I am confused how to fill in my tax return and how the ATO will classify income and calculate any tax due as a result of the Broadcom acquisition of VMware shares I held. The background is that during the time I was an employee of VMware I elected to participate in their Employee Share Purchase Plan/ESPP. This allowed employees to purchase shares twice every year at a discounted price. Purchases were made from POST tax/net income.
During my employment at VMware at the Australian EOFY I was liable for CGT based on the difference in price between discounted price at which I purchased the shares and the stock value on the US stock market at that point in time. E.g. if I bought 10 shares @ USD100 and the going price was USD110 I had a CGT liability of USD100 as a result. This was regardless of the current price of shares at the EOFY which were often lower than what I purchased for but that is not material to this question.
So on to the acquisition when shares were exchanged and paid out. I left VMware prior to finalisation of the Broadcom acquisition. I accepted the offer from Broadcom to exchange all my shares at a ratio of .252 Broadcom shares for each VMware share. It was not guaranteed that all shares would be exchanged and any remaining would be paid out in cash at an agreed fixed value USD142.
Issue:
The issue for ALL VMware shareholders is that the broker Etrade reported USD7438.10 as dividend which it clearly is NOT and should have been lodged as a sale of shares subject to capital gains. There was an outcry from VMware shareholders worldwide but they were left high and dry when no amount of objections could persuade Etrade to amend this classification from dividend to sale.
There was a ruling by the ATO I learned of “CR 2024/51 VMware LLC - acquisition by Broadcom Inc. - employee share scheme”
My problem with this ruling is it doesn’t appear to cover my circumstance. Under the section “ Who this Ruling applies to “ it states " immediately prior to the Implementation Date, you: were employed by VMware Australia” and goes on with other points about stock rights/RSUs held which is not applicable to me as I was not an employee “immediately prior to the Implementation Date” and I never held any RSUs.
Example Fictional VMware Employee:
For example (not my number of shares for privacy sake. Round numbers selected to make it easier);
Let’s say a VMware employee had 100 VMware shares at the close of the acquisition. These were acquired by the employee under the employee purchase scheme at varying price points over a number of years and CGT paid at EOFY on each purchase.
The employee left VMware prior to the close of the acquistion.
Broadcom Acquisition for 100 VMware shares held:
Exchanged at ratio of .252 Broadcom Shares - 50 VMware shares
Cash payout of remaining 50 shares.
Result:
Broadcom shares received: 12 Broadcom (for 47.62 VMware) with share value of USD600.00 ea. Total USD7200
Cash payout 50 VMware shares @ USD142 (+ rounding error of BC shares exchange of 2.38): USD7438.10
Question:
So how do I fill in my tax return regarding these shares?
Do I need to ask for a private ruling first so I can declare any profit as a capital gain?
How do I calculate that gain or loss?
Do I get any credit for the CGT already paid against them?
My idea would be to
1. Add up all the actual purchase cost
2. Add the number of shares acquired
3. Calculate the gross profit from ESPP share buys
3. Add up the CGT already paid.
2. From the purchase cost and number of shares calculate the average VMware share purchase price.
3. Work out the profit or loss from the shares exchanged for Broadcom shares.
4. Work out the profit or loss from the shares purchased by Broadcom.
E.g. Calculations for VMware shares purchased through ESPP
Total No of Shares: 100
Purchase Price per share: USD100
Total Purchase Cost: USD10000
Gross Profit: USD4000
CGT on profit @ marginal tax rate of 50c already Paid: USD2000/AUD3500
Profit from Broadcom share exchange USD7200 - USD4762 = USD2438
Profit shares purchased by Broadcom = USD7438.10 - USD5000 = USD2438
Total profit from share exchange and purchase = USD4876
CGT due @ marginal tax rate = $0.50 * USD4876 * 1.5 (exchange rate USD to AUD) = AUD7314
Since shares held for more than a year CGT/2 = AUD3657.00
Any credit for CGT already paid?
Thoughts?
1,028 views
3 replies