In this article, we will guide you through different ways to process rights issues in Class. The way you handle them depends on the course of action undertaken by the trustee(s) of the SMSF you are administering and the type of rights issued.

There are three scenarios you may have to deal with:

* this scenario only applies if the rights are ‘renounceable,’ i.e. tradable

** if the rights expire with no ‘Retail Premium’ paid then this scenario does not apply

Worked Examples

Using Woodside Petroleum Limited's (WPL) recent issue of renounceable rights as an example

Trustee exercises the rights and takes up the shares

If the trustee(s) of the SMSF decides to exercise the entitlement and take up the new share subscription, then it will be a straightforward listed securities acquisition of WPL shares (at $27.00 per share as per the Offer Document).  

Option 1: Processing acquisition event for new WPL shares

Navigating to Fund level > Transactions > Investment - Buy > Listed Security Acquisition

Option 2: Processing Corporate Action events to take up the rights

Navigating to Fund Level > Fund > Investments > Browse Corporate Actions

1.  Find this Corporate Action, click on Action and view the details (as shown below):
   
   
   
   
2. Click on Update Parcelling
3. Click on Create Target Holdings to create a new holding account for the rights
4. Click on Update Results before submitting the event (shown below):
   
   
   
   
5. The rights security holding (in this example, WPLR) is created, you now need to acquire the underlying share by
   

   Navigating to Fund Level > Investments > Browse Corporate Actions 
   

   Once the renounceable rights issue event is processed, the Renounceable Right Exercise/Lapse event appears, click Action to view details of this event.
   
   
6. Click on Update Parcelling, 
7. Click on Update Results before submitting the event.
   
   

Trustee sells the rights ‘on market’

If the trustee(s) of the SMSF sold the rights on the market, then it will be treated through capital gains tax provisions, i.e. acquiring the rights issue for zero cost (generally) and subsequent disposal to derive the capital gain. 

1. Acquiring the rights issue for zero cost.
   

   Navigating to Fund Level > Fund > Transactions > Investment - Buy > Listed Security Acquisition.

   This step is the same as in Scenario 1 – Step 1. Noticeably, the rights issue date retains the original share purchase date for CGT purposes.

2. Selling the rights issue for whatever proceeds received. 
   

   Navigating to Fund Level > Fund > Transactions > Investment - Sell > Listed Security Disposal
   

   Once you have the rights (WPLR), then you can proceed with the sale of WPLR on the market. The transaction should be matched with the actual cash received.
   
   
   

Trustee does nothing and receives a ‘retail premium’

If the trustee(s) decides not to take up share entitlement offer and leave the rights to lapse, then they may receive a ‘Retail Premium’ for the lapse of entitlement offer. The tax treatment of this premium appears to depend on the specifics of how the ‘Retail Premium’ is paid to the Trustees.

1. If you decide to choose to process the premium as capital, you may select Yes and enter quantity lapsed in the Rights Exercise/Lapse event. Please make sure the Rights Issue event has been processed to take up the rights to lapse it.
   
   
   
   
2. If you decide to choose to treat the premium as ordinary income, you may select No and enter quantity lapsed in the Rights Exercise/Lapse event. Please make sure the Rights Issue event has been processed to take up the rights to lapse it.
   
3. If the Rights Issue/Listed security event has not been processed to take up this Right yet. You can take up this amount as an Unfranked Dividend by 
   

   Navigating to Fund Level > Transactions > Fund Income > Dividend - Cash

   Or generate investment income by
   

   Navigating to Fund Level > Transactions > Fund Income > General Investment Income