Private ruling: capital gains tax - carried forward capital loss
Published: May 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Do you only apply your capital loss made on the disposal of your shares to any future capital gains? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You acquired qualifying options from your employer - company A, through an employee share scheme. In early 2007 you exercised your company A options with an assessable discount of $X. Early 2010, you received a letter from the Australian Taxation Office (ATO) advising you that they would be amending your 200X-0X income tax return to increase your taxable income by a specified amount to include the employee share scheme discount on the options you exercised. As a result of the audit you had to pay additional tax of $X and tax shortfall interest. You were not aware that you had to declare this income as your accountant had advised you that you did not have to declare this income until you disposed of your shares. Early 2012 you disposed of a number of your shares at $X per share. The selling price is less than the exercise price when you exercised your options. You have made a capital loss on the disposal of your shares. You have provided a copy of documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 139E | Income Tax Assessment Act 1936 Section 139B | Income Tax Assessment Act 1936 Section 139C | Income Tax Assessment Act 1936 Section 139CB | Income Tax Assessment Act 1936 Section 139CC | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 104-20 | Income Tax Assessment Act 1997 Section 104-15

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Employee Share Schemes: Where an employee receives options as a result of an employee share plan consideration needs to be given as to whether an amount needs to be included in their assessable income as a result of receiving the options. | Detailed Reasoning - Inclusion of Discount: Where you do not make an election under 139E of the Income Tax Assessment Act 1936 to be taxed up front on the discount given on the acquisition of qualifying employee options, the discount is included in your assessable income in the year in which the cessation time occurs. The cessation time for options is the earliest of the following times: · when the options are disposed of (other than by exercise), · when your employment ceases, · if the options are exercised, when the last of any disposal restrictions or forfeiture conditions in respect of the acquired shares expire, or · 10 years from the date of acquisition of the options. In your case, the earliest cessation time for your options was when you exercised the options. You exercised your options in early 2007, so the discount amount should have been included in your 200X-0X income tax return. This amount was correctly included under the review by the ATO of your income tax return. Specific information on an employee share scheme plan is generally provided by the employer in an information pack provided to their employees. For further information on employee share schemes please see the enclosed - Employee share schemes - answers to frequently asked questions by employees (NAT 7366). | Detailed Reasoning - Capital gains tax (CGT): The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset, the time of the event is when you enter into the contract for the disposal or if there is no contract - when the change of ownership occurs. Upon the disposal of your shares CGT event A1 occurred. Where a CGT event happens in relation to the shares, the capital gain or capital loss is calculated in accordance with the rules applicable to that event. You made a capital loss as your capital proceeds was less than the reduced cost base of the shares. If you are unable to utilise your capital loss in a particular financial year, you carry the unused portion of your capital loss over to the next financial year. This capital loss can be carried forward until such a time that you have made a capital gain which you can offset it against. The capital loss can not be used to reduce normal income. Therefore, your carried forward capital loss is available to be used to offset any future capital gains. For more information on how to calculate your capital gain or capital loss please see the enclosed information which has been taken from the Guide to capital gains tax 2010-11 (NAT 4151). Information is also available on our website - www.ato.gov.au.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.