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  • Work out the correct treatment of rights or options

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    No-cost rights or options

    The following steps apply to:

    • acquiring shares where the rights or options were issued directly to you by a 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 a trust for no payment because you were a unit holder.

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

    Yes:

    Go to question 2

    No:

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

    Go to question 3

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

    Yes:

    See answer 1

    No:

    See answer 2

    3. Did you exercise the rights or options?

    Yes:

    See answer 3

    No:

    See 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 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.

    Rights or options you paid for

    The following steps apply to rights or options to acquire shares or units that you:

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

    Note: These steps don't apply to rights or options for the issue of units if they were exercised before 27 May 2005.

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

    Yes: Go to question 2

    No: Go to question 4

    2. Did you exercise the rights or options?

    Yes: Go to question 3

    No: See answer 1

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

    Yes: Go to question 5

    No: See answer 4

    4. Did you exercise the rights or options?

    Yes: See answer 3

    No: See answer 2

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

    Yes: Go to question 6

    No: See answer 5

    6. Were they exercised before 27 May 2005?

    Yes: See answer 5

    No: See 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:

    Last modified: 17 Jul 2017QC 52224