Employee share schemes - rollover relief changes
This information applies to you if:
- you acquired shares or rights under an employee share scheme (ESS) and made an election to include the discount as income in the year that you acquired the shares or rights, or you acquired the shares or rights under a section 26AAC Income Tax Assessment Act 1936 ESS
- the company in which you held the shares or rights was involved in a corporate restructure or takeover
- as a result of the corporate restructure or takeover you received replacement shares or rights in a new company or group (the new company) that match the shares or rights you held in an old company or group (the old company), and
- you are an employee of the new company after the corporate restructure or takeover.
Warning:
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attentionAn ESS participant acquires shares or rights under an ESS if the shares or rights were acquired in connection with employment, and if the consideration paid for them was less than their market value at that time. Any discount that an ESS participant receives from acquiring shares or rights for less than their market value is generally assessable as income.
If an ESS participant acquires shares or rights in respect of employment on or before 6.00 pm by legal time in the Australian Capital Territory on 28 March 1995, the section 26AAC provisions will apply.
If an ESS participant acquires shares or rights after that time, the Division 13A of Part III of the ITAA 1936 (Division 13A) provisions will apply.
Under both sets of provisions an ESS participant can, subject to certain conditions, access concessions in relation to the discount.
In the event of a corporate restructure, an ESS participant may be issued with new shares or rights to replace the old shares or rights they previously held. However, under the old law the new shares or rights may not qualify for the same concessions on the discount that applied to the old shares or rights.
Recent changes to the law ensure that, subject to certain conditions, the new shares or rights issued to ESS participants in the event of a corporate restructure are treated as a continuation of the old shares or rights they previously held. The changes also ensure that concessions in relation to the discount are not lost where shares or rights are disposed of in the event of a corporate restructure.
Under section 26AAC, an ESS participant can, subject to certain conditions, access one of two alternative tax concessions on the discount they receive - the tax-excluded concession and the tax-deferred concession.
These amendments ensure that ESS participants with tax-excluded shares or rights under section 26AAC can treat the new shares or rights they are issued in a corporate restructure as a continuation of their old shares or rights.
The recent changes to the law also ensure that ESS participants with tax-deferred shares or rights under section 26AAC can treat the new shares or rights they are issued in a corporate restructure as a continuation of their old shares or rights.
Under Division 13A, an ESS participant can, subject to certain conditions, access one of two tax concessions in relation to the discount they receive - the tax-upfront concession and the tax-deferred concession.
The recent changes ensure that ESS participants with tax upfront shares or rights under Division 13A can treat the new shares or rights they are issued in a corporate restructure as a continuation of their old shares or rights. In addition, certain share holding conditions of the ESS do not need to be satisfied in relation to the new shares or rights. This ensures that:
- ESS participants with new shares or rights retain the same capital gains tax (CGT) cost base treatment as their old shares or rights
- ESS participants who acquire new shares or rights no longer have to satisfy the condition relating to not disposing of the shares or rights within three years of acquiring them, and
- the new rights an ESS participant is issued are treated as a continuation of their old rights.
These changes apply from 1 July 2004 to certain types of corporate restructures and takeovers which have happened to corporations with an operating ESS.
Employees who held ESS shares or rights in a company which has been subject to an eligible restructure since 1 July 2004, and who as a result of the restructure included an amount as a capital gain or as ESS income, may now be entitled to rollover relief if certain conditions are met. Taxpayers in this situation can request an amendment for the 2004-05 income year to remove the capital gain or ESS income that was included.
Follow the above link to find out how to request an amendment to your assessment. Alternatively you may wish to discuss your situation with your tax agent or phone us on 13 28 61.
Rollover relief does not apply to all types of corporate restructure. It applies to 100% takeovers, mergers, demergers or other forms of restructure that result in you acquiring replacement matching shares or rights in the new company. In these types of situations, your employer should provide you with more information about the restructure and how it applies to you as an ESS share or rights holder.
Matching shares or rights are the replacement shares or rights you received in the new company that replace the shares or rights you had before the corporate restructure.
To be eligible for rollover relief, the value of matching shares or rights, together with any cash or other consideration provided to you, should be no more than the value of your shares or rights in the old company immediately before the corporate restructure.
Rollover relief will also apply to qualifying stapled securities listed on the Australian Stock Exchange, as if the stapled securities and rights to acquire them were ordinary shares and rights.
Subject to the conditions of rollover relief for shares and rights being met, rollover relief will be available where:
- a share is replaced with a stapled security
- a stapled security is replaced with a different stapled security, or
- a stapled security is replaced with a share.
Are there conditions that need to be met for rollover relief to apply?
The conditions that need to be met for rollover relief to apply to you are:
- immediately before the corporate restructure, you held shares or rights in the old company that you acquired under an ESS
- at or about the time you acquired the matching shares or rights, you were an employee of the new company (or its holding company or subsidiary)
- your matching shares or rights are ordinary shares or rights to acquire ordinary shares
- but for the rollover relief, you would have had a cessation time as a result of the corporate restructure, and
- at the time you acquired the matching shares or rights:
- you did not hold a legal or beneficial interest in more than 5% of the shares in the new company, or
- you were not in a position to cast, or control the casting of, more than 5% of the votes at a general meeting of the new company.
On a corporate restructure, if you receive matching shares or rights in the new company that replace shares or rights in the old company acquired under an ESS, and the conditions for rollover relief are satisfied, rollover relief will be provided by treating your:
- matching shares or rights as if they were a continuation of your shares or rights in the old company, and
- employment with the new company (or its holding company or subsidiary) as a continuation of your employment in the old company (or its subsidiary).
Yes. Rollover relief applies to the extent that your matching shares or rights are regarded as a continuation of your shares or rights in the old company and the qualifying conditions are met.
You will have to apportion your shares or rights in the old company to the extent that you receive cash or new shares or rights that are not treated as a continuation of your old shares or rights - for example, if you are not an employee of the new company (or its holding company or subsidiary). The proportion of your old shares or rights that relate to this payment or the new shares or rights, will not be entitled to rollover relief. Normal ESS and CGT implications will apply to these shares or rights.
If your matching shares or rights do not have restrictions or conditions attached to them, rollover relief is still available provided you satisfy the conditions for rollover.
You disregard any capital gain or loss that results from the happening of a CGT event on a corporate restructure where rollover relief applies to you.