24. What are the CGT implications when I dispose of shares or rights on which I was assessed on the discount at cessation time?
When you are assessed on the discount received on qualifying shares or rights at cessation time, whether there are any CGT implications when you dispose of the shares or rights (or the shares acquired via the exercise of the rights) will depend on how long you hold onto the shares or rights after the cessation time.
The capital gain or loss is disregarded if, within 30 days of cessation time, the following CGT events happen (at arm's length):
- A1 (disposal of CGT asset)
- C2 (cancellation, surrender or similar ending)
- E1 (creating a trust over a CGT asset)
- E2 (transferring a CGT asset to a trust)
- E5 (beneficiary becoming entitled to a trust asset)
- I1 (taxpayer stops being an Australian resident).
The capital gain is disregarded because any change in value on the shares or rights is assessed as the discount at cessation time.
If a CGT event happens to shares or rights after 30 days of the cessation time, you will need to account for any capital gain or loss. When calculating your capital gain or loss, you will need to include the market value of the shares or rights at cessation time as the first element of your cost base or reduced cost base.
For ESS interests acquired prior to 1 July 2009 for which a cessation time did not occur prior to 1 July 2009; if the ESS interests are disposed of within 30 days after the deferred taxing point, the deferred taxing point for the ESS interests becomes the time when the employee disposes of the interests.
Example 16 - CGT implications for qualifying shares disposed within 30 days of cessation time
Following on from example 10, Joe sells his shares on 20 September 2007, five days after he has a cessation time. He receives $5 per share and incurs a brokerage fee of $50 on the sale.
When Joe sells his shares, a CGT event A1 (disposal of CGT asset) happens. However, the capital gain or capital loss from the CGT event is disregarded as the sale of the shares happened within 30 days of the cessation time.
Example 17 - CGT implications for qualifying rights and underlying shares not disposed of within 30 days of cessation time
Following on from example 11, Margaret exercises 500 rights on 1 May 2008. She pays an exercise price of $2 per right to acquire 500 shares at a market value of $17 per share. The shares have no restrictions on their disposal.
When Margaret exercises her rights, a CGT event C2 (cancellation, surrender or similar ending) happens on the exercise of the rights. However, under the CGT rules, the capital gain or capital loss is disregarded.
Margaret sells the shares she acquires on 13 June 2008 for $18 per share, incurring a brokerage fee of $50 on the sale of the shares. A CGT event A1 (disposal of CGT asset) happens when Margaret sells her shares.
As Margaret did not dispose of the shares she acquired through the exercise of the rights within 30 days of the cessation time, she will need to calculate her CGT gain or loss.
Margaret calculates her cost base for the shares by including their market value on the date she acquired them (which is the cessation time of the rights, being the day the rights are exercised). The market value at cessation time is $8,500 (500 shares x $17). The cost base also includes the brokerage fee of $50.
Margaret's capital gain is:
capital proceeds
500 shares × $18
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$9,000
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cost base
market value of the shares
500 shares × $17
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$8,500
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brokerage fee
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$50
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$8,550
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capital gain equals
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$450
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Margaret includes the capital gain in her assessable income in the year the CGT event A1 happened, the 2008 income year. Margaret cannot use the 50% CGT discount to calculate her net capital gain as she did not own the shares for at least 12 months.
Sections within Questions about disposing of shares or rights acquired from an employee share scheme
Last Modified: Thursday, 28 June 2012