Tax Law Improvement Act (No. 1) 1998 (46 of 1998)
Schedule 1 Amendment of the Income Tax Assessment Act 1997
1 Part 3-3 Division 130
Division 130 - Investments
Table of Subdivisions
Guide to Division 130
130-A Bonus shares and units
130-B Rights
130-C Convertible notes
130-D Employee share schemes
Guide to Division 130
130-1 What this Division is about
This Division sets out the rules for these kinds of investments:
• bonus shares and units; and
• rights; and
• convertible notes; and
• shares acquired under an employee share scheme.
Most are about modifying the cost base and reduced cost base of a CGT asset.
Subdivision 130-A - Bonus shares and units
Guide to Subdivision 130-A
Table of sections
130-15 Acquisition time and cost base of bonus equities
Operative provisions
130-20 Issue of bonus shares or units
130-15 Acquisition time and cost base of bonus equities
[This is the end of the Guide]
Operative provisions
130-20 Issue of bonus shares or units
(1) This section sets out what happens if:
(a) you own *shares in a company or units in a unit trust (the original equities ); and
(b) the company issues other shares, or the trustee issues other units, (the bonus equities ) to you because it owes an amount to you in relation to the original equities.
(2) The first element of your *cost base and *reduced cost base for the bonus equities includes:
(a) for *shares - any part of the amount that is a *dividend; and
(b) for units - any part of the amount that is or will be included in your assessable income.
You are taken to have *acquired the bonus equities when they were issued.
Note 1: There are special indexation rules for cost base modifications: see Division 114.
Note 2: The amounts of calls you pay on partly-paid equities will also form part of the first element of their cost base and reduced cost base.
Note 3: There is a special rule for shares issued on or before 30 June 1987: see subsection 130-20(2) of the Income Tax (Transitional Provisions) Act 1997.
(3) This table sets out what happens if:
(a) none of the amount owed to you by the company is a *dividend; or
(b) none of the amount owed to you by the trustee is or will be included in your assessable income.
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Modifications where amount neither a dividend nor assessable |
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You are taken to have * acquired the bonus equities when: |
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1 |
You *acquire the original equities on or after 20 September 1985 |
You *acquired the original equities |
You apportion the first element of your *cost base and *reduced cost base for the original equities in a reasonable way over both the original and bonus equities |
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2 |
You *acquire the original equities before 20 September 1985 and you paid or were required to pay an amount for the bonus equities |
The liability to pay the amount arose |
The first element of your *cost base and *reduced cost base for the bonus equities includes their market value just before that time |
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3 |
You *acquire the original equities before 20 September 1985 and the bonus equities are fully paid |
You *acquired the original equities |
Any *capital gain or *capital loss you make from the bonus equities is disregarded |
The amount paid or payable can include giving property: see section 103-5.
Note 1: The amounts of calls you pay on partly-paid equities will also form part of the first element of their cost base and reduced cost base.
Note 2: There is a special rule for bonus equities issued on or before 1 pm on 10 December 1986 that affects item 2 of the table: see subsection 130-20(3) of the Income Tax (Transitional Provisions) Act 1997.
Special rule for unit trusts
(4) The modifications in this section are not made if, for the income year in which the bonus equities are issued, the unit trust is:
(a) a corporate unit trust within the meaning of section 102J of the Income Tax Assessment Act 1936; or
(b) a public trading trust within the meaning of section 102R of that Act.
Note: Subsection 26BC(9E) of the Income Tax Assessment Act 1936 (about securities lending arrangements) modifies the operation of this section.
Subdivision 130-B - Rights
Table of sections
130-40 Exercise of rights
130-45 Timing rules
130-50 Application to options
130-40 Exercise of rights
(1) The table in this section sets out the modifications to the rules about *cost base and *reduced cost base that happen if you exercise rights to *acquire:
(a) *shares, or options to acquire shares, in a company; or
(b) units, or options to acquire units, in a unit trust.
Note: The exercise of rights acquired under an employee share scheme are dealt with in Subdivision 130-D.
(2) The modifications happen only if:
(a) you did not pay for the rights and the condition in subsection (3) is satisfied; or
(b) the condition in subsection (4) is satisfied.
The payment can include giving property: see section 103-5.
(3) When you were issued the rights, you must:
(a) already own shares in, or *convertible notes issued by, the company or a company that is a member of the same *wholly-owned group (the original shares or notes ); or
(b) already own units in, or convertible notes issued by the trustee of, the unit trust (the original units or notes ).
(4) You must have *acquired the rights from an entity that already owned shares, units or convertible notes of the kind referred to in subsection (3).
(5) The company that is a member of the same *wholly-owned group mentioned in paragraph (3)(a) includes a company that would cease to be a member of that group by the exercise of the rights.
(6) The rights to *acquire units or to acquire an option to acquire units in a unit trust must have been issued by the trustee after 28 January 1988.
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Modifications on exercise of rights |
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Item |
In this situation: |
The modification is... |
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1 |
You exercise rights issued to you to *acquire the *shares, units or options. |
The first element of your *cost base and *reduced cost base for the shares, units or options is the amount you paid to exercise the rights. |
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2 |
You exercise rights you *acquired from another entity to acquire the *shares, units or options. |
The first element of your *cost base and *reduced cost base for the shares, units or options is the amount you paid for them plus any amount you paid to exercise the rights. |
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3 |
You exercise rights issued to you to *acquire the *shares, units or options, and you acquired the original shares or notes, or the original units or notes, before 20 September 1985 |
The first element of your *cost base and *reduced cost base for the shares, units or options is the market value of the rights (when they were exercised) plus any amount you paid to exercise the rights. |
The payment can include giving property: see section 103-5.
(7) A *capital gain or *capital loss you make from the exercise of the rights is disregarded.
Note 1: The exercise of the rights would be an example of CGT event C2 (about a CGT asset ending).
Note 2: There are transitional rules for some rights: see section 130-40 of the Income Tax (Transitional Provisions) Act 1997.
Note 3: The effect of this Subdivision is modified in 2 cases by sections 102AAZBA (about non-resident trusts) and 414 (about CFC's) of the Income Tax Assessment Act 1936.
130-45 Timing rules
Acquisition of rights
(1) If you *acquired the rights from the company or trustee, you are taken to have acquired the rights when you acquired the original shares or notes or the original units or notes.
Acquisition of shares, units or options on exercise of rights
(2) You are taken to have *acquired the new *shares, units or options when you exercise the rights.
130-50 Application to options
This Subdivision applies to options in the same way that it applies to rights.
Subdivision 130-C - Convertible notes
130-60 Shares or units acquired by converting a convertible note
(1) This table sets out the modification to the rules about *cost base and *reduced cost base that happens if you *acquire *shares, or units in a unit trust, by converting a *convertible note.
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Conversion of a convertible note |
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Item |
In this situation: |
The modification is: |
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1 |
You *acquire *shares or units in a unit trust by converting a *convertible note that is a *traditional security. |
The first element of the *cost base and *reduced cost base of the *shares or units is their market value at the time of the conversion |
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2 |
You *acquire *shares (except shares acquired under an *employee share scheme) by converting a *convertible note that is not a *traditional security |
The first element of the *cost base and *reduced cost base of the *shares is the sum of: · the amount you paid to *acquire the *convertible note; and · any amount you paid in relation to the conversion |
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3 |
You *acquire units in a unit trust by converting a *convertible note (except one that is a *traditional security) that was issued by the trustee of the unit trust |
The first element of the *cost base and *reduced cost base of the units is the sum of: · the amount you paid to *acquire the *convertible note; and · any amount you paid in relation to the conversion |
The payment can include giving property: see section 103-5.
(2) You are taken to have *acquired the shares or units when the liability to pay for the convertible note arose.
(3) A *capital gain or *capital loss you make from converting the convertible note is disregarded.
Note 1: The conversion of the convertible note would be an example of CGT event C2 (about a CGT asset ending).
Note 2: There are transitional rules for some convertible notes: see section 130-60 of the Income Tax (Transitional Provisions) Act 1997.
Subdivision 130-D - Employee share schemes
Table of sections
130-80 Share or right acquired under employee share scheme
130-83 Qualifying shares and qualifying rights
130-85 Share or right acquired under employee share scheme involving your associate
130-90 Share or right acquired under an employee share trust
130-80 Share or right acquired under employee share scheme
(1) This section sets out what happens if you *acquire a *share or right at a discount (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) under an *employee share scheme.
(2) The first element of the *cost base and *reduced cost base of the *share or right is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936) when you *acquired it.
130-83 Qualifying shares and qualifying rights
(1) There is an exception if:
(a) the *share is a *qualifying share or the right is a *qualifying right; and
(b) you do not make an election under section 139E of the Income Tax Assessment Act 1936 to include an amount in your assessable income for the income year in which you *acquired the share or right.
Note: If you do not make an election of this kind, the amount is included in your assessable income for the income year in which the cessation time occurs: for example, when restrictions on disposing of the share cease.
(2) If *CGT event A1, E1, E2 or E5 happens in relation to the *share or right (or any *share you *acquired by exercising the right) in an arm's length transaction at the *cessation time, or within 30 days after that time, any *capital gain or *capital loss you make from the disposal is disregarded.
Note: The full list of CGT events is in section 104-5.
(3) If that event does not happen in relation to the *share or right (or any *share you *acquired by exercising the right) in an arm's length transaction at the *cessation time, or within 30 days after that time:
(a) you are taken to have acquired the share or right at the cessation time; and
(b) the first element of the *cost base and *reduced cost base of the share or right is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936) at that time.
130-85 Share or right acquired under employee share scheme involving your associate
(1) This section sets out the modification to the rules about *cost base and *reduced cost base that happens if:
(a) you *acquire a *share or right at a discount (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) under an *employee share scheme; and
(b) an amount is included, under section 139D of the Income Tax Assessment Act 1936, in:
(i) your *associate's assessable income; or
(ii) the assessable income of a company (an affiliate company ) where you own an indirect interest in a *share in the company or in a right to acquire a share in it through one or more interposed companies, partnerships or trusts.
(2) The first element of the *cost base and *reduced cost base of the *share or right is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936) when you *acquired it.
130-90 Share or right acquired under an employee share trust
(1) A *capital gain or a *capital loss a trustee makes when a beneficiary becomes absolutely entitled to a *share or right in a company is disregarded if these conditions are satisfied.
(1A) The beneficiary must be:
(a) a *PAYE earner of the company or of another company (at the time the beneficiary first became beneficially entitled to the *share or right); or
(b) an *associate or affiliate company of such a PAYE earner.
(2) The terms of the trust must have required or authorised the trustee to transfer the *share or right to the *PAYE earner, *associate or affiliate company.
(3) The *PAYE earner, *associate or affiliate company must have acquired the *share or right under an *employee share scheme.
(4) The *PAYE earner, *associate or affiliate company must not have *acquired the *share or right for more than the *cost base of the share or right (in the hands of the trustee) at the time of the transfer.
Note: There are transitional rules for some shares or rights acquired under employee share schemes: see Subdivision 130-D of the Income Tax (Transitional Provisions) Act 1997.