• Bonus shares

    What are bonus shares?

    Bonus shares are additional shares a shareholder receives for an existing holding of shares in a company. If you dispose of bonus shares received on or after 20 September 1985, you may make a capital gain. You may also have to modify the cost base and the reduced cost base of your existing shares in the company if you receive bonus shares.

    The cost base and reduced cost base of bonus shares depend on whether the bonus shares are assessable as a dividend.

    As a result of changes to the company law and taxation laws, the paid-up value of bonus shares is now generally not assessable 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.

    The following table explains how the time of issue of your bonus shares affects whether the paid-up value of the bonus shares is assessed as a dividend.

    Date

    Implications of timing of bonus shares

    From 20 September 1985 to 30 June 1987 inclusive.

    Many bonus shares issued were paid out of a company's asset revaluation reserve or from a share premium account. These bonus shares are not usually assessable dividends.

    From 1 July 1987 to 30 June 1998 inclusive.

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

    From 1 July 1998

    The paid-up value of bonus shares issued is generally not assessed as a dividend unless you have the choice of being paid a dividend or of being issued shares and you chose to be issued with shares.

    There are other, less common, circumstances where bonus shares will be assessed 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.
      Last modified: 15 Apr 2015QC 17780