Disposal restrictions are restrictions imposed by the employer or administrator of the employee share scheme, that prevent the employee from disposing of shares for a certain period of time. See ATO ID 2008/121 for information about voluntary undertakings not to dispose of shares.
As explained in the answer to question 16, the time when any disposal restrictions cease to have effect may be relevant to determining your cessation time.
Disposal restrictions will cease to have effect on the first date on which you are able to dispose of your shares. If you choose not to dispose of your shares at this time and at a later time the shares again become restricted, the cessation time will still be the first date on which you are able to dispose of the shares.
Example 9a - determining the cessation time for rights with disposal restrictions and trading windows
Giles acquires 1,000 rights from his employer Fine Fashion Limited, on 29 October 2006, under an employee share scheme. The rights can be exercised in one years time and expire after three years. The employee share scheme restricts disposal of the shares resulting from the exercise of the rights for two years after exercise. However, the scheme also provides two trading windows during the restriction period; one on 29 October 2007 and one on 29 October 2008. On those dates, the restrictions are lifted for a period of five working days.
Giles exercises the rights on 5 May 2008. As he is prevented from disposing of the shares, the cessation time happens on 29 October 2008 provided he is still employed until this time. That is, the disposal restrictions cease to have effect on the first date on which Giles is able to dispose of the shares.
Example 9b - determining the cessation time for shares or rights where Board approval to trade is required
Lisa acquires share from her employer Xyco Limited, on 29 October 2006, under an employee share scheme. The employee share scheme restricts disposal of the shares for a period of three years. However, the scheme also provides three trading windows during the three year restriction period which commence on 30 March 2007, 30 March 2008 and 30 March 2009 for a period of five days. In accordance with the employer's policy on insider trading, certain employees must request the Xyco Limited Board's approval to dispose of their shares during the trading windows by submitting a request and stating that at the time they do not believe they are in possession of material non-public information.
On 30 March 2007, the first trading window opens. Lisa is an employee covered by the insider trading policy, however, she is not in possession of material non-public information at the time of the trading window. Lisa chooses to keep her shares and does not request approval to dispose of them. As Lisa is still employed, the cessation time for Lisa's shares will be 30 March 2007, that is, the first date on which she could have disposed of her shares by requesting approval, even though she chose not to do so. If Lisa was in possession of material non-public information at the time of the trading window, she would still be subject to disposal restrictions until the first time she is able to dispose of her shares.
Sections within Questions about assessing the discount at cessation time
Last Modified: Thursday, 28 June 2012