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  • Acquiring rights or options

    The market value of the rights or options at the time the company or trust issues them to you is treated as non-assessable, non-exempt income if all of the following apply:

    • you already own shares/units
    • the company issues the right to you because you own the shares/units
    • your shares/units and the rights are not revenue assets or trading stock at the time the company or trust issues them
    • you don't acquire the rights under an employee share scheme
    • your shares/units and the rights are not traditional securities
    • your shares/units are not convertible interests.

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    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 loss you make when you sell the rights or options, or 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 you sell the rights or options or 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 and they are subject to CGT.

    Rights or entitlements you don't exercise

    You may receive a payment if:

    • you didn't exercise some or all of your right or entitlement, either by choice or otherwise
    • you weren't eligible to exercise some or all of your right or entitlement.

    Such a payment is considered 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 don't participate – that is
      • you choose not to take up some or all of your right or entitlement
      • you're ineligible to receive some or all of a right or entitlement, or
      • you're 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're a shareholder or unit holder and you don't participate. The retail premium will generally be some or all of the difference between the clearing price of the shares and the offer price.

    Retail premiums are treated as:

    • unfranked dividends when paid to resident shareholders
    • non-assessable and non-exempt income when the payment is subject to withholding tax.

    Shareholders who receive the premiums are not eligible to claim the CGT discount.

    See also:

    Last modified: 17 Jul 2017QC 52220