How To

When you sell these four ASX-listed shares your CGT is nil

By Market Index
Tue 16 Aug 22, 5:10pm (AEDT)
Man in pool
Source: Unsplash

Key Points

  • Only four remaining ASX-listed PDF funds offer a double whammy in tax benefits
  • Strategic Elements
  • BTC Health
  • Generation Development Group
  • Acrux

Believe it or not, there is still a handful of shares that you can buy today on the ASX that are exempt from tax when you finally sell them. I’m talking about ASX-listed pooled development fund (PDF) companies, which, despite their attractiveness, still tend to fly under the radar of most investors.

First, a stroll down memory lane: The PDF program was launched by the Keating government in 1992 to help increase the supply of capital to small and medium-sized (SMEs) enterprises, based on certain criteria.

Closed to new registrations since 2007, PDF raises capital and makes equity investments in SMEs and under the program, pooled development funds were offered generous tax concessions.

What are the tax breaks?

Buy one or more of these ASX PDF shares, and you’ll receive a double whammy in tax benefits.

Firstly, companies with PDF status are taxed at 15% on their income and capital gains received from their investments. By comparison, the full company tax rate sits at 30% and the lower company tax rate is 27.5%.

Secondly (and more importantly), as a shareholder in an ASX-listed PDF, you’re exempt from the capital gains tax after selling. Assuming you’re an Australian resident, you’ll also receive franked and unfranked dividends that are also exempt from tax.

There’s also the option to use the imputation credits attached to the franked dividends to offset other tax obligations. However, the benefit doesn’t come without a potential downside, which is that you’re not entitled to deductions or capital loss on the sale of these shares.

PDFs trading on the ASX

If you like the idea of investing in Australian SMEs, while also locking in some future tax breaks, here’s a closer look at the four PDF shares trading on the ASX.

Based on Morningstar’s numbers all four stocks are trading on significant discounts to their fair value.

While there is a Strong Buy rating on Generation Development Group (ASX: GDG), the other three stocks are not covered by consensus.

Stock

Code

Market cap

Sector

Performance over one year

Strategic Elements

ASX: SOR

$71.3m

Fin Services

-47.10%

BTC Health

ASX: BTC

$17.4m

Fin Services

-23.46%

Generation Development Group

ASX: GDG

$251.1m

Fin Services

20.54%

Acrux

ASX: ACR

$16.8m

Healthcare

-54.62

While Mec Resources Ltd (ASX: MMR) also has PDF status, it's shares are currently suspended

Strategic Elements Ltd

Strategic Elements is advancing its in-house developed ‘printable nanocube memory ink’, which hopes to revolutionise the ability to print onto multiple surfaces, while remaining flexible and transparent.

Its chosen tech field targets the global multi-billion dollar printed electronics market for use in advanced computing applications and improving data storage capabilities.

The company is also working with the University of New South Wales and has attracted two other significant development partners – CSIRO and VTT Finland – both world leaders in their prospective fields.

Strategic Elements is also involved in a collaborative working group called PrintoCent, which includes large global companies in printed electronics, such as Nokia, Merck and BASF.

Its subsidiary Stealth Technologies is developing technologies to help vehicles to drive autonomously and do physical tasks with robotics.

image
Strategic Elements share price over 12 months.

BTC Health

This Australian specialty biopharmaceutical company provides partnering, product development and commercialisation capabilities to partners across the Asia-Pacific.

Through its underlying companies, BTC invests in the acquisition, development and commercialisation of innovative medical products in the A & NZ hospital healthcare market. 

While BTC’s short-term growth aspirations were impacted by a reduction in the number of elective surgeries, the company’s core investment, BTC Speciality Health Pty Ltd was still able to grow 19% year-on year-due to broadening of its product offering.

Management expect the elective surgery backlog in A & NZ to present real opportunity in the months ahead.

image
BTC Health share price over 12 months.

Generation Development Group

Formerly known as Austech Group, the company is a specialist provider of investment bond product solutions.

The group, which established Australia’s first flexible investment bond product over 15 years ago, and also operated Austock Financial Services, which provides administrative services, including unit pricing, fund valuation, investment and fund accounting, fund administration and business registry services.

GDG also holds a 41% interest in Lonsec Holdings Pty Ltd which includes Lonsec Investment Solutions that helps dealer groups and independent financial advisers establish diversified managed portfolios and separately managed account (SMA) solutions.

Subsidiary, Generation Life recently posted a record fourth quarter with $155m in sales, taking total annual sales to a staggering $639m - 60% up on FY21.

At the June quarter update, the company posted net inflows of $113m, up 16% on the previous period, and total funds under management (FUM) of $2,158m, up 20%.

image
Generation Development Group share price over 12 months.

Acrux

Acrux listed in 2004 as a biotech share dedicated to developing and commercialising topical pharmaceuticals.

Its early claim to fame was as the provider of roll-on testosterone, but its fortunes deteriorated when the US Food and Drug Administration (FDA) linked testosterone drugs to heart failure and strokes.

Since then, Acrux has focused on developing a pipeline of topical generic drugs, and currently has a number of pharmaceutical products approved and marketed.

Last week, the company announced that the US Food and Drug Administration (FDA) has accepted for review Acrux’s application for a generic version of cold sore treatment, Acyclovir Cream, 5%.

image
Acrux share price over 12 months

 

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