I've embarked on a project to fix the accounting in my old files, to improve tracking the cost basis of my investments, and track franking credits.
I've run into something that has me stumped. I used to own shares in Australian Infrastructure Fund. Each share in this fund had a stapled unit of a trust attached to it.
This means, each distribution is made up of a dividend, and a trust distribution. For example:
Total Company and Trust Payments (5 cents per security), which was made up of:
Dividend (0.661 cents per share) which had a franking credit attached (0.28333333 cents per share)
Trust Distribution (4.339 cents per share)
I've been tracking just the overall dispersion, and not tracked the split between dividends and trust distributions. Where I'm getting tripped up, is when they:
made a total payment amount is $3.01857665 per security and is comprised of three separate payments representing:
• AIFL fully franked dividend of $0.073434 and capital return of $0.07
• AIFT distribution of Distributable Income and trust capital of $2.34817228
• AIFT cancellation of units consideration of $0.52697037
My approach has been to manually track the AIX lots to adjust the cost base, like
20XX-XX-XX Australian Infrastructure Fund
Assets:Investments:AIX -1000 AIX @ 2.25
Assets:Investments:AIX -10 AIX @ 2.55
Assets:Investments:AIX -20 AIX @ 2.28
Assets:Investments:AIX 1000 AIX @ 2.18
Assets:Investments:AIX 10 AIX @ 2.48
Assets:Investments:AIX 20 AIX @ 2.21
; reduced the cost base by 0.07 per share
These are the questions, I am struggling to understand:
How to handle the cancellation of units, particularly as its considered a CGT event
Whether its okay to keep the trust distribution consolidated with the dividend payments
Ok, I'm thinking I split the income, and have Income:Dividends:AIX, and Income:Trust Distribution:AIX, and then the cost base adjustments occur to Assets:Investments:AIX based on manually lot tracking.
The ATO says this about stapled securities:
Stapled securities are created when two or more different securities are legally bound together so that they cannot be sold separately. Many different types of securities can be stapled together. For example, many property trusts have their units stapled to the shares of companies with which they are closely associated.
The effect of stapling depends on the specific terms of the stapling arrangement. The issuer of the stapled security will be able to provide you with detailed information on their particular stapling arrangement. However, in general, the effect of stapling is that each individual security retains its character and there is no variation to the rights or obligations attaching to the individual securities.
Although a stapled security must be dealt with as a whole, the individual securities that are stapled are treated separately for tax purposes. For example, if a share in a company and a unit in a unit trust are stapled, you:
continue to include separately on your tax return dividends from the company and trust distributions from the trust
work out any capital gain or capital loss separately for the unit and the share.
Because each security that makes up your stapled security is a separate CGT asset, you must work out a cost base and reduced cost base for each separately.
If you acquired the securities after they were stapled (for example, you bought the stapled securities on the ASX), you do this by apportioning, on a reasonable basis, the amount you paid to acquire the stapled security (and any other relevant costs) between the various securities that are stapled. One reasonable basis of apportionment is to have regard to the portion of the value of the stapled security that each security represented. The issuer of the stapled security may provide assistance in determining these amounts.
Can a commodity have sub commodities? Or do I just create two separate commodities and track them together? If I do the latter, I assume I will need to apportion on a reasonable basis for each transaction.
Ok, so I found my answers. Thankfully the way back machine archived the website of the fund manager appointed by the company and they had how to apportion the cost between the trust and a share in the underlying company
Percentage allocation of AIX NAV value at date
A unit in AIFT
A share in AIFL
30-Jun-11
88.92%
11.08%
31-Dec-10
88.33%
11.67%
30-Jun-10
88.39%
11.61%
31-Dec-09
88.57%
11.43%
30-Jun-09
88.43%
11.57%
31-Dec-08
88.56%
11.44%
30-Jun-08
87.92%
12.08%
31-Dec-07
87.20%
12.80%
30-Jun-07
86.59%
13.41%
31-Dec-06
86.03%
13.97%
30-Jun-06
85.94%
14.06%
31-Dec-05
84.76%
15.24%
30-Jun-05
85.99%
14.01%
I guess the best approach then is to create two commodities to represent the trust and the share and apportion the cost. This doesn't seem like an elegant solutionas it means the Price directive will give misleading information in terms of the market value.
To explain, this is what the structure looks like
┌────────────────┐
│ │
│ Stapled │
┌────────────▶│ Securityholder │◀─────────────────┐
│Dividends │ (AIX) │ Distributions │
│ │ │ │
│ └────────────────┘ │
│ │
│ │
│ │
│ │
│ │
┌──────────────────────────────────┐ ┌──────────────────────────────────┐
│ Shares in the Company │ │ Units in the Trust │
│ Australian Infrastructure Fund │ │ Australian Infrastructure Fund │
│ Limited (AIFL) │ │ Trust (AIFT) │
│ │ │ │
└──────────────────────────────────┘ └──────────────────────────────────┘
The share price includes the value of both AIFT and AIFL, under the code AIX. So if an AIX share is worth $1, then the accounting says that 1 AIFT is worth ~$0.90 and AIFL is $~0.1. However, the thing I bought is a share in AIX, and I would like to be able to use the price directive to compare the market value to the cost price of the stock
Either, I can follow the accounting treatment, and not worry about comparing the cost price to the market value, or I can just manage it at the share level, and forget about accurate accounting.
Potentially a third way, is to not track the share using a commodity, and use dollars and use sub-accounts for AIFL and AIFT. I don't think I would be able to use the price directive with this set-up, but it seems simpler than creating a fake commodity to track the trust.
Does anyone have any suggestions or thoughts? My one big takeaway from this is, don't invest in stapled securities.
Interesting discussion. A little complex - hard to be helpful without being in your shoes. It sounds like there’s 2 or 3 quantities of interest associated with each share. The simple minded approach would be to track each of these explicitly, in as much detail as you need for your reports. There would probably be a lot of redundancy/repetition, so perhaps a next step could be to generate those verbose entries from a simpler notation. Alternately perhaps your basic entries could be enriched by auto posting rules ?
I think what you suggest is what I am going to do. Have one commodity to track the share, and then two sub accounts to track the underlying trust, and company. I will make the value of the share commodity 0, and use the information I found to apportion the cost to the two sub accounts. Since the company got bought out, not being able to see an accurate value when using the price directive won't matter.
It will make it easier to handle changes in the cost base and capital gains, because return of capital is just taking money from the asset account and putting it into cash. I also won't have to deal with lot tracking. I will, however, need to manually calculate changes to the cost base outside of hledger. Overall, Its good solution, but it just feels a bit inelegant.