Private ruling: CGT - timing of disposal of a CGT asset
Published: June 2013

Ruling: Q1: Does the capital gains tax (CGT) event in relation to the sale of shares occur when the instalment payments are received? | A1: No. | Q2: Does the CGT event in relation to the sale of shares occur when you entered into a contract in the 2011-12 income year? | A2: Yes. This ruling applies for the following periods Year ended 30 June 2012 The scheme commenced on 1 July 2011

Relevant facts and circumstances: You used to work for X Company. When you were an employee of X Company you were given shares at no cost to you. In the 2011-12 financial year, an agreement was reached with X Company to buy back your shares at a set price per share. The agreement was that your shares would be bought back by X Company over four equal payments in four consecutive financial years. It was agreed that the Corporate Secretary of X Company would act as the escrow and closing agent to effect the buy back of the shares. The Corporate Secretary will hold the share certificates in escrow until the final payment has been made by X Company.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 section 116-20 | Income Tax Assessment Act 1997 section 103-10

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you make a capital gain or capital loss if a capital gains tax (CGT) event happens. The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). You dispose of a CGT asset if a change of ownership occurs from you to another entity. Subsection 104-10(3) of the ITAA 1997 describes when the CGT event happens. The time of the event is either when you enter into a contract for the disposal of the asset, or if there is no contract - when the change of ownership occurs. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. According to section 116-20 of the ITAA 1997, the capital proceeds from a CGT event are the total of the: · money you have received, or are entitled to receive, in respect of the event happening, and · market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event). Section 103-10 of the ITAA 1997 states that the amount you have received or are entitled to receive includes money that is payable by instalments. In your case, CGT event A1 occurred when you entered into the agreement to sell your shares back to X Company in the 2011-12 financial year. For the purposes of calculating your capital gain or capital loss the capital proceeds include each instalment payment of the overall disposal price. This is because you are entitled to receive all of these amounts in accordance with your agreement to sell the shares to X Company even though you are not due to receive some of the consideration for the sale until future income years. Therefore, CGT event A1 occurred when you agreed to dispose of your shares to X Company in the 2011-12 financial year.