If you own shares or units, the company or trust may issue you rights or options to acquire additional shares or units at a specified price. The market value of these rights, at the time the rights or options are issued to you, is non-assessable non-exempt income, provided:
- you already own shares
- the right was issued to you because of your ownership of the shares
- your shares, and the rights, must not be revenue assets or trading stock at the time they are issued
- those rights were not acquired under an employee share scheme
- your shares, and the rights, are not traditional securities, and
- your shares are not convertible interests.
You will make a capital gain or capital loss when a CGT event happens to:
- the rights or options, other than as a result of exercising those rights or options
- shares or units acquired as a result of exercising those rights or options.
The amount of any capital gain arising from a CGT event will not be reduced by the amount that was previously non-assessable non-exempt income.
Rights and options issued directly to you from a company or trust for no cost
You are taken to have acquired the rights and options at the same time as you acquired the original shares or units. Therefore, if you acquired the original shares or units before 20 September 1985, you disregard any capital gain or capital loss you make when the rights or options expire or are sold, as they are pre-CGT assets.
If you acquired the original shares or units on or after 20 September 1985, you make a capital gain if the capital proceeds on the sale or expiry of the rights or options are more than their cost base. You make a capital loss if the reduced cost base of the rights or options is more than those capital proceeds.
Rights and options you paid to acquire from a company or trust – or that you acquired from another person
If you acquired your rights or options on or after 20 September 1985, they are treated much like any other CGT asset and are subject to CGT.
Flowchart 3.3, Flowchart 3.4 and Flowchart 3.5 in appendix 3 summarise the different rules applying to the treatment of rights or options to acquire shares or units.