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  • Taxing retail premiums

    There may be tax consequences if you receive retail premiums. A retail premium is a payment made by companies to shareholders as a result of offers of entitlements or rights to existing shareholders. A retail premium is paid to shareholders who do not take up their offers. The tax outcome for shareholders depends in part on the nature of the offer. There are different treatments for renounceable and non-renounceable rights offers.

    Non-participating shareholder

    You are a non-participating shareholder if either of the following applies:

    • you choose not to take up some or all of your entitlements
    • you are not eligible to take up an entitlement.

    The entitlements or rights that you did not take up, could not take up or did not receive are called unexercised entitlements.

    Amount of retail premium

    The retail premium is paid directly to you as a net amount either by cheque or a direct credit. Generally, there are no incidental expenses. Not all offers to subscribe for additional shares involve retail premiums.

    Tax and retail premiums

    A retail premium payment you receive is taxed in different ways, depending on whether it is renounceable or non-renounceable.

    Renounceable rights offers include situations where the shareholder:

    • can choose to take up the entitlement
    • let the entitlement lapse
    • trades them in the market.

    Alternatively, where these conditions are not met, the rights are considered to be non-renounceable. These situations have differing tax outcomes for the shareholders that receive retail premiums.

    Tax treatment for renounceable rights

    Generally, where individual retail investors hold shares on capital account and a resident individual shareholder receives a retail premium, it will constitute a capital gain.

    For foreign resident individual shareholders who are not holding investments which are taxable Australian property, the receipt of a retail premium amount will not be taxable.

    See also:

    • The nature of renounceable rights and the tax outcomes for retail shareholders are explained in more detail in Taxation Ruling TR 2017/4.

    Australian resident shareholders

    A shareholder will make a capital gain if the retail premium amount exceeds the cost base of the entitlement, generally incidental costs.

    A shareholder is taken to have acquired the rights when it acquired the original shares. Therefore, any capital gain may represent a discount capital gain if the eligible shareholder's original shares have been held for 12 months or more.

    Retail premiums paid to shareholders are not dividends.

    Ineligible shareholders

    Retail premiums paid to ineligible shareholders are not dividends.

    Capital gains tax

    A shareholder will make a capital gain if the retail premium amount exceeds the cost base of the entitlement, generally being incidental costs.

    Capital gains tax will be disregarded where the shares held are not taxable Australian assets, such as where the owner has as indirect interest in Australia.

    Tax treatment for non-renounceable rights

    A retail premium payment you receive is an unfranked dividend. If you are a non-resident, the amount is:

    • non-assessable non-exempt income
    • subject to withholding tax.

    See also:

      Last modified: 29 Jun 2018QC 21832