Annex 1: Minor changes in the law Change 12: Share loss relief: corresponding bonus shares: sections 73 and 90
This change legislates the practice that corresponding bonus shares are qualifying shares for share loss relief.
The change in section 73(3) is equivalent to that made in section 135(4) of ITA and brings the provisions for share loss relief for investment companies back into line with the provisions for share loss relief for individuals. See Change 23 in Annex 1 to the explanatory notes on ITA.
When shares are issued by way of bonus they are not issued for consideration. Bonus shares do not, therefore, meet the requirements of section 573(6) of ICTA (rewritten as section 73(2)) that the company has subscribed for the shares in consideration of money or money’s worth.
In practice, where ordinary shares in the same company, of the same class and carrying the same rights as shares for which the company has subscribed are issued by way of bonus, claims for relief on the disposal of the shares issued by way of bonus are accepted.
Accordingly, section 73(3) has been included to provide that, where a company which has subscribed in consideration of money or money’s worth for shares in a qualifying trading company is issued with bonus shares in that company which are of the same class and carry the same rights (corresponding bonus shares), the company is treated as having also subscribed for the corresponding bonus shares in consideration of money or money’s worth.
This means that the corresponding bonus shares are shares which have been subscribed for by the company for the purposes of section 68(1).
Section 73(4) has been added to make clear that the corresponding bonus shares are treated as subscribed for at the time the original shares were subscribed forin actual consideration of money or money’s worth. This is principally for the purposes of section 69(4)(a), which has no equivalent in Chapter 6 of Part 4 of ITA.
The definitions of bonus shares and corresponding bonus shares are in section 90(1) and (2).
The effect of this change is to put on a statutory basis an existing practice which is favourable to taxpayers.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.