An essential part in any investor’s plan to increase their wealth is to manage tax obligations in an efficient way. AMCIL’s Dividend Substitution Share Plan (DSSP) may allow you to do this.
A DSSP is a simple way to reinvest dividends
Similar to a Dividend Reinvestment Plan (DRP), the DSSP is a simple, convenient way for investors to automatically reinvest their dividends and receive extra AMCIL shares instead of cash dividends to grow their AMCIL shareholding over time.
AMCIL offers both a DRP and DSSP. Participants in the DRP and DSSP receive additional shares at the same issue price. Shareholders are issued with fully paid shares in AMCIL, broadly equivalent to the value of the dividend foregone.
The major difference between a DRP and a DSSP is the tax treatment. Under a DRP, the Australian Taxation Office requires that the investor declares the extra shares as income, and the investor must pay tax on it. The investor still receives franking credits to offset the tax and can continue to obtain a tax deduction relating to LIC capital gains.
A DSSP differs from a DRP in that, for Australian resident taxpayers, no income tax is payable on DSSP shares at the time of receipt because the shares are not deemed to be a dividend. Tax is payable only when the shares are sold. Also, because the shares allotted under the DSSP are not considered to be a dividend, the investor does not receive franking credits or LIC capital gains tax deductions. The tax rules differ in New Zealand and other jurisdictions.
Investors should note that the receipt of the substitute shares will change the cost base of the AMCIL shares that participate in the DSSP and therefore may alter any capital gains tax that must be paid when the shares are sold.
How the AMCIL DSSP can benefit investors
The DSSP could be a suitable option for shareholders who pay tax in Australia and who want to defer any tax payable until selling their AMCIL shares. The DSSP also may be a good alternative for shareholders on a high marginal income tax rate. Shareholders paying a lower rate of tax, such as a self-managed super fund, may prefer the DRP because of the value of the franking credits.
Shares allocated under the DSSP rank equally with all AMCIL’s other fully paid ordinary shares.
Investors do not have to engage a stockbroker or pay fees, brokerage, GST or other transaction costs for shares allocated under the DSSP.
Participation in the DSSP is voluntary. Investors can choose to contribute all, part or none of their dividend entitlement to the DSSP. Investors can withdraw their participation in the DSSP at any time.
It’s important that shareholders in all cases seek their own advice from their accountants and tax advisers on whether participation in the DSSP is appropriate for them.
DSSP statements are sent to shareholders shortly after the payment date of each dividend.
A copy of the DSSP booklet and the ATO Class Ruling in respect of the AMCIL DSSP is available here.