Edited version of private ruling

Authorisation Number: 3011736513382

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Ruling

Subject : Employee share scheme - capital gains tax - request for a later election

Question 1

Does the sale of your shares trigger a capital gains tax event?

Answer

Yes.

Question 2

Are you entitled to 50% discount on the capital gain resulting from the sale of your shares?

Answer

Yes.

Question 3

Is the first element of the cost base for your shares $X per share?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 2010

The scheme commenced on:

During 2000

Relevant facts and circumstances

You acquired a number of Company A shares under an employee share scheme on
during 2000.

You entered into an interest free loan agreement at acquisition to pay a total of $X to acquire the shares payable with X years.

The total assessable discount on the shares you acquired in the 1999-2000 income year was $X.

You lodged your 1999-2000 income tax return on a specified date in 2000 and your assessment was issued after this date.

You did not make an election to include the discount at acquisition before lodging your 1999-2000 income tax return.

You completed a private ruling application to seek the Commissioner's discretion to allow a late election on during 2011 which we received.

Your shares were sold sometimes in 2010 and you received capital proceeds of $X

You have suffered serious ongoing health problems and have been permanently incapacitated for work since 2000.

You have maintained continuous employment with Company A during your period of ill health.

Assumptions

For the purposes of this ruling it is assumed that you will make a late section 139E of the ITAA 1936 election in respect of the shares you acquired in the 1999-2000 income year.

Reasons for decision

Question 1

The sale of your shares in 2010 triggers capital gains tax (CGT) event A1.

You can make a capital gain or loss only if a CGT event happens. CGT event A1 occurs when you sell shares acquired on or after 20 September 1985. You make a capital gain if the capital proceeds from the disposal exceed your total costs associated with that event.

In your case CGT event A1 occurred when you sold your shares in the 2010 income year because those shares were acquired after 20 September 1985. You made a capital gain as the proceeds you received exceeded your total costs associated with acquiring your shares. Consequently you are required to include the net capital gain in your assessable income for the 2010 income year.

Question 2

You are entitled to apply the 50% discount to the capital gain resulting from sale of your shares.

Concessional rules apply to working out the net capital gain of individuals if:

(a) they have a capital gain (a discount capital gain) from a CGT asset acquired at least 12 months before the CGT event that caused the capital gain; and

(b) they have not chosen to include indexation in the cost base of the asset for working out the capital gain (if relevant).

If eligible an individual taxpayer's capital gain is reduced by the discount percentage of 50%.

As the shares you sold in the 2010 income year were acquired greater than 12 months before the disposal and you were not eligible to choose to include indexation in the cost base of the asset, you are entitled to apply the discount percentage. Accordingly your capital gain would be reduced by 50% when calculating your net capital gain from the sale of your shares.

Question 3

When you make an election you are assessed upfront on the discount on your shares. You also need to account for any capital gain or loss when a CGT event happens in relation to those shares.

When calculating the capital gain or loss, the relevant market value to include as the first element of the cost base or reduced cost base will be the market value of the shares on the date you acquired them.

The market value of your shares at time of acquisition was $X per share. Therefore the first element of the cost base for your shares is $S per share.

Relevant legislative provisions

Taxation Administration Act 1953 - Subsection 359-35(3)

Income Tax Assessment Act 1936 - Section 139B

Income Tax Assessment Act 1936 - Section 139BA

Income Tax Assessment Act 1936 - Section 139CE

Income Tax Assessment Act 1936 - Subsection 139E(2)

Income Tax Assessment Act 1997 - Section 104-10

Income Tax Assessment Act 1997 - Section 115-100

Income Tax Assessment Act 1997 - Section 110-25