Example: Weighted average closing price (five trading days including particular day)

The administrator of the Butterfly Bags Ltd ESS allocates shares to participants in its ESS on 12 March. In accordance with the ESS rules, a number of participants subsequently forfeited their shares to the administrator. On Thursday 12 September the administrator reallocated those same shares to participants in accordance with the ESS rules.

The number of shares traded in Butterfly Bags Ltd and closing prices for each of the five trading days up to and including 12 September were as follows:

 Date Number of shares traded Closing price 6 September 15,000 \$3.10 9 September 27,000 \$3.19 10 September 22,000 \$3.18 11 September 18,000 \$3.18 12 September 25,000 \$3.22

The weighted average closing price is calculated as follows:

 (15,000 x \$3.10) + (27,000 x \$3.19) + (40,000 x \$3.18) + (25,000 x \$3.22) 107,000 \$340,330 107,000 = \$3.1807

The market value of Butterfly Bags Ltd shares issued to participants on 12 September is \$3.18.

End of example

New shares acquired via a public float

New shares are issued to employees as part of a public float or issued to a trustee and subsequently allocated to an employee on a particular day.

A reasonable price to use as market value of the shares on the particular day is the retail offer price, provided that the particular day was within five days either side of the shares being issued under the float.

Shares acquired under a public offer

Shares are issued to employees as part of a public offer or are issued to a trustee and subsequently allocated to an employee on a particular day.

A reasonable method for determining the market value on the particular day is the retail offer price.

Shares valued at the deferred taxing point

Where shares are acquired under an ESS, they are assessable at a deferred taxing point if:

• for shares acquired after 30 June 2009, they were not subject to taxation at acquisition or
• for qualifying shares acquired before 1 July 2009
• the employee did not elect to be taxed in the year when the shares were acquired
• a cessation time has not happened to these shares before 1 July 2009.

Where shares are sold on-market within 30 days of the deferred taxing point, the taxing point will be moved to the date of sale, and the sale proceeds from the shares can be taken as their market value.

For shares that are not sold within 30 days of the deferred taxing point, their market value is the weighted average closing price for the five trading days before, but not including, the date of the deferred taxing point. It is also reasonable to calculate the 'weighted average closing price' using the closing market prices over the five trading days up to and including the particular day.

Example: Weighted average closing price (five previous trading days)

Paul is an employee of Sneezy Ltd and participates in the Sneezy Ltd ESS. Paul's ESS shares are at real risk of forfeiture and are subject to deferred taxation. The deferred taxing point for Paul's ESS shares is Monday 17 May. Paul has not sold his shares within 30 days of the deferred taxing point.

The number of shares traded in Sneezy Ltd and closing prices for each of the five trading days before 17 May were as follows:

 Date Number of shares traded Closing price 10 May 50,000 \$4.10 11 May 30,000 \$4.20 12 May 70,000 \$4.10 13 May 40,000 \$4.00 14 May 30,000 \$3.90

The weighted average closing price is calculated as follows:

 (120,000 x \$4.10) + (30,000 x \$4.20) + (40,000 x \$4.00) + (30,000 x \$3.90) 220,000 \$895,000 220,000 = \$4.0682

The market value of Sneezy Ltd shares at Paul's deferred taxing point on 17 May is \$4.06.

However, in circumstances where a stock is relatively liquid and does not exhibit significant price volatility, it is reasonable to use the closing price of the particular stock as the market value on the day of the deferred taxing point.

End of example

Example: Market value on the day of the deferred taxing point

Carol is an employee of Sleepy Bank Ltd and participates in the Sleepy Bank Ltd ESS. Carol's ESS shares are at real risk of forfeiture and are subject to deferred taxation. The deferred taxing point for her ESS shares is Thursday 23 August. Carol has not sold her shares within 30 days of the deferred taxing point.

Sleepy Bank Ltd shares are heavily traded on a daily basis and exhibit very low price volatility.

On Thursday 23 August there were 2,150,000 shares in Sleepy Bank Ltd traded on the stock exchange and the closing price was \$2.88.

The market value of Sleepy Bank Ltd shares at Carol's deferred taxing point is \$2.88.

End of example