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Edited version of your private ruling
Authorisation Number: 1012566234433
Ruling
Subject: CGT - ending of a CGT asset
Question
Will the payment of the entitlement be salary and wages?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on:
At some time after 19 September 1985.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
At some time after 19 September 1985, the Trust executed a sale and purchase agreement with Company A, whereby the Trust agreed to sell their X% shareholding in Company B to Company A.
In consideration for the sale of the Trust's Company B shares, Company A agreed to pay the Trust an entitlement, equal to the agreed value of their shares, subject to the conditions of Company A's rights plan (the Plan).
The Principal of the Trust remained an employee of Company B after the sale.
The Trust's entitlement vested during the relevant income year on termination of the Plan.
The Trust is yet to receive any payment of its entitlement. In light of previous representations, it is likely that Company A will withhold tax under the PAYG Withholding system on the basis that the entitlement amounts to salary and wages.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-25
Reason for decision
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. The Trust's ownership of the CGT asset (their entitlement to rights under the Plan) ended by the asset being discharged when the Plan was discontinued. Therefore, CGT event C2 occurred on the discharge of the Trust's entitlement to rights.
The Trust 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, the Trust will make a capital loss.
The entitlement to be received relates solely to the discharge of the Trust's rights acquired on execution of the sale and purchase agreement. As the payment will not be received in relation to the Principal of the Trust's employment, it is not subject to employee share scheme rules nor is it salary and wages.
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