• Electing to have qualifying shares or rights assessed in the year you acquire them

    For 2008–09, if you want to be assessed upfront on the discount you receive on qualifying shares or rights, you must make an election in your tax return for that year. If you make an election, the election will apply to all qualifying shares or rights you acquired in that income year.

    To make an election in your 2008–09 tax return, you must complete two labels at question 24 ‘Other Income’:

    • you must indicate ‘yes’ that you want to make an election, and
    • you must include the assessable discount amount for all qualifying shares and rights you acquired in the income year.

    For 2007–08 and previous income years, you have to make an election in writing, in the approved form as set out in Taxation Determination TD 97/23External Link, if you want to have the discount on your qualifying shares or rights assessed upfront. The election has to be made before you lodge your tax return for the income year in which the shares or rights are acquired.

    Once made, you cannot revoke an election to instead be assessed on the discount at cessation time. However, in relation to rights, you may be able to remove the discount from your assessment if you later lose the rights. Refer to Lapsing of rights for more information.

    If you do not make an election, the discount will not be included in your assessable income until the income year in which an event, known as a ‘cessation time’, occurs. Refer to Cessation time.

    Making an election at a later time

    The Commissioner of Taxation has a discretion to allow you to make an election at a later time.

    When considering whether to exercise the discretion, the Commissioner will consider the following factors:

    • the circumstances which led to you not making the election in the required timeframe for the relevant income year
    • your explanation of the time delay between lodging your income tax return and the date of your request to make a late election
    • whether it would be fair and equitable in the taxpayer's circumstances for the Commissioner to exercise his discretion.

    If you want the Commissioner to consider allowing you to make a late election, you must make a request in the approved form.

    Obtaining exemption for the first $1,000 of the discount

    The $1,000 exemption applies if you have elected to be assessed on the discount of qualifying shares or rights upfront, and if the employee share scheme from which you acquire the shares or rights meets the following conditions:

    • the scheme did not have any conditions that could result in any employee forfeiting ownership of the shares or rights
    • the scheme was operated so that no recipient would be permitted to dispose of the shares or rights (or shares acquired on exercise of the rights) before the earlier of      
      • three years after their acquisition (or for shares acquired on exercise of the rights, three years after acquisition of the rights)
      • the time their employment ceased with the employer
       
    • the employee share scheme operated on a non-discriminatory basis (including the provision of financial assistance in respect of the acquisition of shares or rights), which means that      
      • participation in the scheme is open to at least 75% of permanent employees
      • the time for acceptance of each offer is reasonable
      • the essential features of each offer are the same for at least 75% of permanent employees.
       
    Attention

    If you have acquired separate share or right issues in an income year, and only one issue meets the exemption conditions, the discount can only be reduced in relation to the issue of shares or rights that meets the exemption conditions. Refer to example 8.

    End of attention

    Exemption is automatic in some circumstances

    For 2008–09, you are deemed to have made an election if:

    • your qualifying shares or rights are from an employee share scheme that meets the exemption conditions, and
    • the total discount related to the shares or rights is not more than $1,000.

    This means that you are not required to make an election in your tax return for these qualifying shares or rights, nor are you required to include the discount in your assessable income. Refer to example 7.

    However, if you have acquired shares or rights that meet the exemption conditions, and the discount is more than $1,000, you will still need to make an election as well as return the amount of the discount in excess of the $1,000 exemption in your tax return in the year you acquire the shares or rights.

    Attention

    For income years prior to 2008–09, you still need to make an election before lodging your tax return even if your total discount amount on all qualifying shares or rights acquired in the year is $1,000 or less, and the exemption conditions have been met.

    End of attention

    Calculating the discount when you make an election

    The discount is calculated as at the date the shares or rights are acquired, and is the market value of the shares or rights less any consideration you provide to acquire the shares or rights. If the employee share scheme from which the shares or rights are acquired meets the exemption conditions, the total discount is also reduced by $1,000.

    Example 7: Calculating the discount on qualifying shares assessed upfront

    Peter acquires 1,000 qualifying shares for free from his employer, ABC Bank, on 30 August 2008, at a market value of $1 per share. ABC Bank’s employee share scheme satisfies the exemption conditions.

    Peter calculates the discount as:

    market value on acquisition of the shares
    1,000 shares $1


    $1,000

    Less

     

    consideration paid to acquire shares

    Nil

    discount equals

    $1,000

    Less

     

    reduction amount

    $1,000

    discount included in assessable income

    Nil

    Because the total discount of the qualifying shares is $1,000 or less and the exemption conditions have been satisfied, Peter is deemed to have made an election to assess the discount upfront, in the year he acquired the shares: the 2009 income year. Because the $1,000 exemption has reduced the discount to nil, he does not need to include the discount in his assessable income.

    Refer to example 14 to see the CGT implications when Peter sells his shares.

    End of example

      

    Example 8: Calculating the discount on qualifying rights assessed upfront

    Shaun acquires 500 qualifying rights for free from his employer, United Power, on 10 September 2008, at a market value of $1 per right. The employee share scheme does not satisfy the exemption conditions.

    On 16 October 2008, Shaun begins work with a new unrelated employer, Energy Online, and acquires 500 qualifying rights for free, at a market value of $2 per right. The employee share scheme satisfies the exemption conditions so that the first 1,000 of the discount is not assessable.

    When Shaun lodges his tax return for the 2009 year, he makes an election to assess the discount on all qualifying shares and rights upfront.

    Shaun calculates his discount as:

    market value of United Power rights at acquisition date (500 rights $1)


    $500

    Less

     

    consideration paid to acquire the rights

    Nil

     

    $500

    market value of Energy Online rights at acquisition date (500 rights x $2)

    $1,000

    Less

    consideration paid to acquire the rights

    Nil

     

    total discount

    $1,500

     

     

    Less

    reduction amount for Energy Online rights

    discount amount included in assessable income

     

    $1,000

    $500

     

    Shaun includes the discount of $500 in his assessable income for the 2009 year.

    Refer to example 15 to see the CGT implications when Shaun disposes of his rights.

    End of example
      Last modified: 01 Jul 2015QC 16652