Retail Entitlement Offer

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 and can be accessed here.

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).