In taxation ruling 2012/1 the ATO clarifies what happens when:
- you invest in a company
- that company offer investors a discounted share purchase plan
- you don’t participate
- the company sells your rights to discounted shares
- the company pays you the amount received on the rights sale
The ATO has confirmed now that these payments are dividends for tax purposes and unfranked.
So what, I hear you ask? After all, sometimes people called it a capital gain, sometimes a dividend. Many times people just scratched their heads and said “I’ll just declare it as other income”. Either way it was taxable.
But there are two important implications here:
- Non residents pay tax – Capital gains on share sales by non-residents are normally not taxed as they are tax exempt. But unfranked dividends are subject to withholding tax which goes directly to the ATO. So it makes a big difference as these amounts can be taxed.
- There is no CGT discount – some taxpayers declared the money as a capital gain and if they held the underlying shares for a over a year, tried to claim the 50% discount to reduce their gain. Now that it is officially not a capital gain this is not an option.