Commonwealth Consolidated Acts Commonwealth Consolidated Acts(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: For rights acquired under employee share schemes, see Division 83A, Subdivision 130 - D and Division 134.
(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 interests issued by, the company or a company that is a member of the same * wholly - owned group (the original shares or interests ); or
(b) already own units in, or convertible interests issued by the trustee of, the unit trust (the original units or interests ).
(4) You must have * acquired the rights from an entity that already owned shares, units or convertible interests 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.
Modifications on exercise of rights | ||
Item | In this situation: | The modification is... |
1 | You exercise rights issued to you to * acquire the * shares, units or options. | The first element of your * cost base for the shares, units or options is the sum of: (a) the cost base of the rights at the time of exercise; and (b) any amount paid to exercise the rights, except to the extent that the amount is represented in the paragraph (a) amount; and (c) all the amounts to be added under subsection (6A). The first element of their * reduced cost base is worked out similarly. |
2 | You exercise rights you * acquired from another entity to acquire the * shares, units or options. | The first element of your * cost base for the shares, units or options is the sum of: (a) the cost base of the rights at the time of exercise; and (b) any amount paid to exercise the rights, except to the extent that the amount is represented in the paragraph (a) amount; and (c) all the amounts to be added under subsection (6A). The first element of their * reduced cost base is worked out similarly. |
3 | You exercise rights issued to you to * acquire the * shares, units or options, and you acquired the original shares or * convertible interests, or the original units or convertible interests, before 20 September 1985. | The first element of your * cost base for the shares, units or options is the sum of: (a) the * market value of the rights when they were exercised; and (b) any amount paid to exercise the rights, except to the extent that the amount is represented in the paragraph (a) amount; and (c) all the amounts to be added under subsection (6A). The first element of their * reduced cost base is worked out similarly. |
(6A) An amount is to be added under this subsection if a * capital gain made from the right has been reduced under section 118 - 20. This is so even though a capital gain that is made on exercise is disregarded under subsection (7). The amount to be added is the amount of the reduction.
Note: For example, a capital gain made on the exercise of the right under section 118 - 20 may be reduced because an amount is included in the owner's assessable income under subsection 26BB(2) of the Income Tax Assessment Act 1936 (about assessing a gain on disposal or redemption of a traditional security) or section 159GS of that Act (about balancing adjustments on transfer of a qualifying security).
(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 .