Q&A 12 February 2004
Question: I have recently received bonus shares from a company in which I held an investment. The shareholder release indicated that the distribution is tax-free. If I sell the shares, what is the cost base for capital gains tax (CGT) purposes?
Answer:There are two ways bonus shares are issued.
Firstly, they can be issued as a taxable distribution (similar to a dividend reinvestment), in which case the cost base will be determined as the amount of the taxable distribution.
Secondly, they can be issued as a tax-free distribution. In this case, the cost base of the shares is determined by the original holding.
Where the original shareholding was pre-CGT (that is, acquired prior to September 20, 1985), the bonus shares will also be exempt from CGT. Where the original shareholding was post-CGT, the shares will be deemed to be acquired at the date the original shares were acquired and the original cost base will be allocated on a pro rata basis between the bonus shares and the original shareholding.
Example (post-CGT)
Date of Acquisition No. Shares Cost Base
June 10, 2000 10,000 $11,000
If a one for 10 bonus issue was made, the cost base would be pro rata as follows:
Date of Acquisition No. Shares Cost Base
June 10, 2000 10,000 $10,000
June 10, 2000 1,000 $1,000
Jason Menzies is senior technical manager,Integratec .
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