What is DRP and do I have to pay tax on it?

September 21, 2016

Kerry Schultz

In the financial sector the term DRP is frequently used, it is an abbreviation for Dividend Reinvestment Plan. When you buy shares in a company often you will receive various forms and one of these will commonly be in relation to if you would like to participate in DRP’s.

Frequently Asked Questions

• What is a DRP?
  A DRP an agreement with a company where you can choose to acquire additional shares in a company instead of receiving the dividend as a cash payment.
• Do I pay brokerage on DRP purchases?
  No. No brokerage is applied, and infact shares received under a DRP are usually at a small discount on what their listed price is.
• Do I have to include the dividend amount in my tax return as I didn’t receive the money?
  Yes. The payment of the dividend is an income event even though you didn’t physically receive the money.
• If I sell the shares do I pay tax on the whole amount I sold them for?
  No. Shares acquired in the DRP are viewed by the ATO as a purchase at the amount of the dividend (approx.) and therefore you have a purchase cost to include in your calculations under the capital gains tax law.
• What records do I have to keep for DRP shares?
  All. As each DRP is a separate share purchase you must retain each purchase (dividend slip) for calculations under the capital gains tax law when the shares are sold.
• Can I opt in/out at a later date?
  Yes. You can contact the share registry at any time and complete the election form which will update your choice with the company.