ACCA Advanced Taxation (ATX) Practice Exam

What is the base cost of shares for CGT in the CSOP scheme?

1. Market value at issue

2. Price paid

3. Historical cost

4. Nominal value

The correct answer is: Price paid

In the context of the Company Share Option Plan (CSOP) scheme, the base cost of shares for capital gains tax (CGT) purposes is typically determined by the price paid for those shares. This is significant because the price paid forms the basis for calculating any gain or loss that might arise when the shares are eventually sold or disposed of. When shares are acquired through a CSOP, the grant price at which the shares are optioned is generally the price taken into consideration for CGT calculations later on. This captures the actual financial investment made by the participant in acquiring the shares, which contrasts with other concepts such as market value at issue or nominal value that may not reflect the actual purchase cost or could lead to inaccuracies in CGT calculations. Understanding this principle is vital for accurate tax reporting and compliance under CGT regulations, especially given that capital gains tax obligations hinge on the difference between the sale price and the base cost of the asset. Thus, the price paid serves as the correct benchmark for determining the base cost in this scenario.