Tax Tip 275: What is the Acquisition Date of Bonus shares for CGT purposes?

Discussion in 'Accounting & Tax' started by Terry_w, 2nd Mar, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Generally, bonus shares will be deemed to have been acquired at the same date as the original shares. Section 130-20 of the ITAA 1997
    INCOME TAX ASSESSMENT ACT 1997 - SECT 130.20 Issue of bonus shares or units
    See item 1 in the table.


    Example

    Bart has some BBB shares which he purchased on 1 July 2017. On 1 July 2019 BBB issues Bart with 100 extra shares under the Bonus Share Scheme. If Bart sold these shares on 2 July 2020 he would be deemed to have held them for 12 months and would be entitled to the 50% CGT discount.


    Note that there a complexity with working out the cost base on bonus shares.


    Tax advice is needed in any case.
     
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I'm often told by people they got bonus shares and they think their tax position is different to what it should be.

    Bonus shares are pretty rare (AFIC is one that comes to mind. I cant think of another)
    Other forms of share (or trust unit) issues may have a taxable impact eg

    Dividend / trust reinvestment. This is actually two tax events. 1. Taxable income is payable and then 2. these proceeds are not paid but are applied to newly issues share of units. The amount is 1. is income and taxable and the amount in 2. is the CGT costbase.

    Inheritance. One of the most misunderstood and confusing. The beneficicary will inherit a costbase for the shares despite paying nothing. This may be the costbase of the deceased or it may be the market value on the date they died. It is NEVER $0. Tax advice at the time of inheritance should be obtained if you dont knoiw what the costbase is.

    Dividend / Trust income not banked or received. This occurs when share or unit holders become lost and dont receive their income until perhaps several months of years later. However deferred receipt of this income is NOT reason that it is not taxable. The income remains assessable when it was to be paid.

    Employee Share Plans. More complex in many cases. The shares may be given or issued for a price. A ESS payg sumamry will likely be given if the shares are free and for some taxpayers receiving under $1k this may be tax free. The costbase of the shares needs to be known. It is NOT $0. ESS issues can also be deferred in some cases and a vesting may later add the value of the discount to the price to be assessaable income. The costbase for the shares is generally what is paid PLUS the ESS assessable discount.

    Rights Issues. Some are issued at a discount. Shareholder information will be given by the company and may need tax advice. The ATO often issue rulings to guide taxpayers.

    Share Consolidations. There occurs when a company reconstitutes its capital and switches ALL shareholders from say 10,000 shares to 1,000 shares. There is no tax event. The costbase in $ terms remains identical to waht was paid etc. However the cost per share is now 10 x what it was.

    Share reconstruction. These occur when a company reconstitutes its capital and switches ALL shareholders from say 1,000 shares to 10,000 shares. The inverse of a share consolidation.

    Share Splits / demerger. These occurs when a company carves out another part of its operations as a new company with new shares. eg Wesfarmers / Coles demerger. Generally the demerger will have a ATO ruling which will apportion the original taxpayer costbase into two new elements. It is impossible for Coles shares to have a $0 costbase.

    Return of Capital This occurs when a company gives back some of its capital to shareholders. It is NOT taxable as a dividend despite it often being paid at the same time as a dividend. The returned capital will reduce the costbase of the holding affecting future capital gains tax calcs.

    AMIT / Tax Deferred Distributions. These dont apply to shares in a company but are common for trust distributions. A element of trust ïncome"received is reflected in the annual tax report. The AMIT amount will either increase the costbase or reduce it. This affects the CGT profit / loss when the units are disposed of. Taxpyers must retain and considere this when they dispose of trust units. Its very commeon to find these amounts can be significant. Taxpayers will generally underpay tax but recent examples do mean tax can be overpaid.

    Compulsory Acquisitions & Takeovers. These can vary enormously. Tax advice or a ATO ruling is often given to assist taxpayers. Elements may include a special dividend, a return of capital and even redemption or purchase. Just because its comulsory it doesnt eman any special tax benefit is available. It is an involunatary sale in many cases. Some reconstituted entities may issue new shares in the new entity and the tax ruling will guide how the matter should be dealt with.

    Generally speaking all tax information and records will be available through the relevant share / unitholders registry online. This includes a historical sumamry of all movements, all docs issues,. all income paid and tax statemnets etc. To avoid human interaction most registry service providers allow online logins for a single holding using the Holder Identification Number (HIN) and PostCode.