A capital raising asks existing shareholders to buy more shares, usually at a discount, through a renounceable rights issue, a non-renounceable rights issue, or a Share Purchase Plan capped at $30,000 per holder. Taking up the offer isn't a taxable event, but selling renounceable rights on-market is a CGT event with a nil cost base, and the new shares get their own acquisition date for the 12-month discount test.
If you hold shares directly, a common corporate event is the capital raising — when a listed company needs new equity and offers its existing shareholders the chance to buy additional shares, usually at a discount to the market price. This is the opposite of a takeover (where your shares are bought) or a demerger (where the company splits): a capital raising asks you to put more money in, and you have to decide whether to participate, decline, or — for renounceable offers — sell your entitlement. Raisings come in three main shapes: a renounceable rights issue, where you get tradeable rights you can take up, sell on-market, or let lapse; a non-renounceable rights issue, where the rights can only be taken up or allowed to lapse, not sold; and a Share Purchase Plan (SPP), where each eligible shareholder can buy up to a capped dollar amount regardless of holding size. Each has its own decision logic and capital gains tax (CGT) consequences. For retirees — whose portfolios often lean toward income stocks in sectors that raise capital fairly often, like banks, real estate investment trusts and resources — these come up as both a recurring investment decision and a record-keeping job, because the new shares form a separate parcel with their own cost base and acquisition date.
What actually is a capital raising?
At its core, a capital raising is the company issuing new shares to raise money — to fund an acquisition, cut debt, support growth, or repair a stressed balance sheet — and the reason matters to your decision. Rights issues and SPPs offer the new shares to existing holders at a discount as an incentive to take part. A shareholder who doesn't participate is diluted: their stake becomes a smaller slice of a now-larger company. Because banks, REITs and resources companies raise capital relatively often, a retiree with a diversified direct-share portfolio can expect to face these decisions from time to time.
Why are renounceable rights the most flexible structure?
In a renounceable rights issue you receive rights to buy new shares at the offer price, in proportion to your existing holding, and crucially those rights are tradeable. That gives you three choices: take up the rights and pay for the new shares; sell the rights on-market if you don't want to participate; or let them lapse. The flexibility matters, because a shareholder who can't or won't participate isn't forced to swallow dilution for nothing — they can sell the rights and recover some value. The single most useful rule of thumb is the simplest: in a renounceable offer, if you are not taking up the rights, sell them rather than letting them lapse for nothing.
Why are non-renounceable rights riskier for shareholders?
A non-renounceable rights issue removes that flexibility. You still receive rights to buy new shares, but they cannot be sold — they can only be taken up or allowed to lapse. So there are just two options: pay for the new shares, or let the entitlement go and receive nothing for it while being diluted. That puts real pressure on shareholders to participate or accept uncompensated dilution, and for a retiree without spare cash it can be frustrating: there is simply no way to recover value from an entitlement they can't afford to take up.
How does a Share Purchase Plan favour smaller holders?
An SPP works differently. Rather than being proportional to your holding, it lets each eligible shareholder apply for up to a fixed dollar amount of new shares — and under ASIC's relief that limit is $30,000 per registered holder in any 12-month period, raised from $15,000 in 2019 specifically to help retail "mum and dad" investors take part in discounted raisings. Because the cap is the same dollar figure for everyone, it proportionally favours smaller shareholders: a retiree with a modest holding can buy far more discounted stock relative to their existing stake than a large institution can. SPP shares are usually offered at a discount, often the lower of a set price or a price based on a recent volume-weighted average, and where the plan is oversubscribed the company may scale back applications and return the excess money. For a small holder confident in the company, an SPP at a good discount can be one of the more attractive structures.
What CGT applies when you take up the offer?
Taking up rights or SPP shares is not itself a taxable event — you are simply buying shares, and the ATO confirms that in most cases no CGT is payable when you exercise rights or options. The new shares' cost base is generally what you paid for them. Two points catch people, though. First, the acquisition date of the new shares is the date you exercise the rights — not the original parcel's date — so the 12-month clock for the 50% CGT discount starts then, and selling the new shares within a year of the raising won't get the discount even if your original holding is decades old. Second, there is a wrinkle for very long-term holders: where your original shares were pre-CGT (acquired before 20 September 1985), the cost base of the new shares includes not just the price you pay but also the market value of the rights at the time you exercise them. Either way, the new shares are a separate parcel to track.
What CGT applies when you sell renounceable rights?
This is the part shareholders most often get wrong: selling renounceable rights on-market is a CGT event, not a tax-free windfall. For rights received in respect of post-CGT shares you hold, the cost base of the rights is generally nil, so the full sale proceeds are typically a capital gain. Because rights trade only for a short window before the offer closes, they are usually held well under 12 months, so the gain on selling them generally won't qualify for the 50% discount. The amounts are often modest, but it is a CGT event that has to be reported — selling rights isn't free of tax.
How should you decide whether to participate, and what records matter?
Whether to participate turns on retiree-specific factors. Participating captures the discount and avoids dilution — both in favour — but it requires cash, which is a real constraint on a fixed income, and it puts more money into a single company, which raises concentration concerns for a portfolio. The reason for the raise is a genuine signal: capital to fund growth or a value-accretive acquisition reads very differently from capital to repair a stressed balance sheet, which can hint at distress. And for an income-focused portfolio held for dividends, a capital call sits awkwardly — you're being asked to inject capital into a holding you bought for income. Participate only if you remain genuinely confident in the company and the call fits your strategy; and in a renounceable offer, if you're not taking the rights up, sell them. Whatever you decide, the record-keeping matters: every raising you join creates a new parcel at its own price and exercise date, so a long-held bank position can accumulate many parcels over the years, each with its own cost base and discount eligibility, and any rights sale is a CGT event to log. Keeping that clean is what prevents a tangled gain calculation when you, or your estate, eventually sell.
Worked examples
These two cases show how raisings are handled. They are illustrative only and not personal advice.
Margaret, 71, holds 5,000 shares in a major bank she has owned for 15 years for the fully franked dividends. The bank announces a non-renounceable rights issue at a discount to strengthen its balance sheet, offering one new share for every ten held — 500 new shares — and Margaret has limited spare cash. On these facts her choice is constrained: because the offer is non-renounceable she can't sell the entitlement, so it is take up or accept dilution for nothing, and the "balance-sheet strengthening" purpose is worth assessing carefully rather than assuming it's routine. On these facts the rational approach is to weigh whether she has both the cash and the conviction to participate; if she does, she records the 500 shares as a separate parcel with cost base equal to what she paid and an acquisition date of the exercise date — bearing in mind that parcel won't get the 50% discount if sold within 12 months, despite her 15-year original holding. If she doesn't, she accepts a modest dilution, with no rights-sale option to recover value because the offer is non-renounceable.
Bill, 68, holds 800 shares in a mid-cap company he believes in strongly, and it announces an SPP letting eligible shareholders apply for up to $30,000 of new shares at a discount to fund a growth acquisition. Bill has cash from a recently matured term deposit. On these facts the SPP structure strongly favours him as a small holder: the $30,000 cap (the maximum allowed per holder over 12 months under the ASIC rules) lets him buy far more discounted stock than a rights issue proportional to his 800 shares would. The raise is for growth, a more positive signal than balance-sheet repair, and he has both conviction and cash. On these facts it is generally rational to participate up to the cap or a comfortable amount, capturing the discount — while being aware of possible scale-back if the plan is oversubscribed, recording the new shares as a separate parcel, and weighing the concentration effect, since a large application meaningfully increases his exposure to one mid-cap. He should also report the change of holdings to Centrelink.
For retiree direct-share investors, capital raisings are recurring events that fuse an investment decision with a CGT and record-keeping task. The work is to identify the structure, weigh the discount against dilution, the reason for the raise, your conviction and concentration and your available cash, sell renounceable rights you don't intend to take up rather than let them lapse, record each new parcel with its cost base and exercise-date acquisition, log any rights sale as a CGT event, and keep the multiple parcels straight for the eventual sale. Unlike takeovers and demergers, which happen to you, a raising asks something of you — more capital — and the right answer depends on the discount, the company's prospects and the reason for the raise, your cash, and how much more concentration in that one holding makes sense.
Sources
- ATO — Exercising rights or options to acquire shares or units
- ASIC — Regulatory Guide 125: Share and interest purchase plans ($30,000 cap)
Key takeaways
- A capital raising asks existing shareholders for more money, unlike a takeover or demerger, and shareholders who don't participate are diluted.
- Renounceable rights can be taken up, sold on-market, or let lapse; non-renounceable rights can only be taken up or let lapse, with no way to recover value if declined.
- A Share Purchase Plan lets each eligible shareholder apply for up to $30,000 of new shares regardless of holding size, which proportionally favours smaller retail shareholders.
- Taking up rights or SPP shares isn't a taxable event, but the new shares get their own acquisition date at the exercise date, so the 12-month discount clock restarts.
- Selling renounceable rights on-market is a CGT event in its own right, typically with a nil cost base, so the full proceeds are usually a taxable capital gain.
Frequently asked questions
What's the difference between a renounceable and non-renounceable rights issue?
A renounceable rights issue gives you tradeable rights, so you can take them up, sell them on-market, or let them lapse. A non-renounceable rights issue removes the middle option — the rights can only be taken up or allowed to lapse, with no way to recover any value if you decline.
How does a Share Purchase Plan work differently from a rights issue?
Instead of being proportional to your existing holding, a Share Purchase Plan lets every eligible shareholder apply for up to a fixed dollar cap of new shares, currently $30,000 per registered holder in any 12-month period under ASIC rules. Because the cap is the same for everyone, it proportionally favours smaller shareholders over large institutions.
Do I pay CGT when I take up a rights issue or Share Purchase Plan offer?
No, taking up the offer and buying the new shares isn't itself a taxable event. But the new shares are acquired on the date you exercise the rights, not the date of your original holding, so the 12-month clock for the 50% CGT discount starts fresh from that exercise date.
Is selling my rights on-market a tax-free windfall?
No. Selling renounceable rights is a CGT event in its own right. The cost base of the rights is generally nil, so the full sale proceeds are typically a capital gain, and because rights usually trade for only a short window, the gain rarely qualifies for the 50% discount.