This Ruling, issued on Wed 25.1.2012, states the Commissioner’s view regarding the tax treatment of retail premiums paid to non-participating shareholders in companies for amounts subscribed for shares. Broadly, these schemes involve a company granting rights to its existing shareholders that allow them to subscribe for new shares at an amount (“offer price”). For shareholders who are not eligible to receive the rights or did not exercise the rights, the company will issue their shares to other subscribers at an amount (“clearing price”). If the clearing price is in excess of the offer price, the difference (“retail premium”) may be paid to those non-participating shareholders.

According to the Ruling, the retail premiums are: (i) dividend income under s 44 of the ITAA 1936 for resident shareholders; and (ii) non-assessable non-exempt income under s 128D of the ITAA 1936 and subject to withholding tax for non-resident shareholders. Alternatively, the Ruling states the premiums are ordinary income under s 6-5 of the ITAA 1997 if they are not assessable dividends.

It also states the premiums paid to the shareholders are unfranked distributions sourced, directly or indirectly, from a company’s share capital account pursuant to s 202-45(4)(e) of the ITAA 1997.

The Ruling also states CGT event C2 happens when the shareholders become entitled to the retail premiums, and any capital gains made from the event are reduced by the amount reported as assessable income or non-assessable non-exempt income.

The Ruling was previous issued as Draft TR 2010/D8.

[LTN 16, 25/1]