25 Jan 12 Retail premiums paid to shareholders on share entitlements not taken up or not available - TR 2012/1
On 25 January 2012, the ATO issued Taxation Ruling TR 2012/1 entitled "Income tax: retail premiums paid to shareholders where share entitlements are not taken up or are not available". It was previously released in draft form as TR 2010/D8.
The Ruling applies to schemes with features described in the Ruling. Shareholders who choose not to exercise some or all of their entitlements or are not be eligible to receive an entitlement or are not permitted to exercise rights under an entitlement issued under such a scheme and who receive a "retail premium" are referred to in the Ruling as "Non Participating Shareholders".
The Ruling states:
- a retail premium paid to a Non Participating Shareholder is a dividend that is included in assessable income under s 44 of the ITAA 1936, unless the Retail Premium is non-assessable non-exempt income
- a retail premium paid to a non-resident will be non-assessable non-exempt income under s 128D of the ITAA 1936 where it is subject to withholding tax under s 128B of the ITAA 1936
- a retail premium paid to a Non Participating Shareholder is an unfrankable distribution sourced, directly or indirectly, from a company's share capital account pursuant to s 202-45(e) of the ITAA 1997
- in the alternative, a retail premium paid to a Non Participating Shareholder is ordinary income that is assessable income under s 6-5 of the ITAA 1997 if the Retail Premium is not a dividend
- when the Retail Premium is paid to the Non Participating Shareholder, CGT event C2 under s 104-25 of the ITAA 1997 happens, and
- any capital gain a Non Participating Shareholder makes from receipt of the retail premium is reduced under section 118-20 of the ITAA 1997 to the extent that the amount is otherwise included in the Non Participating Shareholder's assessable income (under s 44 of the ITAA 1936, or alternatively s 6-5 of the ITAA 1997), or is non-assessable non-exempt income (under s 128D of the ITAA 1936).