iWhat the plan does
A company you hold shares in may offer you the option of reinvesting your dividends to acquire more of its shares, instead of having them paid to you. The ASX glossary describes these plans as letting holders accept securities in place of a dividend, distribution or interest payment, either partly or wholly. Moneysmart lists a dividend reinvestment plan among the ways to come to own shares directly.
Joining, changing or leaving a plan is a matter for the company’s share registry: the ASX’s own answer to “how do I participate” is to contact the issuer’s registry.
iiOne reinvestment, step by step
The ATO’s own example, set out as the stages it passes through.
- November 2025
The dividend is declared
A shareholder owns 1,440 shares. The company declares a dividend of 25 cents a share.
- The choice
Cash or shares
She can take $360 in cash (1,440 × 25 cents), or reinvest it in 45 new shares at $8 each ($360 ÷ $8). She chooses the plan.
- 20 December 2025
The shares arrive
She receives 45 new shares.
- 2025–26 tax return
She declares it as income
She declares the $360 as assessable dividend income, even though no cash reached her.
- Her records
A new parcel
For capital gains tax, she acquired the 45 new shares for $360 on 20 December 2025.
Every figure in these five steps is from the ATO’s dividend reinvestment plans page.
iiiWhy every reinvestment is its own line
Because the new shares count as a purchase, each reinvestment adds a holding with its own acquisition date and its own cost: the amount of the dividend used to acquire it. Many listed companies pay dividends twice a year, so a plan can add a line to your records each time, and the ATO asks you to keep a record of your reinvested dividends so you can work out a capital gain or loss when you sell.
| Parcel | Shares | Acquired | Cost for tax |
|---|---|---|---|
| Original holding | 1,440 | When she bought them | What she paid, from her own records |
| Reinvested dividend | 45 | 20 December 2025 | $360 |
| Holding afterwards | 1,485 | Two parcels | Kept separately |
The 45 shares and $360 are the ATO’s; the original parcel’s date and cost are left blank because the ATO’s example does not give them, and 1,485 is simply 1,440 plus 45.
The ATO’s guide You and your shares 2026 adds one more thing to note: the market value of the new shares at the time of reinvestment, to help with any capital gain or loss when you eventually sell. The ATO also says to keep all the information a company gives you about your shares, because it may matter when you work out capital gains tax after you sell. What to keep, and for how long, is in dividends and tax records.
Capital gains tax is changing. The ATO says reforms announced in the 2026–27 Federal Budget are now law and apply from 1 July 2027: for gains that accrue after that date, the 50% discount that individuals, trusts and partnerships get is replaced by cost base indexation together with a 30% minimum tax rate. The dates and costs of reinvested parcels matter to that calculation, so check the ATO’s page on the reform before relying on any figure.
ivQuestions that come up
Do franking credits still count if I reinvest?
Yes. The ATO says reinvesting your dividends does not stop you claiming a refund of franking credits. The franked amount and the credit appear on the statement as they would for a cash dividend; see franking credits.
Is a bonus share plan the same thing?
It works in a similar way: the ASX glossary describes one as usually letting shareholders take all or part of a dividend as shares instead of cash. For tax, the ATO says that from 1 July 1998 bonus shares are taxed as a dividend when the shareholder had a choice between the dividend and the shares, unless they are issued in certain circumstances by a listed public company that does not credit its share capital account.
How do I know the plan did what I asked?
Moneysmart suggests checking that dividends were paid to the right account or reinvested as you instructed, and that the number of shares you hold is correct. Your company’s share registry holds the record of your holding and can provide information about dividends.
A plan, and spreading your money
A plan adds shares in the same company each time. Moneysmart’s general point about shares applies: holding shares in a range of companies and industries can soften the blow when one of them does badly. Its page on diversification explains the idea, and for help building a diversified portfolio it suggests a financial adviser.