What is the Difference Between DRP and BSP?

Both DRP and BSP are company offerings that increase your investment value. The two are subject to different tax methods under the Australian capital gains tax rules.

Dividend Reinvestment Plan (DRIP or DRP)

DRIP is a company plan offer allowing investors to reinvest cash dividends by buying additional or fractional shares. Majority of DRIPs allow you to buy shares without commission (or at a big discount).

DRP issued shares are treated as cash dividends. For income tax purposes, the shares are subject to franking credits if the dividends are franked.

Bonus Share Plan (BSP)

BSP offers a choice between receiving dividends from part or all of the investor's shares or receiving fully paid shares (as bonus shares) in the amount equivalent to the dividend given up. Bonuses are issued in proportion to an investor's holdings.

BSP issued shares are not generally subject to income tax or dividend withholding tax and the shares are not considered to be franked dividends.

Features Common to DRP and BSP

The number of DRP and BSP shares issued will be calculated by multiplying number of participating shares based on the formula: Number of participating shares multiplied by relevant dividend less withholding tax, divided by issue price. Issue price is based on a weighted average share market price during a pricing period determined by the directors.

In case of a fraction, the result is rounded off to the nearest whole number.

Some financial institutions have policies on multiple shareholdings. For example, if you have two shareholdings, you will not be able to participate in either DRP or BSP. You will need to combined the two shareholdings into one shareholding to participate in DRP or BSP.