ATO ID 2013/19: Capital gains tax - bonus shares
Date of decision: 25 March 2013
Year of income: Year ended 30 June 2012
Business line: Private Groups and High Wealth Individuals

Issue
Does subsection 130-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997), as originally enacted, apply where bonus shares were acquired prior to 1 July 1998 and those shares are disposed of after 1 July 1998?

Decision
Yes. Subsection 130-20(1) of the ITAA 1997 as originally enacted, applies to bonus shares issued up to 1 July 1998.

Facts
The taxpayer purchased shares in a company prior to 20 September 1985. Because of the taxpayer's ownership of these shares, the company issued bonus shares to the taxpayer during the year ended 30 June 1992. The taxpayer sold the bonus shares in the year ended 30 June 2012 which caused CGT event A1 under section 104-10 of the ITAA 1997 to happen.

Reasons for decision
Summary: The capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997 are rewritten from the Income Tax Assessment Act 1936 and apply to assessments for the 1998-99 income year and later (section 102-1 of the Income Tax Transitional Provision) Act 1997 (IT(TP)A 1997)). The sale of bonus shares in June 2012 triggers CGT event A1 under section 104-10 of the ITAA 1997. Subdivision 130-A of the ITAA 1997 determines the acquisition time and cost base of bonus shares. Subsection 130-20(1) of the ITAA 1997 has been amended since it was first enacted. As originally enacted it states: 130-20 Issue of bonus shares or units (1) This section sets out what happens if: (a) you own *shares in a company or units in a unit trust (the original equities); and (b) the company issues other shares, or the trustee issues other units, (the bonus equities) to you because it owes an amount to you in relation to the original equities. The Taxation Laws Amendment (Company Law Review) Act 1998 (Act No. 63 of 1998) amended the original version of subsection 130-20(1) of the ITAA 1997, with effect from 1 July 1998, to remove the words, '... because it owes an amount to you ... ' from paragraph 130-20(1)(b) of the ITAA 1997. The Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998, that inserted the amendment, effectively provided that the amendment applies to 'things done' after 1 July 1998. In subsection 102-5(1) of the IT(TP)A 1997 the general rule in calculating a capital gain or capital loss is that: ...you use only the provisions of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (or a provision of an Act that modifies the operation of those Parts) unless a provision of this Part or Part 3-3 of this Act also requires you to use another provision. Note 1 to section 102-5 of the IT(TP)A 1997 also provides that: This means that, for example, in working out your cost base of the asset, you will apply the new law to circumstances that occurred before the 1998-99 income year (except where this Act requires you to use another provision). [Emphasis added] As such, even though the bonus shares were issued in 1992, through the applications of sections 102-1 and 102-5 of the IT(TP)A 1997, Parts 3-1 and 3-3 of the ITAA 1997 apply in calculating the capital gain. Subsection 130-20(1) of the ITAA 1997, as originally enacted, applies to 'things done' prior to 1 July 1998 while the amended version applies to 'things done' after this date. In this case the 'things done' is the issuing of the bonus shares. As this occurred in 1992, that is, prior to 1 July 1998, subsection 130-20(1) as originally enacted applies.

Legislative references: Income Tax Assessment Act 1997 Part 3-1 section 104-10 Part 3-3 Division 130 subdivision 130-A section 130-20 subsection 130-20(1) paragraph 130-20(1)(a) paragraph 130-20(1)(b)
Other references: Explanatory Memorandum to the Tax Law Improvement Bill (No. 1) 1998 Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998
Subject references: bonus shares capital gains tax pre-CGT shares share premiums shares tax law improvement project