Retail Entitlement Offer

A general summary of potential tax implications of the Retail Entitlement Offer for eligible retail shareholders who hold their existing NAB ordinary shares on capital account is included in Section 4 of the Retail Offer Booklet, which was mailed to all eligible retail shareholders on Monday, 18 May 2015.

The tax implications of investing in New Shares will vary depending on the specific circumstances of individual investors.

It is strongly recommended that each Eligible Retail Shareholder seek their own independent professional tax advice applicable to their particular circumstances.

No. The issue of the Entitlements should not, of itself, result in any amount being included in your Australian assessable income. 

However, NAB employees who hold their NAB shares through an employee share trust may be taxed at the time of issue in some circumstances. NAB employees should refer to separate employee communications in relation to the tax treatment of their Entitlement.

You will not be subject to income tax or Capital Gains Tax (CGT) in Australia at the time you exercised (ie. took up) your Entitlements.

If you took up all or part of your Entitlement, you will have acquired New Shares.

If you held your rights as a CGT asset (ie. you do not carry on a business trading in shares), the CGT cost base for your New Shares will be equal to the Offer Price payable by you for those New Shares plus certain incidental costs of acquisition.

New Shares will be taken to have been acquired on the day you exercised your Entitlements.

If you sold your Entitlement on ASX or otherwise, you should have derived a capital gain in Australia equal to the sale proceeds less certain non-deductible costs of disposal (provided that you hold your shares as a CGT asset, ie. you do not carry on a business trading in shares). 

You are taken to have acquired your Entitlement on the same date as you acquired your original shares.

Therefore, certain eligible taxpayers will be entitled to the CGT discount on any gains on disposal of their Entitlement, provided they held their original shares for at least 12 months before the date of sale. The CGT discount is 50% for individuals and trustees and 33.3% for complying superannuation entities.

If you did nothing, your Entitlements were sold into the Retail Shortfall Bookbuild and any proceeds in respect of the sale were paid to you in cash (the Retail Premium).

NAB’s tax advisors consider that a sale into the Retail Shortfall Bookbuild should be taxed in the same way as a sale of Entitlements on ASX. That is, provided you hold your shares as a CGT asset (ie. you do not carry on a business trading in shares), you should have derived a capital gain for CGT purposes equal to the sale proceeds less certain non-deductible costs of disposal. Eligible taxpayers will be entitled to the CGT discount if they had held their original shares for at least 12 months before the date of sale.

However, as outlined in Section 4 of the Retail Offer Booklet, at the time of the Offer there was some uncertainty surrounding the tax treatment of Retail Premiums. The uncertainty arose because the Commissioner of Taxation had released Taxation Ruling TR 2012/1 ‘Retail Premiums paid to Shareholders where share entitlements are not taken up or are not available’ which stated that certain retail premiums were assessable as either an unfranked dividend or as ordinary income. This ruling did not apply to entitlements which could be traded and so NAB’s tax advisors considered that this ruling was not applicable to NAB’s Entitlement Offer. However the Commissioner had not issued any guidance specific to the circumstances of NAB’s Offer. Therefore, shareholders were alerted to the possibility that the ATO may seek to apply the treatment in TR 2012/1 and tax the Retail Premium as a dividend or ordinary income rather than as capital proceeds.

This uncertainty has now been resolved. On 5 July 2017, the Commissioner of Taxation finalised Taxation Ruling TR 2017/4: Income tax: taxation of rights and retail premiums under renounceable rights offers where shares held on capital account. TR 2017/4 applies to the exact circumstances of NAB’s Retail Entitlement Offer and confirms that the Retail Premium for such offers represents capital proceeds from a CGT event. It also confirms that the acquisition date of the rights for CGT purposes is the date when the shareholder acquired their original shares, so certain shareholders may be eligible for the CGT discount if they held their original NAB shares for 12 months or more.

The new ruling applies to income years before and after the date of issue, unless it conflicts with the terms of settlement of a previous dispute. The earlier ruling (TR 2012/1) continues to apply, but only to non-renounceable offers.

If you elected to ‘do nothing’ and received the Retail Premium (i.e. sold your Entitlements through the Retail Shortfall Bookbuild) this new ruling (TR 2017/4) may be relevant to you.  If you receive any questions from the ATO about the treatment of the Retail Premium in your 2015 tax return you may need to refer to this ruling. The new ruling is available on the ATO's website or download a copy of the Tax Ruling (PDF, 70KB), opens in new window.

No, the comments above are only relevant to Australian resident investors who hold their original NAB shares as a CGT asset (ie. they do not carry on a business trading in shares). You should seek your own tax advice in relation to the tax treatment of the Entitlement Offer in your country of residence.

If your original NAB shares are pre-CGT shares (ie. they were acquired before Capital Gains Tax (CGT) was introduced on 20 September 1985), the tax comments in the Offer Booklet do not apply to you. The treatment of your Entitlement is generally summarised below. However, we recommend you seek your own advice based on your own facts and circumstances.

If you exercised your Entitlement to buy New Shares

Your new NAB shares will not be pre-CGT assets and therefore you'll be subject to tax when you dispose of them. The cost base of your New Shares is equal to the exercise price of $28.50 plus the market value of the Entitlements at the date of exercise. 

Based on the offer documentation, NAB considers that the date of exercise is 11 June 2015 for all shareholders. The Entitlements were not trading on this day, but the Volume Weighted Average Price (VWAP) for ordinary trades of NAB shares was $32.36, so NAB has estimated the value of the rights to be $3.86 (ie. $32.36 less $28.50). 

Therefore, for CGT purposes, you may wish to use a cost base of $32.36 and an acquisition date of 11 June 2015.

If you sold your Entitlement on the ASX or using an off market transfer

Your Entitlements have the same pre-CGT status as your original NAB shares because the CGT acquisition date is deemed to be the date when you bought your original shares. Therefore, provided your Entitlements are a capital asset (ie. you do not carry on a business of share trading), you will not be subject to tax on the sale of your entitlements.

If your Entitlement was sold into the Retail Shortfall Bookbuild

Your Entitlements have the same pre-CGT status as your original NAB shares because the CGT acquisition date is deemed to be the date when you bought your original shares. Therefore, provided your Entitlements are a capital asset (ie. you do not carry on a business of share trading), you will not be subject to tax on the $3.10 Retail Premium (which represents the proceeds of the sale through the bookbuild).

Terms and definitions

ASX

ASX Limited (ABN 98 008 624 691) or the Australian Securities Exchange, as the context requires.

Eligible institutional shareholder

An institutional shareholder to whom the underwriters made an offer on behalf of NAB under the Institutional Entitlement Offer.

Eligible retail shareholder

A shareholder who:

• was registered as a holder of existing NAB ordinary shares as at the Record Date, being 7.00pm (Melbourne time) on Tuesday, 12 May 2015
• had a registered address on the NAB share register in Australia or New Zealand
• was not in the United States and was not acting for the account or benefit of a person in the United States (to the extent such person holds NAB ordinary shares for the account or benefit of such person in the United States)
• was not invited to participate (other than as nominee, in respect of other underlying holdings) under the Institutional Entitlement Offer, and was not treated as an ineligible institutional shareholder under the Institutional Entitlement Offer, and
• was eligible under all applicable securities laws to receive an offer under the Retail Entitlement Offer.

Eligible Shareholders

A person who was an eligible institutional shareholder or an eligible retail shareholder.

Entitlement

The entitlement of an eligible shareholder to 2 New Shares for every 25 shares held on the Record Date.

Entitlement and Acceptance Form

The personalised entitlement and acceptance form to subscribe for New Shares accompanying the Retail Offer booklet.

Entitlement Offer

The pro rata accelerated renounceable entitlement offer of New Shares with retail rights trading to eligible shareholders to raise approximately $5.5 billion at the Entitlement Offer Price on the basis of 2 New Shares for every 25 existing NAB ordinary shares held on the Record Date, and comprised of the Institutional Entitlement Offer and the Retail Entitlement Offer.

Entitlement Offer Price

$28.50 per New Share.

Ineligible institutional shareholders

An institutional shareholder that was not an eligible institutional shareholder.

Ineligible retail shareholders

A retail shareholder that was not an eligible retail shareholder.

Institutional Entitlement Offer

The pro rata renounceable entitlement offer of New Shares to eligible institutional shareholders under the Entitlement Offer.

Institutional Shortfall Bookbuild

A bookbuild for the Institutional Entitlement Offer, through which Institutional Entitlements not taken up and entitlements of ineligible institutional shareholders were sold on Monday, 11 May 2015.

NAB

National Australia Bank Limited (ABN 12 004 044 937).

New Share

A share offered under the Entitlement Offer.

Record Date

The date and time for determining which shareholders are registered as a holder of shares, being 7.00pm (Melbourne time) on Tuesday, 12 May 2015.

Retail Entitlement

An entitlement under the Retail Entitlement Offer.

Retail Entitlement Offer

The pro rata renounceable entitlement offer of New Shares to Eligible Retail Shareholders under the Entitlement Offer.

Retail Offer Booklet

The Retail Offer Booklet (PDF, 3.3MB), opens in new window dated 12 May 2015.

Retail Shortfall Bookbuild

A bookbuild for the Retail Entitlement Offer, through which Retail Entitlements which are not taken up by the close of the Retail Entitlement Offer, and Retail Entitlements of ineligible retail shareholders, will be sold on Thursday, 4 June 2015.

Share

Ordinary shares in NAB.

Shareholder

A holder of shares.