correct in this context, generally if a cash component is taxed in itself it is because it has been declared to be a dividend so that creates a different taxing methodology in some countries.

    When there is a company acquisition I expect to see a document produced outlining the transactions, of course if it is a public company being taken over the document outlines all the information needed for shareholders to vote on.

    The document I would expect outlines the consideration to be received by shareholders both in terms of a total price but also in structure (5 pounds + 0.25 shares) and even taxation considerations for the individual investor.

    So the fiver could be a capital return (deferred taxation) it could be a dividend (an income event in the current year) or it could be irrelevant from a taxation perspective because the transaction is considered to be a total sale of the old security followed by a purchase of the new and the total cash value of what is received and the cost basis is what the CGT calculation is based on.

  4. 4 Posted by Elliot on 29 May, 2019 01:57 PM

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    It's charged as a capital gain in the UK. You have to work out the value of the cash in proportion to the total value of the cash and shares you get. Then you split the cost of your original shares between the cash and the new shares in the same proportion as the value.

    https://www.gov.uk/guidance/capital-gains-tax-share-reorganisation-takeover-or-merger

    Is there any way to factor this into MD?

  5. 5 Posted by dwg on 29 May, 2019 10:05 PM

    dwg's Avatar

    I'm a fellow user.

    And I thought the Australian Taxation Office was the only one to come up with interesting and convoluted ways of working things out. Looks like tax officials might all go to the same training school :)

    It looks like depending on the amount you either have full or partial CGT roll over relief. Moneydance can calculate simple capital gains, but not ones that involve decision making based on the data and then some calculations based on various pieces of data, Calculating CGT on gains in Australia can be more complex than the examples given in your pointer as dates are involved and also in some instances you can elect to use different methods of calculating the gain, even software made for the local market avoids giving anything more than raw data for CG.

    From my reading of the examples given in Moneydance you would do a sale of your existing shares at the cost price, transfer the amount of the returned amount to whatever bank account it went to thus leaving a residual balance. The residual balance is the total cost price of the replacement shares, so dividing this by the total number of shares received gives the cost price per share, using this data you can do a Buy transaction for the new shares. The acquisition date of the new shares is actually the date of purchase of the shares in the original company whether this is significant in the UK I do not know (it is here) but you cannot really use it as the transaction date, I note the date in the Memo or even the Taxation date field - I have had some discussions with Sean about using the Tax Date more in investment reports to help with reporting certain types of transactions.

    The actual gain that is taxable is something you will have to work out. If you wanted to show this number in Moneydance reports it is possible to do so, but it is not something that MD can calculate for you.

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