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Some companies encourage employees to purchase shares in the company. If shares are issued to an employee at a discount, the value of the discount is usually included in the employee's taxable income.
For capital gains tax purposes, the cost base of the shares is the amount paid to the company when you acquire them plus the amount of the discount included in your taxable income under the ordinary tax provisions. These provisions will specify the amount of discount to include.
Different options are open to employees and, depending on the nature of the employer's scheme and what options the employee has taken, the cost base of the shares will be affected differently.
You may contact the Australian Taxation Office if you require assistance in calculating the cost base of your employee shares and the capital gains tax consequences if you have sold your shares or are contemplating selling them.
Employee share plans
Peter has been employed by MegaCorp Ltd for 13 years. Along with other employees who have been with the company for more than 5 years, he has been invited to participate in the company's employee share scheme. He is offered 100 shares for each year of service.
Peter agrees to participate and is required to pay $1 per share, a total of $1,300. In addition, the company informs Peter that the amount of the discount on allotment of the shares that he must include in his taxable income is $325. The cost base of the shares for capital gains tax purposes is therefore a total of $1,625, or $1.25 per share.
Last modified: 18 Sep 2009QC 18323