• Where no amount is assessed as a dividend

    Original shares acquired on or after 20 September 1985

    If your bonus shares relate to other shares that you acquired on or after 20 September 1985 (referred to as your original shares), your bonus shares are taken to have been acquired on the date you acquired your original shares. If you acquired your original shares at different times, you will have to work out how many of your bonus shares are taken to have been acquired at each of those times.

    Calculate the cost base and reduced cost base of the bonus shares by apportioning the cost base and reduced cost base of the original shares over both the original and the bonus shares. Effectively, this results in a reduction of the cost base and reduced cost base of the original shares.

    You also include any calls paid on partly paid bonus shares as part of the cost base and reduced cost base that is apportioned between the original and the bonus shares.

    Original shares acquired before 20 September 1985

    Your capital gains tax (CGT) obligations depend on when the bonus shares were issued and whether they are fully paid or partly paid.

    Example

    Fully paid bonus shares

    Chris bought 100 shares in MAC Ltd for $1 each on 1 June 1985. He bought 300 more shares for $1 each on 27 May 1986. On 15 November 1986, MAC Ltd issued Chris with 400 bonus shares from its capital profits reserve, fully paid to $1. Chris did not pay anything to acquire the bonus shares and no part of the value of the bonus shares was assessed as a dividend.

    For CGT purposes, the acquisition date of 100 of the bonus shares is 1 June 1985 (pre-CGT). Therefore, those bonus shares are not subject to CGT.

    The acquisition date of the other 300 bonus shares is 27 May 1986. Their cost base is worked out by spreading the cost of the 300 shares Chris bought on that date over both those original shares and the remaining 300 bonus shares. As the 300 original shares cost $300, the cost base of each share will now be 50 cents.

    End of example

     

    Example

    Partly paid bonus shares

    Klaus owns 200 shares in MAC Ltd, which he bought on 31 October 1984, and 200 shares in PUP Ltd bought on 31 January 1985.

    On 1 January 1987, both MAC Ltd and PUP Ltd made their shareholders a one-for-one bonus share offer of $1 shares partly paid to 50 cents. Klaus elected to accept the offer and acquired 200 new partly paid shares in each company. No part of the value of the bonus shares was taxed as a dividend.

    On 1 April 1989, PUP Ltd made a call for the balance of 50 cents outstanding on the partly paid shares, payable on 30 June 1989. Klaus paid the call payment on that date. MAC Ltd has not yet made any calls on its partly paid shares.

    For CGT purposes, Klaus is treated as having acquired his bonus PUP Ltd shares on the date he became liable to pay the call (1 April 1989). The cost base of the bonus shares in PUP Ltd includes the amount of the call payment (50 cents) plus the market value of the shares immediately before the call was made.

    The MAC Ltd bonus shares will continue to have the same acquisition date as the original shares (31 October 1984) and are therefore not subject to CGT. However, this will not be the case if Klaus makes any further payments to the company on calls made by the company for any part of the unpaid amount on the bonus shares. In this case, the acquisition date of the bonus shares will be when the liability to pay the call arises and the bonus shares will then be subject to CGT.

    End of example

    Summary: Treatment of bonus shares issued on or after 20 September 1985

    To work out the correct treatment of your shares, work through the following series of questions:

    1. Did you acquire the original shares on or after 20 September 1985?

    Yes Read on from question 2

    No Read on from question 4

    1. Is any part of the bonus shares a dividend or treated as a dividend?

    Yes Read on from question 3

    No Read answer 1

    1. Were the bonus shares issued before 1 July 1987?

    Yes Read answer 1

    No Read answer 2

    1. Is any part of the bonus shares a dividend or treated as a dividend?

    Yes Read on from question 5

    No Read on from question 6

    1. Were the bonus shares issued before 1 July 1987?

    Yes Read on from question 6

    No Read answer 2

    1. Are the bonus shares partly paid?

    Yes Read on from question 7

    No Read answer 3

    1. Were the bonus shares issued before 10 December 1986?

    Yes Read answer 3

    No Read on from question 8

    1. Before the sale of the bonus shares, were any further call payments made to the company?

    Yes Read answer 4

    No Read answer 3

    Answer 1

    • The bonus shares are subject to capital gains tax if they were issued on or after 20 September 1985.
    • The bonus shares are acquired when the original shares were acquired.
    • The cost base of each original and bonus share is equal to:  
      • the cost base of the original shares divided by the total number of original and bonus shares, plus
      • any calls on partly paid bonus shares.
       

    Answer 2

    • The bonus shares are subject to capital gains tax.
    • The acquisition date of the bonus shares is their date of issue.
    • The cost base is the amount of the dividend, plus any calls on partly paid bonus shares.

    Answer 3

    You are taken to have acquired the bonus shares before 20 September 1985 and they are not subject to capital gains tax.

    Answer 4

    • The bonus shares are subject to capital gains tax.
    • The acquisition date of the bonus shares is the date when the liability to pay the first call arises.
    • The cost base is the market value of the bonus shares just before the liability to pay the first call arises, plus the amount of call payments made.
      Last modified: 15 Apr 2015QC 17780