CGT Where shares bought at a discount - error on Revenue.ie

[Alkers86]

My company share purchase scheme allows me to purchase shares at a 5% discount.

I engaged with revenue, as to how I should capture the 5% discount when calculating CGT and was pointed to worked example no.4 & 5 at the following link: https://www.revenue.ie/en/gains-gif...-an-asset/selling-or-disposing-of-shares.aspx

These Rights issue of shares are not the exact scenario I have but I can follow the logic and treat the 5% discount as enh@ncement expenditure, except there appears to be an error in Revenue's own calculations in Worked Example No. 4:

Should both the Cost (€500) and the enh@ncement expenditure (€250) not be deducted from the sale price, resulting in a Chargeable gain of €3,000? This logic follows for the example 5, where they both appear to be deducted, or am I missing something?

 

[Alkers86]

Would it not make more sense for the Enh@ncement expenditure to be added to the sale price, rather than deducting it, reducing the chargeable gain I have?

E.g. if the share price didn't move from say 100e:
Sale price: 100
Deduct:
Cost 95
Discount 5
Chargeable gain = 0, despite me having made 5?

 

[AAAContributor]

Chargeable gain = 0, despite me having made 5?

Have you already paid Income Tax, USC and PRSI on the discount amount through the PAYE system?

If so, I would say the cost you have to use in your example for CGT purposes is €100 (the market value at the time of purchase) and not €95 (assuming you buy the shares at €95 when the market value on the day of purchase is €100 and the share price stays at €100 and you sell at €100).

 

[Alkers86]

The

Have you already paid Income Tax, USC and PRSI on the discount amount through the PAYE system?

If so, I would say the cost you have to use in your example for CGT purposes is €100 (the market value at the time of purchase) and not €95 (assuming you buy the shares at €95 when the market value on the day of purchase is €100 and the share price stays at €100 and you sell at €100).

The deduction from my payslip for the share purchase is made after tax is calculated, the 5% doesn't show up elsewhere on my payslip if that's what you mean?

 

[AAAContributor]

It's hard to give you a definitive answer at this remove but I would double check with your payroll department as to how the discount is treated.

The tax treatment generally is as follows:

"The share subscription discount being, the difference between the market value of the shares at the subscription date and the subscription price is taxable as an emolument of the employee’s employment and is therefore charged to tax under Section 112 TCA 1997. Accordingly, the employee will be liable to income tax, employee PRSI and USC at his or her marginal rate on the amount of the discount. The charge to tax is under Schedule E."

 

[relax carry on]

What share scheme are you actually in? You really should check the tax treatment documentation from the employer who set up the scheme. There are multiple schemes. Link below for reference. Is it RTSO (Income tax) you should be paying for your discount and then possibly CGT on chargeable gains on the shares themselves if you hang onto them for a while after exercising them.

Share Schemes

 

[Alkers86]

Thanks for the replies, it's an EPSS as per: https://www.revenue.ie/en/tax-professionals/tdm/share-schemes/chapter-04.pdf but the purchases are made monthly and only at a 5% discount.

So, I should be declaring this 5% discount myself on my tax return annually (I don't see an obvious section for this) and then just treat the taxation on the sale of shares as per normal?

Regardless of the above, there still appears to be an error in the revenue worked example.

 

[AAAContributor]

So, I should be declaring this 5% discount myself on my tax return annually (I don't see an obvious section for this) and then just treat the taxation on the sale of shares as per normal?

Your best option is to clarify this with your employer and/or ask your colleagues what they are doing.

I'd be surprised that an employer that's offering such a share scheme is leaving employees to navigate the tax implications by themselves. Surely when the scheme was rolled out they had tax advice and human resources would have given employees sight of a document that lays out the ABCs of how the scheme works and a couple of worked examples to assist employees with the tax aspects of the scheme.

If not, you are surely not the only one with questions and you and your colleagues should seek guidance from HR.