I’m trying to confirm the correct Capital Gains Tax (CGT) treatment for Restricted Stock Units (*RSUs) that vest, specifically regarding the base cost when a sell-to-cover mechanism is used to pay income tax at vesting.
Revenue guidance (including the Claire example) suggests that the market value at vesting is the acquisition cost for CGT purposes, since that amount is taxed as income. However, it doesn’t explicitly address cases where only net shares are retained after sell-to-cover. Professional guidance seems clearer, though still without a direct sell-to-cover example:
KPMG: “Any gain is calculated based on the sale proceeds, and the base cost is the value of the award on vest (i.e., the amount subjected to income tax).” (Source: KPMG Employee Share Incentive Schemes)
Could anyone confirm which interpretation is correct?
Scenario 1 (KPMG view):
RSUs vest with a market value of €1,000.
Income tax, USC, and PRSI withheld via sell-to-cover → approx. €521 tax paid.
I retain shares worth approx. €479.
If I sell those retained shares shortly after vesting for €479, this creates a capital loss of €521, since the CGT base cost is €1,000 (the amount taxed as income).
Scenario 2 (alternative view):
RSUs vest with a market value of €1,000.
Income tax, USC, and PRSI withheld via sell-to-cover → approx. €521 tax paid.
I retain shares worth approx. €479.
If I sell those retained shares shortly after vesting for €479, the CGT base cost is €479 (net amount retained), so the gain/loss would be €0.
From what I’ve read, Scenario 1 seems correct because Revenue treats the acquisition cost as the full vesting value, and KPMG appears to confirm this explicitly. That said, it feels counterintuitive—selling soon after vesting could generate an apparent ~50% capital loss—but tax law can be nuanced.
Questions:
1) Can anyone confirm which interpretation is correct?
2) Would it be advisable to query Revenue directly for clarification?
Thanks in advance for any insights!
*Restricted Stock Units (RSUs) are a form of equity compensation where an employer promises to give an employee company shares in the future, once certain conditions—like time-based vesting or performance goals—are met.
Revenue guidance (including the Claire example) suggests that the market value at vesting is the acquisition cost for CGT purposes, since that amount is taxed as income. However, it doesn’t explicitly address cases where only net shares are retained after sell-to-cover. Professional guidance seems clearer, though still without a direct sell-to-cover example:
KPMG: “Any gain is calculated based on the sale proceeds, and the base cost is the value of the award on vest (i.e., the amount subjected to income tax).” (Source: KPMG Employee Share Incentive Schemes)
Could anyone confirm which interpretation is correct?
Scenario 1 (KPMG view):
RSUs vest with a market value of €1,000.
Income tax, USC, and PRSI withheld via sell-to-cover → approx. €521 tax paid.
I retain shares worth approx. €479.
If I sell those retained shares shortly after vesting for €479, this creates a capital loss of €521, since the CGT base cost is €1,000 (the amount taxed as income).
Scenario 2 (alternative view):
RSUs vest with a market value of €1,000.
Income tax, USC, and PRSI withheld via sell-to-cover → approx. €521 tax paid.
I retain shares worth approx. €479.
If I sell those retained shares shortly after vesting for €479, the CGT base cost is €479 (net amount retained), so the gain/loss would be €0.
From what I’ve read, Scenario 1 seems correct because Revenue treats the acquisition cost as the full vesting value, and KPMG appears to confirm this explicitly. That said, it feels counterintuitive—selling soon after vesting could generate an apparent ~50% capital loss—but tax law can be nuanced.
Questions:
1) Can anyone confirm which interpretation is correct?
2) Would it be advisable to query Revenue directly for clarification?
Thanks in advance for any insights!
*Restricted Stock Units (RSUs) are a form of equity compensation where an employer promises to give an employee company shares in the future, once certain conditions—like time-based vesting or performance goals—are met.