Private ruling: Capital gains tax - employee share schemes - acquisition by associates.
Published: July 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012.
Date scheme commenced: Year ended 30 June 2011.

Ruling: Q1: Do the employee share scheme (ESS) interests have a cost base equal to the market value of the ESS interests at the deferred taxing point? | A1: Yes. | Q2: Did you make a capital loss? | A2: Yes.

Relevant facts and circumstances: The employee received the right to acquire options as part of an ESS. Prior to the options being issued the employee informed their employer that they wished for the options to be put in your name which was obliged by the employer. The vesting of the options is the deferred taxing point. You exercised the options and acquired shares. You were charged brokerage fees. You sold the shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 83A-25, | Income Tax Assessment Act 1997 Section 83A-125, | Income Tax Assessment Act 1997 Section 102-20, | Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Subsection 110-35(1), | Income Tax Assessment Act 1997 Subsection 130-40(7). Cost base | As the ESS interests were provided in relation to the employee's employment and therefore are part of their income, the employee will include the discount they received in relation to the ESS interests in their own tax return. You will not include the discount in your tax return. | As the ESS interests are in your name and not in the employee's name you have ownership of them. Therefore once the discount has been included in the employee's assessable income they no longer have any connection to the employee. You will be assessed on the disposal of the shares. | For ESS interests where tax is deferred, the ESS interests are taken to have been re-acquired immediately after the deferred taxing point. This resets the cost base of the ESS interests to their market value at this time, and resets the acquisition time. | The ESS interests that you acquired have been tax deferred. Therefore, the market value is taken to be the time when the discount on the ESS interests was calculated. | Capital gains events | Capital gains tax (CGT) event A1 occurs when you dispose of an asset to someone else. | The time of this event is: | (a) when you enter into the contract for the disposal: or | (b) if there is no contract when the change of ownership occurs. | The sale of the shares resulted in a CGT event A1. | You make a capital loss if your capital proceeds are less than your cost base. | Capital proceeds is the term used to describe the amount of money that you receive as a result of a CGT event happening. In your case, the value of the capital proceeds you received was the sum of the cash per share. | The cost base of your ESS interests are the market value of the shares at the deferred taxing point. However it also involves certain other costs associated with acquiring, holding and disposing of the asset. In your case, the brokerage fees will form part of the cost base of your shares as it is an incidental cost that you have incurred. | In your case, the capital proceeds are less than the cost base. Therefore, you have made a capital loss.


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