• Bonus shares issued where no amount is taxed as a dividend

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    The following rules will generally apply to bonus shares issued from 1 July 1998.

    If you acquired the original shares on or after 20 September 1985, the acquisition date of bonus shares is the date you acquired the original shares. The cost base or reduced cost base of the bonus shares is calculated by apportioning the amounts paid for the original shares between the original shares and the bonus shares. Effectively, this results in a reduction of the cost base of the original shares. Any calls paid on partly paid bonus shares are also included in the cost base or reduced cost base of the bonus shares.

    If you acquired the original shares before 20 September 1985 and the bonus shares are fully paid, the acquisition date of the bonus shares is the date when you acquired the original shares. Therefore, any capital gain or loss you make from the sale of the bonus shares is disregarded.

    If you acquired the original shares before 20 September 1985, the bonus shares are partly paid and you have made a call payment, the acquisition date for the bonus shares is the date when the liability to pay the amount arose. The first element of your cost base and reduced cost base includes their market value just before that date. A copy of a newspaper's stock market listing for that day is an appropriate record.

    An exception to this rule is where the original shares were acquired before 20 September 1985 and the partly paid bonus shares were issued before 10 December 1986. In this case you are taken to have acquired them when the original shares were acquired and, therefore, any capital gain or loss on the sale of the bonus shares is disregarded. This concession also applies where the original shares were acquired before 20 September 1985, the bonus shares are partly paid but you have not paid any amount since the issue of the bonus shares.

    If an issue of bonus shares relates to both original shares and bonus shares, the acquisition date of the additional bonus shares is the date the original shares were issued.

    Example

    Fully paid bonus shares

    Chris bought 100 shares in MAC Ltd for $1 each on 1 June 1985. He bought 300 more shares for $1 each on 27 May 1986. On 15 November 1986, MAC Ltd issued Chris with 400 bonus shares from its capital profits reserve, fully paid to $1. Chris did not pay anything to acquire the bonus shares and no part of the value of the bonus shares was taxed as a dividend.

    For capital gains tax purposes, the acquisition date of 100 of the bonus shares is 1 June 1985. Therefore, the bonus shares are not subject to capital gains tax.

    The acquisition date of the other 300 bonus shares is 27 May 1986. Their cost base is worked out by spreading the cost of the 300 shares Chris bought on that date over both those shares and the remaining 300 bonus shares. As the 300 original shares cost $300, the cost base of each share will now be 50 cents.

    Example

    Partly paid bonus shares

    Jim owns 200 shares in MAC Ltd which he bought on 31 October 1984 and 200 shares in PUP Ltd bought on 31 January 1985. On 1 January 1987, both MAC Ltd and PUP Ltd made their shareholders a one-for-one bonus share offer of $1 shares partly paid to 50 cents. Jim elected to accept the offer and acquired 200 new partly paid shares No part of the value of the bonus shares was taxed as a dividend.

    On 1 April 1989, PUP Ltd made a call for the balance of 50 cents outstanding on the partly paid shares, payable on 30 June 1989. Jim pays the call payment on that date. MAC Ltd has not yet made any calls on its partly paid shares.

    For capital gains tax purposes, Jim is treated as having acquired the bonus shares on the date he became liable to pay the call - 1 April 1989. The cost base of the bonus shares will include the amount of the call payment (50 cents) plus the market value of the shares immediately before the call was made.

    The MAC Ltd bonus shares will continue to have the same acquisition date as the original shares - 31 October 1984 - and are therefore not subject to capital gains tax. However, if Jim makes any further payments to the company on calls made by the company for any part of the unpaid amount on the bonus shares, the acquisition date of the bonus shares will be when the liability to pay the call arises. The bonus shares will then be subject to capital gains tax.

    Last modified: 18 Sep 2009QC 18323