Private ruling: Capital Gains Tax (CGT) - ending of a CGT asset
Published: December 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: At some time after 19 September 1985.

Ruling: Q1: Is the payment of the entitlement salary and wages? | A1: No.

Relevant facts and circumstances: At some time after 19 September 1985, you executed a sale and purchase agreement with Company A, whereby you agreed to sell your 10% shareholding in Company B to Company A. In consideration for the sale of your Company B shares, Company A agreed to pay you an entitlement, equal to the agreed value of your shares, subject to the conditions of the Company A's rights plan (the Plan). You remained an employee of Company B after the sale. Your entitlement vested during the 2011-12 income year on termination of the Plan. During the 2012-13 income year Company A paid you the amount of your entitlement as salary and wages and withheld tax.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-25

Reasons for decision: Summary: CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being redeemed, cancelled, released, discharged, surrendered, or otherwise coming to an end. Your CGT asset (your entitlement to rights under the Plan) was an intangible asset and your ownership of that asset ended by the asset being discharged when the Plan was discontinued. Therefore, CGT event C2 occurred on the discharge of your entitlement to rights. You will make a capital gain from CGT event C2 if the capital proceeds from the asset ending are more than its cost base. If the capital proceeds are less than the reduced cost base of the asset, you will make a capital loss. The entitlement received relates solely to the discharge of your rights acquired on execution of the sale and purchase agreement. The payment was not received in relation to your employment; therefore, it is not subject to employee share scheme rules nor is it salary and wages.