ASX Shares Investing in Big Miner at 50% Discount?

Hey guys,

I am participating in the matched shares program of the company I work for (big 3 miner). Every year I am buying 6k worth of shares and the company gives us an equal amount of shares for free in three years. For example, if I bought this year 200 shares of a total value of 6k, in 2020 the company will give me another 200 shares for free. However I will be paying income tax on those 200 shares in 2020, and obviously CGT when I decide to sell them. Shares are bought on my behalf every three months.

I have been participating in this program for the last tree years. However, as I am in the property accumulation phase, would it be prudent to continue buying these shares or save that money in the offset account? I suppose the main benefit here is the free shares, however the main disadvantages are the volatile nature of the mining industry and the lack of diversification.

Any thoughts much appreciated.

 

You are diversifying by buying property.

I would be taking free shares if the amount you put in is not effecting your lifestyle, but in saying that, I know nothing of shares, but I know mining has been down, but will also come back to a more stable outlook.

 

Well i was thinking something along those lines. I will use the shares as a buffer if things go pear-shaped. This would mean though that the cash buffer will be lower.

I made a mistake in the title of my thread. It's not really a 50% discount because I'll the free shares will form a part of my taxable income.

 

Ok,so u must hold the shares for three years then u get the freebies. Why not keep going with your share plan, and sell the ones u bought after three years. U get your work freebie, and still get your cash buffer. Assuming u sell them for more u bought them for, though if say u buy for $10 a share 3 years ago u get double those shares for the same $10 plus income tax, which then means u have 2 shares for $13.70, so then when u go to sell your shares you would want to make more then $7.35 a share plus the commision fee of selling the share in order to break even.

Has the share price been going up over the past three years, gone down or remained steady?


As your started three years ago you would be able to sell after you get your first lot of freebies. But check with an accountant too for your best options. ​

 

As they will offer a dividend reinvestment plan,and most will have 100% franking then at a 50% off the asx listed price then when you purchase below the market price you make an unrealised capital gain straight away ,and with rumors about companies that are potential takeover targets are always a good buy..imho..

 

Thanks guys.

Unfortunately there is no dividend reinvestment program.

My main concern is that over the last three years the price fluctuated greatly. The first year I bought them at a certain price, the following year the price dropped 50% and now they are sitting somewhere in between the years one and two. However I've been buying every three months so that mitigated the effect to an extent.

Would it be better to keep them long term than sell every year after I receive the free shares? I'm asking this because of big price movements. Also I believe there is something around not getting CGT concession if I don't hold for at least 1 year after I've been given those shares (will need to double check).

 

That's a pity the "DRP" over time works very well i have the companies mixed up..That's the only question you have to ask yourself from the start,unlike day trading there is a strong possibility that you will lose money and you have to accept that fact..
Long term add compounding in a growth defensive company and the way they perform under varying low margin economic conditions has worked very well for me,not matter what the price ,you can track one miner in this site and the other one that went from the mid 30's into the low 15 dollar range and read what happens in--between interesting reading..

 

I was doing the share plan thing aswell until the company demerged. Got absolutely smashed at tax time. I still hold all my shares as a bit of a buffer.

 

Price fluctuations aside, you are guaranteed to double your holdings at 3 years? I'd buy and consider selling off the older ones as they become available at price highs - putting it in something a bit more diversified

 

That's correct, the number of shares will double in 3 years. However I pay tax on these matched/free shares as @Phil82 said.

I can still sell at a loss after three years if the shares do something similar to what happened last year.

 

Realist, how does your company track how many shares you have bought or sold, and how long you have held shares for?

 

Hey, the company buys shares for me through an external company and every year I subscribe in advance to the program. I can choose how much money in total per year I want invested this way, up to the maximum of 6k per year.

 

Not advising that this is the moral thing to do, but why dont you buy $6k of shares in the company programme and then use a different broker to open up a short position for the same number of shares?

If the shares net out, its literally money for nothing (gains reduced by margin you pay on short position).

If the above doesn't seem like the thing to do, just to correct others above you, you are not receiving double the value in 3 years.You are investing post-tax income, and receive pre-tax shares as bonus. This means you get (100%-marginal tax rate) benefit in 3 years. Also consider the dividends the shares pay out. Is it high? Because you dont get them for the bonus shares in the interim. Also consider the opportunity cost of a dud investment. If you think the $6k might be invested better elsewhere, then mark down the remaining bonus.

You may find if you do this, the binus matching doesnt look too attractive anymore.

PP

 

Why would you want to sell them for a loss?

I don't know your individual tax situation, so I wont comment on that. I think having a pot of shares in a Big 3 isn't the worst thing that can happen. I would see it as a side matter like Superannuation. They just tick along nicely growing over time. The mining companies are not all run by idiots, from what I have seen of them I believe Ziggy and Gina know what they are doing and will make money. Even BHP shares have recovered somewhat from their low price a few years ago.

You don't have to keep buying shares if you don't want to, or you can elect to reduce the amount.

 

Does this happen on a yearly basis?
Eg.. Buy 6k of shares today, get 6k worth in 2020
Then by 6k of shares in 1 year and get 6k worth in 2021 etc etc?

I'd go for that for sure.

 

Hey mate, this happens on a yearly basis. For example, say I buy 6k worth of shares at 50$ per share in 2018, that is a total of 120 shares. In 2021 the company gives me another 120 shares, however I would pay income tax on those 120 shares, calculated on the value of the share on the day they were given to me (in 2021).

So if the value of the shares in 2021 is 25$ each, I would still lose money as I would be paying tax on the free/matched shares.

What are your thoughts?

 

@Realist35 Well, the way I see it is even if you're on the highest tax bracket for pay, AND the shares go down by 50%, then you're still 5% better off.

You will always be better off (in terms of the 'free' shares, unless the share price drops more than the difference between 100% and your tax bracket %.

Eg. If your pay is $180k+ you pay 45c in the dollar over that amount in tax (45%).
So long as the shares dont drop more than 55% (100% - 45%), then you're better off

Eg2. If your pay is between $87k and $180k, you pay 37c in the dollar in tax (37%).
So as long as the shares don't drop more than 63% (100% - 37%), then you're still better off.

The less you're income is the 'safer' you are at not losing out.
Hope that makes sense.

 

Realist, let's consider a scenario, which you can adjust to match your situation.

BHP shares are $25 today. You buy $6,000 worth, so 240 shares.
Say you think mining stocks are currently overvalued, and in 3 years time the share price will underperform the ASX or an investment property by 5% p.a. Your marginal tax rate is 47% with levies

The maths:

• You invest $6,000 for 240 shares at $25 per share
• BHP shares grow 5% p.a.(I'll ignore divis for simplicity)
• In 3 years, 240 shares = $6,946 at $28.94 per share
• Post tax gain is $724
• BHP give you 240 shares before tax
• Bonus share value after tax = 240*$28.94*(1-47%)= $3681
• Total post-tax gain for $6,000 invested for 3 years = $724+$3681=$4405

Alternatively:

• You invest $6,000 in ASX
• ASX grows 10% p.a. (again, I'll ignore divis)
• in 3 years, $6,000 has grown to $7,986
• Post tax gain is $1,519

So, without understanding your financial situation, this scenario would say do it. So long as you remain adequately diversified in assets and you dont believe commodity prices will tank again, this is a pretty generous share scheme.

PP

 

Mikey, not quite right and I'll show why.

If his $6,000 investment drops 50% he loses $3,000. BHP will give him pre-tax shares worth $3000 (remember he gets paid in equivalent shares, not the value they were 3 years ago). Tax on that is 47% so he gets $1,590 post-tax. So he still loses -$1,410 in cash flow, or nearly 24% worse off on his original $6,000.

In your second example with a lower tax bracket, so would get $1,830 post tax if the shares dropped 50%. So he still loses $1,170, or nearly 20% worse off.

PP

 

Hey mate, apologize if I got this wrong, but this is my quick calculation:

Share price in 2018: $50
Yearly contribution: $6,000
Number of bought shares: 120
Tax rate: 38%

Share price in 2021: $25
"Number of Free shares": 120
"Value of Free shares": $3,000
Tax rate: 38%
Tax paid: $1,140
Total value of shares minus tax paid: $4,860

So in this scenario I would have lost ~1.1k, if we disregard dividends. I could be terribly wrong, please correct me if I am.

However if I am to use a more realistic scenario, where I bought 2 years ago at $33 per share, and the shares today are 25$ each, then I really made 1.4k. That would be a 23% profit return on investment, not bad I think.