This information explains how to calculate the market value of unlisted rights (including options) to acquire listed shares and stapled securities, where those rights are acquired by an employee under an employee share scheme (ESS) after 30 June 2009.
An unlisted right is a right that is not quoted on an approved stock exchange, such as the Australian Securities Exchange (ASX).
When we refer to 'unlisted rights to acquire shares' we also mean 'unlisted rights to acquire stapled securities'.
This information also applies to qualifying rights acquired by an employee before 1 July 2009 if:
However, an employee must use the ordinary meaning of market value if the deferred taxing point occurs either on the day the employee disposes of:
Where the disposal of the right or share is an arm's-length disposal, the amount received on disposal of the share or right will generally be taken to be the market value – for example, where the share is sold on market.
When an employee chooses to use the value determined by using the regulations, the value will be the greater of:
Example: Market value determined by regulations
Barry is an employee of XYZ Ltd. Barry is a participant in XYZ Ltd's tax-deferred ESS.
On 29 March 2014, Barry is granted 200,000 unlisted rights to purchase shares in XYZ Ltd under the ESS. He is restricted from selling the rights, or the shares he will acquire if he exercises the rights, until 29 March 2018.
The rights have an exercise price of 10 cents and will lapse after seven years, on 29 March 2021.
On 29 March 2017, Barry ceases his employment with XYZ Ltd but he is allowed to keep his rights.
Barry's deferred taxing point occurs when he ceases employment. At this time, the underlying shares in XYZ Ltd have a market value of 12 cents. Barry does not exercise his rights at this time. Barry has four years left to exercise his rights before they will lapse.
Barry chooses to value the rights in accordance with the regulations.
The market value of Barry's rights on 29 March 2017 is the greater of:
- the right's intrinsic value, and
- the value according to the regulations.
Calculating the right's intrinsic value
The Intrinsic value equals the current market value of the underlying share less the exercise price of the unlisted right.
12 cents − 10 cents = 2 cents
Calculating the value according to the regulations
The calculation percentage equals:
(A ÷ B) × 100%
Where:
A is market value, on the particular day, of the share that is subject of the right
B is amount, or lowest amount, that must be paid to exercise the right
(12 cents ÷ 10 cents) × 100 = 120%
As the calculation percentage is equal to, or greater than, 110%, Barry uses the figures in table 2 of the regulations.
Base percentage and additional percentage
The exercise period is 48 months (four years). When the period falls into two ranges in the calculation table, use the lower range. Here Barry uses 36 to 48 months, rather than 48 to 60 months.
Exercise period
|
Base percentage
|
Additional percentage
|
36 to 48 months
|
11.4%
|
0.8%
|
From the table, the base percentage is 11.4% and the additional percentage is 0.8%.
Excess
Calculate the excess, which is the amount by which the calculation percentage exceeds 110%, as follows:
Excess = 100 multiplied by (calculation percentage less 110%)
= 100 × (120% − 110%)
= 10.
Market value
Calculate the market value using the following formula:
Amount or lowest amount that must be paid to exercise the right multiplied by [base percentage plus (excess multiplied by additional percentage)]
= 10 cents x ((11.4% + (10 − 0.8%))
= 10 cents × (11.4% + 8%)
= 10 cents − 19.4%
= 1.94 cents
The value according to the regulations (1.94 cents) is less than the right's intrinsic value (2 cents).
Therefore, the market value of the right is 2 cents.
The market value of Barry's 200,000 rights on 29 March 2017 is $4,000.
End of exampleAny method used to determine the market value should have regard to the terms and conditions which apply to the right being valued. However, in working out the market value of the right you must disregard anything which would prevent or restrict conversion of the right to money.
For example, where the terms of an ESS impose disposal restrictions or provide for rights to be forfeited in particular circumstances, these factors should be disregarded when determining the market value.