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.