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Bonus shares

Last updated 5 October 2009

Bonus shares are additional shares a shareholder receives as a dividend in whole or in part. You may also pay an amount to obtain them.

If you receive bonus shares on or after 20 September 1985, you may have to pay CGT if you dispose of them. You may have to modify the cost base and the reduced cost base of bonus shares if they are taxed as a dividend.

The table below explains how the timing of your bonus shares affects your CGT.

As a result of changes to the company law and taxation laws, the paid-up value of bonus shares is now generally not taxed as a dividend. An exception to this rule is where you have the choice of being paid a cash dividend or of being issued shares under a dividend reinvestment plan. These shares are treated as dividends and the amount of the dividend is included in your assessable income.


CGT implications of timing of bonus shares

From 20 Sep. 1985 to 30 Jun. 1987 incl.

Many bonus shares issued were paid out of a company's non-taxable capital profits, accumulated in an asset revaluation reserve from a share premium account. These bonus shares are not usually treated as taxable dividends.

From 1 Jul. 1987 to 30 Jun. 1998 incl.

The paid-up value of bonus shares issued is taxed as a dividend unless paid from a share premium account.

From 1 Jul. 1998

The paid-up value of bonus shares issued is not taxed as a dividend unless part of the dividend was paid in cash or paid as part of a dividend reinvestment plan.

There are other, less common circumstances where bonus shares will be taxed as a dividend-for example, where:

  • the bonus shares are being substituted for a dividend to give a tax advantage or
  • the company directs bonus shares to some shareholders and dividends to others to give them a tax benefit.

Flowchart 1 appendix 3 summarises the different rules applying to different bonus shares issued on or after 20 September 1985.

For more information about bonus shares, refer to the sources of further information listed in this guide.