How are dividend reinvestment plans (DRPs) taxed in Australia?

When you participate in a dividend reinvestment plan (DRP), you are treated as receiving a cash dividend and then using it to buy new shares. The full dividend amount is still assessable income in the year it is paid, even though you never received actual cash. Any franking credits attached to the dividend also flow through to you and can be used to offset your tax liability.

The new shares acquired under the DRP have a cost base equal to the dividend amount (the amount you are deemed to have paid for them). This becomes important when you eventually sell those shares, as capital gains tax is calculated from that cost base. Each DRP acquisition is a separate CGT parcel with its own acquisition date and cost base.

Keeping records of every DRP acquisition is your responsibility. Over years of reinvesting, you may accumulate dozens of separate CGT parcels. When you sell shares, you need to know which parcels you're selling and their respective cost bases to calculate your gain or loss accurately. If you hold shares for more than 12 months, the 50% CGT discount applies to any gain on those DRP-acquired shares.