After crunching the numbers, we are firmly convinced that the buy back could reap up to $10 per share for those clients who pay 0% (or very little) tax.
This is because of the high level of franking credits associated with the special dividend to be paid to boost the return to the shareholder back to something between 8% and 14% below the market value of RIO shares. As the SMSF gets all these franking credits refunded when they lodge their 2015 Income Tax Return, it means the total return received will be around $10 more than if they had not taken part in the buy back.
The trick is, we consider RIO shares are worth having still so part of the strategy is to buy the replacement shares before the buy back happens: ideally on the 31st March! This has implications for cash flow, as the proceeds from the buy back will not be received until some time later. If you need help in managing this, please let us know.
There are still a number of variables in this strategy, so success can not be guaranteed, but we believe their is a high probability that a profit will be made, and shareholders should apply to sell all their shares at the final discount price.