• Rights or options to acquire shares or units

    Acquiring rights or options

    A company or trust you own shares or units in may issue you rights or options to acquire additional shares or units at a specified price. The market value of these rights at the time the company or trust issues them to you is non-assessable, non-exempt income, if all of the following apply:

    • You already own shares.
    • It issues the right to you because you own the shares.
    • Your shares and the rights are not revenue assets or trading stock at the time the company or trust issues them.
    • You do not acquire the rights under an employee share scheme.
    • Your shares and the rights are not traditional securities.
    • Your shares are not convertible interests.

    You make a capital gain or loss when a capital gains tax (CGT) event happens to either of the following:

    • the rights or options, other than because you exercise them
    • shares or units you acquire, because you exercise those rights or options.

    You cannot reduce the amount of any capital gain from a CGT event by the amount that was previously non-assessable, non-exempt income.

    No-cost rights and options

    A company or trust you are a shareholder or unit holder of may issue rights or options directly to you for no cost. If this happens, you are taken to have acquired the rights and options at the same time as you acquired the original shares or units.

    So, if you acquired the original shares or units before 20 September 1985, you disregard any capital gain or capital loss you make when either of the following happens:

    • you sell the rights or options
    • they expire.

    This is because they are pre-CGT assets.

    If you acquired the original shares or units on or after 20 September 1985, you may make a capital gain when either of the following happens:

    • you sell the rights or options
    • they expire.

    You make a:

    • capital gain on these if the capital proceeds on the sale or expiry of the rights or options are more than their cost base
    • capital loss if the reduced cost base of the rights or options is more than those capital proceeds.

    Rights and options you paid for

    If you paid to acquire rights and options from a company or trust, or you acquired them from another person on or after 20 September 1985:

    • you treat them in the same way as any other CGT asset
    • they are subject to CGT.

    Rights or entitlements you do not exercise

    Some or all of this payment may be a retail premium if you receive a payment because:

    • you did not exercise some or all of your right or entitlement, either by choice or otherwise
    • you were not eligible to exercise some or all of your right or entitlement
    • you did not receive some or all of your right or entitlement.

    You receive a retail premium if the following occurs:

    • A company you own shares in offers shareholders a right or entitlement to subscribe for additional shares in proportion to their existing shareholding at a set amount, often called 'the offer price'.
    • You do not participate, that is, one of the following applies
    • you choose not to take up some or all of your right or entitlement
    • you are ineligible to receive some or all of a right or entitlement
    • you are not permitted to take up some or all of your right or entitlement.
    • The company that issued the right or entitlement arranges to issue a number of shares, equivalent to those which would have been issued to you had you exercised the right or entitlement for which you did not participate, to other subscribers, such as institutional investors. The amount offered by the subscribers for the equivalent shares is often called 'the clearing price'.
    • The clearing price is the basis of a payment to you, generally because it is more than the offer price.

    The retail premium will be the amount paid to you, generally worked out on a pro rata basis by the company because you are a shareholder or unit holder and you do not participate. The retail premium the company pays will generally be a share of all or part of the difference between the clearing price of the shares and the offer price.

    Retail premiums are unfranked dividends, or alternatively ordinary income, and should not be treated as capital gains. Shareholders who receive the premiums are not eligible to claim the CGT discount.

    Find out more

    Taxing retail premiums

    End of find out more
    • Last modified: 14 Jun 2013QC 17178