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Ruling
Subject: Reporting of capital gains
Question
Is the capital gain made when you sold the options disregarded if that option is subsequently exercised?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2009
The scheme commences on:
1 July 2008
Relevant facts and circumstances
You sold options.
You had declared income from that transaction as a capital gain in your year ending 30 June 2009 income tax assessment.
The final option expiry date is at a later date. The actual net capital gain or loss may not be known a later date.
The disposal of the options will have three possibilities.
1/ the options may expire worthless. In this scenario no change will be required as the tax has already been accounted for in the relevant income tax return.
2/ the options may get exercised at any time until they expire. In this case, the option premium becomes the cost base of the shares. This will require an amendment of the year ended relevant income tax return to reduce the previously declared capital gain to nil.
3/ the options may have to be bought to avoid final exercise. The cost of re-purchase may be higher or lower that the initial amount received. This will require amendments to be made to the relevant income tax return.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 170(10AA) and
Income tax Assessment Act 1997 Section 104-40.
Reasons for decision
CGT event D2 is triggered when options are granted. The time of the event is when the option is granted. CGT event D2 occurred when you were granted the options.
Under Subsection 104-40(5) of the Income tax Assessment Act 1997, where you grant an option that is later exercised, any capital gain or loss made at the time is disregarded.
Item 50 of Sub-section 170(10AA) of the Income Tax Assessment Act 1936 allows an unlimited time for amendment where a capital gain is made under CGT event D2 and the option is later exercised.