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Edited version of private ruling
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Ruling
Subject: Capital gains tax - shares
Question
Will the market value of the options at the time of transfer be used to calculate a capital gain or loss on the options?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2011.
Year ended 30 June 2012.
The scheme commenced on
1 July 2010.
Relevant facts
You received options.
The options were transferred to you in an off market transfer.
The options were given to you as a gift.
It has been requested that you transfer the options back.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10,
Income Tax Assessment Act 1997 Section 112-20, and
Income Tax Assessment Act 1997 Section 116-30.
Reasons for decision
Capital gains and losses:
You make a capital gain or loss as a result of a capital gains tax (CGT) event. The most common event is CGT event A1. CGT event A1 happens when there is a change of ownership of a CGT asset. The transfer of the options constitutes CGT event A1.
Market value substitution rule:
The market value substitution rule generally applies where parties do not deal at arms length in connection with the acquisition of an asset. If the market value substitution rule applies, the first element of the cost base or reduced cost base of a CGT asset that is acquired from another entity is its market value at the time of acquisition.
In this case you received options as a gift. You did not pay for the options. The market value substitution rule will be applied in this case as you paid nothing to acquire the options. The first element of your cost base or reduced cost base will be the market value at the time you acquired the options.
The market value substitution rule states that where you receive no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset that is the subject of the event. (The market value is worked out at the time of the event).
In this case, you will not receive any consideration on the transfer of your options. Accordingly the market value substitution rule will apply and the nil amount of consideration will be replaced with the market value at the time when calculating any capital gain or loss on the disposal of your options.