Where the paid-up value is assessed as a dividend
If the paid-up value of bonus shares is assessed as a dividend, you may have to pay capital gains tax (CGT) when you dispose of the bonus shares, regardless of when you acquired the original shares.
Original shares acquired on or after 20 September 1985
If your bonus shares relate to original shares that you acquired on or after 20 September 1985, the acquisition date of the bonus shares is the date they were issued. Their cost base and reduced cost base includes the amount of the dividend, plus any call payments you made to the company if they were only partly paid.
The exception to this rule is bonus shares you received before 1 July 1987. They are taken to be acquired on the date you acquired your original shares. Their cost base is calculated as if the amount was not taxed as a dividend (see Where no amount is assessed as a dividend).
Original shares acquired before 20 September 1985
The rules that apply where you acquired your original shares before 20 September 1985 depend on when the bonus shares were issued and whether they were partly paid or fully paid.
Cost base of bonus shares
Mark owns 1,000 shares in RIM Ltd, which he bought on 30 September 1984 for $1 each.
On 1 February 1997, the company issued him with 500 bonus shares partly paid to 50 cents. The paid-up value of bonus shares ($250) is an assessable dividend to Mark.
On 1 May 1997, the company made a call for the 50 cents outstanding on each bonus share, which Mark paid on 1 July 1997.
The total cost base of the bonus shares is $500, consisting of the $250 dividend received on the issue of the bonus shares on 1 February 1997 plus the $250 call payment made on 1 July 1997.
The bonus shares have an acquisition date of 1 February 1997.
If Mark held the bonus shares for more than 12 months when he sold them, he can use the indexation method to calculate his capital gain.
Amounts payable to a company on shares in the company can be indexed only from the date of actual payment. In Mark's case, he can only index the $250 call payment from the date he paid it (1 July 1997).
However, indexation on the $250 dividend included in his assessable income on the issue of the bonus shares was available from 1 February 1997. This is different from the indexation treatment of amounts paid to acquire assets in other circumstances where indexation is available from the time the liability to make the payment arises.
If Mark disposes of the shares after 11.45 am (by legal time in the ACT) on 21 September 1999, he can calculate his capital gain using either the indexation method or the discount method.
End of example
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Explains the capital gains tax rules that apply if you dispose of any bonus shares you received on or after 20 September 1985.