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Corp Spinoff BHP sale to WDS

funkws

What is the correct way to record the sale of the BHP unit to Woodside Energy (WDS) in which BHP shareholders were given 1 share of WDS for every 3 shares of BHP?

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Tom Young

Here's the published "tax outcomes" to US shareholders::

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Tax outcomes

Under US federal income tax laws, if you are a US Holder of BHP shares or BHP ADSs, the in specie dividend paid by BHP will generally be subject to United States federal income taxation.

If you are a non-corporate US Holder of BHP shares or BHP ADSs and the in specie dividend constitutes qualified dividend income, it will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the BHP shares or BHP ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements.

The receipt of the in specie dividend should not impact a US Holder’s basis in its BHP shares or BHP ADSs.

The Australian withholding tax consequences of the in specie dividend paid to non-Australian resident shareholders are outlined in the Australian tax summary section above. If Australian dividend withholding tax is payable on the in specie dividend, US Holders should seek their own tax advice to determine the Australian and US taxation implications.

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So it sounds to me like you record a cash dividend based on the FMV of the stock received, then turn around and immediately buy the same number of share received at that same FMV to eliminate the cash.

q_lurker

@Tom Young
There is a statement in there

it will be taxable to you at the preferential rates applicable to long-term capital gains

Does that suggest recording the cash distribution as a long term cap gain distribution would be more appropriate than a dividend?

Or are qualified dividends always taxed at the same rate as LT cap gains?

funkws

Thanks guys. This is long term, so the tax rate is the same as a dividend. I'll enter the dividend and purchase and be happy.

Tom Young

@q_lurker

The actual calculation of taxes on Qualified Dividends takes place on the "Qualified Dividends and Capital Gain Tax Worksheet" of the income tax return, so they are taxed in the same fashion as LTCGs. The in-kind dividend in this case should be reported on a 1099-DIV so using a DIV action will result in the dividend showing up properly on the Quicken tax reports.

Flying99

Is there anyone who can give me the actual numbers for the BHP spinoff that I can enter into Quicken? I received 11 shares of WDS and I had a little over 30 shares of BHP. What is the Cost per old share and the cost per new share? I also received $6.62 in lieu of fractional shares that I need to enter. Thank you to anyone who can answer this?

q_lurker

@Flying99
From what @Tom Young and I have read, this is not really a Corporate Spinoff activity. The basis in your original BHP holding is not changed by this actions. It appears the correct action in Quicken is to receive a Dividend transaction from the 30+ shares of BHP and use that to buy the 11+ shares of WDS. You would then sell the fractional share just bought for the $6.62 value.

Now with 30+ shares of BHP you should have only received 10+ shares of WDS, so I am not sure about the 11 shares you cited.

As to the value of the dividend, I see two apparently relevant comments in the June 1 press release.

As a result, BHP has now distributed Woodside shares to eligible BHP shareholders. BHP dividend statements and Woodside holding statements are expected to be despatched to eligible BHP shareholders in mid-June 2022.

The closing price of Woodside shares on ASX on 31 May 2022 was A$29.761. The implied value of the in specie dividend was therefore A$27.2 billion (US$19.6 billion). At this valuation, the in specie dividend is approximately A$5.38 (US$3.86), with A$2.30 (US$1.66) of franking credits being distributed, per BHP share.

That would seem to say you can expect a more definitive statement in mid-June (very soon now?). The second quotes suggests to me the dividend value might be $3.86 (US) for each one of your 30+ shares of BHP. That total would become the basis for the 11+ shares of WDS you acquired from the deal.

Hope that helps. Sorry I cannot be more definite.

funkws

I took a simpler approach to the value. I just checked what my broker listed as the basis for the new shares. Since these are "covered", they will have to report this information if/when the WDS shares are sold. Maybe your broker's site has a similar feature.

q_lurker

@funkws
That simpler approach is fine - if you trust the brokerage to figure it correctly.

Did your value come anywhere close to the $3.86 / BHP share that I suggested might apply?

Tom Young

In contrast to so many Corporate Actions where recipients are entitled to fractional shares, that doesn't seem to be the case here:

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The current estimate of the dividend entitlement is that BHP shareholders will receive one Woodside Share for every 5.5340 BHP shares. BHP shareholders will be entitled to a whole number of Woodside Shares, with any entitlement to a fraction of a Woodside Share that would have otherwise arisen being rounded down to the nearest whole number.
and
The arrangements governing the American depositary shares (each representing two fully paid BHP shares) (BHP ADS) and the BHP CSN Facility3 contemplate rounding of entitlements, and the rounding of the in specie dividend will occur according to the terms and conditions of those arrangements respectively.

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So I'd expect that there will be no CIL in this situation.

q_lurker

@Tom Young
Are you suggesting the $6.62 that @Flying99 received might have been a straight cash dividend received rather than cash-in-lieu sale?

funkws

Mr. Q Lurker -

In my case, I received 61.048 WDS shares for my 168.921 BHP shares. The fractional amount was paid in cash ($1.10). The share price is listed as $23.76/WDS share. There was also a foreign tax withholding fee of 0.05 on each BHP share ($8.45 total for me).

Regarding your estimate, my figures are $1313.74 / 168.921 = $7.777 per BHP share

Tom Young

q_lurker said:

@Tom Young
Are you suggesting the $6.62 that @Flying99 received might have been a straight cash dividend received rather than cash-in-lieu sale?

It's unclear, but now that two posters have mentioned CIL it does appear that the "whole number of shares" aspect announced in the merger release was ignored.

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The release explains that eligible BHP shareholders will receive one newly issued Woodside share for every 5.534 BHP shares they hold at the close of play on Thursday 26 May 2022.

In addition, holders of BHP American depositary shares (ADS) will be entitled to receive one Woodside ADS for every 2.767 BHP ADS they hold at the record date. This is subject to the payment of taxes and applicable fees and expenses.

The release also notes that BHP shareholders will only be entitled to a whole number of Woodside shares. This means that any entitlement to a fraction of a Woodside share will be rounded down to the nearest whole share.

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