• Application of rollover relief to restructures

    Julie acquires 1,000 shares in company X under an ESS for $1,000. She deferred declaring her discount as income. Company X is subsequently restructured, with 60% becoming company Y and 40% company Z. Julie is employed by company Y after the restructure. Julie's 1,000 shares in company X which had a market value of $8 at the restructure time are replaced with 1,200 matching shares in company Y which had a market value of $4 at the restructure time and 800 matching shares in company Z which had a market value of $4 at the restructure time.

    Before takeover

    After takeover

    Company X

    Julie:

    • employed by company X
    • holds 1,000 x $8 shares in company X.

     

    Company Y

    Julie:

    • employed by company Y
    • holds 1,200 x $4 shares in company Y.

    Company Z

    Julie:

    • holds 800 x $4 shares in company Z.

     

    Julie's tax position after the restructure is:

    • the 1,200 matching shares in company Y - rollover relief applies as these shares are treated as if they were a continuation of the 600 shares in company X (60% of the 1,000 shares) and her employment with company Y is treated as a continuation of employment with company X
       
    • the 800 matching shares in company Z - a cessation time or deferred taxing point will occur for the 400 shares in company X (40% of 1,000 shares) because there is no continuation of employment in company X.

    As Julie paid $1,000 for the 1,000 shares in company X, Julie will apportion this payment as follows:

    • $600 (60% of $1,000) to the shares in company X that received rollover relief
       
    • $400 (40% of $1,000) to the shares in company X that have a cessation time or deferred taxing point. Julie will include a discount of $2,800 ($4 x 800 shares in company Z less $400) in her assessable income in the income year of the restructure.
    End of example
      Last modified: 01 Jul 2015QC 27176