Almost three years after the decision in McNeil v FCT, the ATO is finalising a draft ruling on the taxation implications of retail premiums paid to security holders where rights to acquire securities at a discount lapse or cannot be exercised. In May this year the ATO released a Taxpayer Alert and Fact Sheet outlining its views that a retail premium is an unfrankable dividend. On that basis:

  • the issuer has a withholding tax obligation on amounts paid to non-residents or resident security holders who have not quoted a TFN, and
  • security holders cannot claim the CGT discount on the payment.

While there is doubt as to whether the ATO’s views are correct, unless an issuer is prepared to seek judicial clarification on the matter, the ATO’s view will go unchallenged.