• Summary – how to treat rights or options

    How to treat no-cost rights or options

    This explanation of treatment of rights or options applies to:

    • acquiring shares where the rights or options were issued directly to you by the company (but not under an employee share scheme) for no payment because you were a shareholder
    • acquiring units where the rights or options were issued directly to you after 28 January 1988 by the trust for no payment because you were a unit holder.

    1. Did you acquire the original shares or units before 20 September 1985?

    Yes

    Read question 2

    No

    The acquisition date of the rights or options is the date you acquired the original shares or units.

    Read question 3

    2. Did you exercise the rights or options on or after 20 September 1985?

    Yes

    Read answer 1

    No

    Read answer 2

    3. Did you exercise the rights or options?

    Yes

    Read answer 3

    No

    Read answer 4

    Answer 1

    • The shares or units you acquired when you exercised the rights or options are subject to capital gains tax (CGT).
    • The acquisition date of the shares or units is the date you exercised the rights or options to acquire the shares or units.
    • The first element of the cost base and the reduced cost base of the shares or units is the sum of  
      • the market value of the rights or options at the time you exercise them
      • the amount you pay for the shares or units when you exercise the rights or options
      • any amount included in your assessable income because you exercised the rights or options on or after 1 July 2001.
       

    Note: Disregard any capital gain or loss you make from exercising the rights or options to acquire those shares or units.

    Answer 2

    • If you did not exercise the rights or options, you disregard any capital gain or loss on the sale or expiry of the rights or options.
    • If you exercised the rights or options before that date, you disregard any capital gain or capital loss you make when you dispose of the shares or units that you acquired.

    Answer 3

    • The shares or units you acquired when you exercised the rights or options are subject to CGT.
    • The acquisition date of the shares or units is the date you exercised the rights or options.
    • The first element of the cost base and the reduced cost base of the shares or units is the sum of  
      • the cost base of the rights or options at the time of exercise
      • the amount you pay for the shares or units when you exercise the rights or options
      • any amount included in your assessable income because you exercised the rights or options on or after 1 July 2001.
       

    Note: Disregard any capital gain or loss you make from exercising the rights or options to acquire those shares or units.

    Answer 4

    If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.

    If the capital proceeds are less than their reduced cost base, you make a capital loss.

    How to treat rights or options you paid for

    This explanation applies to treatment of rights or options to acquire shares or units:

    • you paid for and which were issued directly to you from the company (but not under an employee share scheme) or trust
    • you acquired from an individual or entity that was not a shareholder or unit holder.

    Note: This flow chart does not apply to rights or options for the issue of units by the grantor of the rights or options if they were exercised before 27 May 2005.

    1. Did you acquire the rights or options before 20 September 1985?

    Yes Read question 2

    No Read question 4

    2. Did you exercise the rights or options?

    Yes Read question 3

    No Read answer 1

    3. Did you exercise the rights or options on or after 20 September 1985?

    Yes Read question 5

    No Read answer 4

    4. Did you exercise the rights or options?

    Yes Read answer 3

    No Read answer 2

    5. Were the rights or options renewed or extended after 20 September 1985?

    Yes Read question 6

    No Read answer 5

    6. Were they exercised before 27 May 2005?

    Yes Read answer 5

    No Read answer 3

    Answer 1

    You disregard any capital gain or loss you make on the sale or expiry of the rights or options.

    Answer 2

    If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.

    If the capital proceeds are less than their reduced cost base, you make a capital loss.

    Answer 3

    • The shares or units you acquired when you exercised the rights or options are subject to CGT.
    • The acquisition date of the shares or units is the date you exercised the rights or options.
    • The first element of the cost base and reduced cost base of the shares or units is the sum of the amount you paid for the  
      • rights or options
      • shares or units when you exercised the rights or options.
       

    Note: Disregard any capital gain or loss you make from exercising the rights or options to acquire those shares or units.

    Answer 4

    You disregard any capital gain or loss on the shares or units you acquired when you exercised the rights or options because you acquired the shares or units before 20 September 1985.

    Answer 5

    • The shares or units you acquired when you exercised the rights or options are subject to CGT.
    • The acquisition date of the shares or units is the date you exercised the rights or options.
    • The first element of the cost base and the reduced cost base of the shares or units includes the sum of the  
      • market value of the rights or options when you exercised them
      • amount you paid for the shares when you exercised the rights or options.
       

    Note: Disregard any capital gain or loss you make from exercising the rights or options to acquire those shares or units.

    See also:

    For help applying this to your own situation, phone 13 28 61.

      Last modified: 21 Jun 2016QC 17178