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Income tax: company A, in the course of carrying on its investment and sharetrading business, issues to its shareholders, at non-refundable premiums, warrants on shares held in another company which grant to the warrantholders the right to purchase the underlying shares at a fixed price within a certain period of time. The nature of the warrants is similar to that of call options. Do the premiums form part of Company A's assessable income under subsection 6-5 of the Income Tax Assessment Act 1997, and are they derived in the years in which the warrants are issued?

Yes. The premiums received on issue of the warrants are income according to ordinary concepts, as they arise from activities which fall squarely within the scope of Company A's sharetrading and investment business ( Californian Copper Syndicate (Limited and Reduced) v Harris (1904) 5 TC 159). Also, the issuing of warrants is viewed as a way of generating income by exploiting existing assets - in this case the underlying shares ( Rolls-Royce Ltd v. Jeffrey 1 WLR 425).

Yes. Warrants are securities in their own right, and the premiums received on issue "come home" at the time of issue of the warrants. Company A does everything that is necessary to derive the premiums by completing its obligations to issue the warrant securities.

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