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INCOME TAX ASSESSMENT ACT 1997 - SECT 130.40 Exercise of rights

INCOME TAX ASSESSMENT ACT 1997 - SECT 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:   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 .

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