Shares may be held in joint names. If you hold shares jointly with another person, such as your spouse, it is assumed that ownership of the shares is divided equally.
Shares can also be owned in unequal proportions. You have to be able to demonstrate this (for example, with a record of the amount contributed by each party to the cost of acquiring the shares). Dividend income and franking credits are assessable in the same proportion as the shares are owned.
Shares Held in Children’s Names
Custodians, such as parents or grandparents holding shares on behalf of minors (under a legal disability), should be treated as the owners of the shares unless the child is considered the genuine beneficial owner.
If a child is the owner of shares, any dividend income should be included on the child’s tax return. Note that in some circumstances the income of a minor is subject to the highest marginal rate of tax. Any excess franking credits may also be refundable.
The Right to Buy Shares
Companies may periodically issue their shareholders with rights to purchase additional shares. These are otherwise known as ‘call rights’ or ‘call options’.
A particular rights issue might be described as a ‘one-for-four’ issue, meaning that you are entitled to purchase an
additional share for every four shares you currently own. You can choose to exercise this right, sell it on the stock exchange or allow it to lapse.
You do not have to include in your assessable income the market value of the rights to acquire shares in a company, provided that:
- You already own shares in the company;
- The rights were issued to you because of your ownership of the shares;
- Your shares, and the rights, must not have been revenue assets or trading stock at the time they were issued;
- The rights were not acquired under an employee share scheme and your shares, and the rights, were not traditional securities; and
- Your shares were not convertible interests.
If all of these conditions are satisfied, the only tax consequences that may arise involve Capital Gains Tax (“CGT”). In other situations, the issue of the rights may mean that you have derived assessable income, or that the CGT provisions apply.
The Right to Sell Shares
If you are issued a tradeable right to sell your shares back to a company (otherwise known as a put option), the market value of the right should be included in your assessable income at the time the right is issued. Any amount that is included in your assessable income will be included in the cost base of your rights or, if you exercise the rights, in the cost base of the shares you acquired as a result of exercising the right.
Companies may also issue their shareholders with options. If you receive such an option, you have the right to acquire or sell shares in the company at a specified price on a specified date. You may also be able to trade these options on the stock exchange, or allow them to lapse.
Options are similar to rights and the terms are often used interchangeably. The main difference between options and rights is that options can usually be held for a much longer period than rights before they lapse or must be exercised. Options may also be issued initially to both existing shareholders and non-shareholders while rights can only be issued initially to existing shareholders.
Exchange traded options are types of options that are not created by the company but by independent third parties that are traded on the stock exchange. They come in two forms:
- A call option, which is a contract that entitles its holder to buy a fixed number of shares in the designated company at a stated price on or before a specified expiry date; and
- A put option, which is a contract that entitles its holder to sell a fixed number of shares in the designated company at a stated price on or before a specified expiry date.
Share warrants come in many different forms, examples include, equity warrants, endowment warrants, portfolio
warrants, capital plus warrants and instalment warrants.
The income tax and CGT consequences of holding, acquiring and disposing of these financial products can be quite complex.
If you have disposed of any of these products, you should contact us or a recognised tax adviser if you are unsure of the taxation consequences.
Off-market Share Buy-backs
If you disposed of shares to a company under a buy-back arrangement, you may have made a capital gain or capital loss. A part of the buy-back price may be treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the particular buy-back offer.
If the information provided by the company or any class ruling that has been issued in relation to the buy-back is not sufficient for you to calculate your capital gain or capital loss, you may need to seek advice from us or a recognised tax adviser.
Generally, you should keep records of both income and deductions relating to your share investment for five years from 31 October 2019 or the date you lodge your tax return, whichever is later.
Remember that your investment in shares (or other assets such as instalment receipts) may also give rise to a capital gain when you dispose of them. For CGT purposes, you will need to keep detailed records of any shares or other assets you acquired on or after 20 September 1985 or of any other related transaction. You will need to keep those records for five years after you dispose of the shares or other assets.
You must keep records setting out in English:
- The date you acquired the asset;
- Any amounts which will form part of the cost base of the asset;
- The date you dispose of the asset; and
- The capital proceeds from the sale.
You can choose to enter information from your CGT records into an asset register. Keeping an asset register may enable you to discard records that you may otherwise be required to keep for long periods of time.
Keep all the information that a company gives you about your shares. It may be important when calculating your CGT liability after you dispose of them. You must also keep records relating to your ownership of assets for five years from the date you dispose of them.