Key Post: CGT losses on eircom shares - Key Post

Brendan Burgess

Brendan Burgess

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On 25 October, The Revenue decided on the following split:

Eircom: 43%
Vodafone 57%

Let's say you bought 1000 shares in eircom for € 3.90.

You got a loyalty bonus which gives you 1040 shares.

Today you own 1040 eircom shares
and 492 Vodafone shares. ( 1040/2 *.9467)

The allowable cost of the 1040 eircom shares is €1677

The allowable cost of the 492 Vodafone shares is € 2223

If you sell your eircom shares to Valentia, you will get € 1388.4 (1040 * 1.335).

Your allowable loss for CGT purposes will be € 288.6...

I think

Brendan
 
Re: CGT losses on eircom shares

Nobody questioned the above calculations which, I think are reasonably straigt forward.

You bought shares in eircom.

You now have shares in two different companies - Vodafone and eircom.

When you sell eircom shares, you can deduct 43% of the cash you paid out from the proceeds of sale to calculate the loss for CGT purposes.

Unless you are doing a partial sale, there is no need to complicate matters any further by calculating the loss per share.

I have seen some extraordinarily complex computations such as those in today's Irish Times, but I can't see why it's so complicated.

Maybe Mary Canniffe and I are missing something?

Brendan
 
CGT losses on eircom shares

Brendan

Today you own 1040 eircom shares and 492 Vodafone shares. ( 1040/2 *.9467)

This is wrong - the Vodafone offer was 0.9478 Vodafone shares for each two eircell 2000 shares. However the figure of 492 Vodafone shares is correct so I guess the incorrect multiplier is simply a typo?

Dominick Coyle seems to come up with different results in today's [broken link removed]. Ultimately he calculates a c. (due to rounding) €0.325 per share loss on eircom shares which would seem to yield a capital loss of €338.

I think!!!
 
DC's calculations

Here's a synposis of DC's calculations as I understand them:

On the day after the Vodafone takeover of eircell2000 the following base prices were decided on by the Revenue:
  • eircom = €1.11
  • Vodafone = €1.45406
  • total = €2.56406
Thus
  • eircom = (€1.11 / €2.56406) x 100 = 43% (43.2907... rounded down)
  • Vodafone = (€1.45406 / €2.56406) x 100 = 57% (rounded up)
eircom
  • nominal cost of eircom shares = €3.90 x 43.2907...% = €1.69 (note that the 43% rounded percentage figure will not give the same answer!).
Thus
  • loss per share based on Valentia offer price (excluding dividend) = €1.69 - €1.365 = €0.325
Vodafone
  • Nominal cost per eircell2000 share = €3.90 - €1.69 = €2.21
  • Nominal cost per Vodafone share = (€2.21 x 2) / 0.9478 = €4.66 (rounded down)
  • Market value of Vodafone shares (based on recent stock price and €/GBP£ exchange rate) = GBP£1.87 = c. €3.02 (GBP£1.87 / 0.62)
  • Paper loss per Vodafone share = €4.66 - €3.02 = €1.64.
Phew! What do people make of those calculations!!?!
 
Correction

loss per share based on Valentia offer price (excluding dividend) = €1.69 - €1.365 = €0.325

I guess that should be including the dividend of €0.03 per share! Sorry!
 
Here I go again...

Using BB's scenario above and DC's figures:
  • Nominal cost of 1000 eircom shares = 1000 x €1.69 = €1690
  • Proceeds from Valentia sale (excluding dividend payment!) of 1040 (i.e. including "free" bonus shares) = 1040 x €1.335 = €1388.40
  • Loss = €1690 - €1388.40 = €301.60
DC originally includes the €0.03 per share dividend as part of the overall payment for eircom - giving a total of €1.365 per share. This is technically correct but I prefer to keep dividend payments separate from the calculations of overall loss per share.

Brendan - I think that your figures are off because you use the rounded (down) 43% which affects the calculations. Your Vodafone base cost calculation seems to be way off compared to DC's.

Is there any light at the end of the tunnel yet? Is it daylight or a train!? :lol
 
from someone elses pc

Hi CM

I am attempting to answer the original question as to what is the loss for CGT purposes.

I think that my figure is correct.

The loss per share may be of academic interest, but it is of no practical significance.

Have I calculated the correct loss for CGT purposes?

Brendan
 
CGT losses on eircom shares

Have I calculated the correct loss for CGT purposes?

I don't think so. Based on an original shareholding of 1000 eircom shares from IPO you calculate the CGT loss to be €288.60 while I (based on DC's figures) calculate it to be €301.60. We can't both be right (although we could both be wrong!). I think your figure is wrong because you use 43% in the calculation and this is only a rounded approximation of the actual figure required. God knows what happened to result in such a divergence on the Vodafone figures but that's another matter altogether...
 
Loss per share

The loss per share may be of academic interest, but it is of no practical significance.

Surely the loss per share is exactly what people will need to know so that they can multiply it by the specific number of shares that they acquired at IPO and thereby establish their overall loss (in the context of eircom shares only - i.e. ignoring Vodafone).

Grundy that DC ignored the effect of the "free" bonus shares (4%) on the nominal eircom share cost and, as such, overestimates the loss per share and he also included the final eircom dividend in the purchase price. I think the adjusted calculation would be something like:
  • nominal cost of eircom shares = €3.90 x 43.2907...% = €1.69 (note that the 43% rounded percentage figure will not give the same answer!).
  • allowing for the 4% bonus share allocation this would be €1.69 per 1.04 shares so the adjusted figure taking the bonus allocation into consideration would be (€1.69 / 104) x 100 = €1.625
  • bonus adjusted loss per share based on Valentia offer price (excluding dividend) = €1.625 - €1.335 = €0.29
Thus, in the 1000/1040 share scenario above the total loss would be
  • 1040 x €0.29 = €301.60 which is the same result that I calculated above by a different means (i.e. not using the loss per share figure).
Am I getting warm....???!??
 
I've got it!!

I want a prize for this. 8)

BB's loss is per current share.

CM's loss is per original share.

But there are 4% more current shares than original (because of the bonus) so CM's loss is 4% bigger than BB's with rounding. :D
 
Does this mean...

... the average punter can finally calculate his/her loss as follows:
  • number of eircom shares originally purchased x €0.29?
  • i.e. c. €290 in the original 1000 shares example above!
If so, I am definitely going on the piss tonight to celebrate getting to the bottom of this - and to drown my sorrows at incurring a €0.29 per share loss! :lol
 
Brilliant

Sterling work lads...keep it up. I'll sneak in at the end when all the hard work has been done. :p
(Reminds me of a manager I one knew who would try to claim credit for it too, but that's another story...)


So can you distil all your efforts into a simple answer? Taking the example of someone (like me :eek: ) who bought Z number of shares at the original flotation, watched them jump by 20% in the following weeks, got blinded by greed and held on in the hope for more and then watched them slowly slip down the pan ever since.
Or the short version - bought Z shares and did nothing since - got Valentia and divvy cheque recently. Still hanging on to Vodaphone shares.

Is my loss in this simply Z shares x €0.29?

If this is the case, I think it could be used as an AAM press-release - "AAM members calculate CGT loss for Eircom holders" or something like it. Haven't seen a simple (or correct) answer elsewhere.

Thanks.
 
Re: Brilliant

Liam

I have provided a very simple answer in the first post to this. The others are unnecessarily complicating it as far as I can see. The step by step procedure is as follows:

Step 1 Ignore the Irish Times ( unless you can find Mary Canniffe's piece)

Step 2 Ignore CM ( But he has a habit of coming back at you)

Step 3 Ignore Tharg's reference to Aer Lingus. (It's irrelevant to this debate also.)

Step 4 Igore Grundy ( But you must be impressed by the mathematical elegance of his solution)

Step 5 Write down how much you got from Valentia in BIG BOLD FIGURES

Step 6 (This is the difficult bit, but bear with me - it's worth it) Multiply the original amount of the cheque you paid for your eircom shares by 43 and divide the result by 100. Write this down (preferably in a different colour) beneath the big number in Step 5. Whew!

Step 7 Deduct 6 from 5. ( If you get -1, you are missing the point)

Put the figure from Step 7 in the appropriate place on your tax return and let the Revenue do the rest.

Brendan
 
Re: CGT losses on eircom shares

Brendan - I really don't see any harm in working this out from first principles in order to verify that we are not giving bogus advice. Once we have the correct information (and given all that has been written here and elsewherer it is obviously not that straightforward) this can be distilled into a simple rule. That rule, as far as I can see, is:

- Number of eircom shares originally purchased x €0.29

And this is even simpler than your 7 step plan above!
 
Spoilsport

Boss, why didn't you say that in the first place?

Anyway, this thread had developed beyond merely advising folk on how to claim their Eircom CGT losses. It had become a mathematical puzzle with aesthetic appeal in its own right. Now you have gone and spoiled it all.;)
 
Still Confused

CM, it is €0.29 per current share. See, you're unitary method is still confusing.

The Boss' 7 step plan is superior. After a few goes you can go straight to Step 4. Boss, what was Step 3?;)
 
The Final Solution

Boss, Step 3 is vital. When I first tried your method I got hopelessly distracted by a tirade by Targh on Aer Lingus.

I have experimented with your method and I have found that going straight to Step 5 actually works. Hence I have opened a new Topic which presents thes finding in an even simpler form.;)
 
Re: The Final Solution

If/When we get a final outcome to this discussion, I'd say it would definitely be a great opportunity for a press release.

Regards - RainyDay
 
Eircom losses

I borrowed for my shares and have payed a lot of interest, no one has mentioned interest!, is it tax deductable?....
 
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