At the time of acquisition of a right by your employee, the entitlement to a share or a specific number of shares could be uncertain. For example, you could provide your employee with a right to acquire at a future time:
- either shares or cash (whichever you decide)
- shares with a specified total value, rather than a specified number of shares
- an indeterminate number of shares, that is, the exact number of shares is not specified at the time the employee acquires the right.
The law applies as if that right had always been rights to acquire those shares from the time the original right was acquired, if and when it becomes clear that the right will result in the receipt of:
- shares, if previously it could have been shares or cash
- a definite number of shares, if previously it was shares to a total value or an unspecified number of shares.
Example: Indeterminate rights
Anthony receives shares in an upfront scheme - eligible for reduction with a discount of $2,400 in the 2011 income year and reports this discount in his 2011 tax return.
On 14 April 2011, Anthony is also granted a right to an employment benefit by his employer Western Housing Ltd. Anthony pays no consideration for the right.
The right is not subject to a real risk of forfeiture.
In three years Western Housing Ltd will determine whether to meet the right with cash or Western Housing Ltd shares.
On 14 April 2014, Western Housing Ltd decides to give Anthony 1,000 shares. The right that Anthony acquired in 2011 is now treated as if it had always been rights to acquire 1,000 shares. Those rights were acquired under a taxed-upfront scheme not eligible for reduction.
The market value of the rights on 14 April 2011 was $4,000. As Anthony paid no consideration for the rights, the discount on the rights is $4,000.
Within 30 days of Western Housing Ltd determining that Anthony would receive 1,000 shares, they must give Anthony an amended ESS statement for 2010–11. On 10 May 2014, Western Housing Ltd gives Anthony an amended ESS statement with an amount of $2,400 at label D 'Discount from taxed upfront schemes – eligible for reduction' and an amount of $4,000 at label E 'Discount from taxed upfront schemes - not eligible for reduction'.
Western Housing Ltd also lodges an amended ESS annual report for 2010–11 with us on 10 May 2014.
Anthony must amend his 2011 tax return to include the discount income.End of example
See also:Your employee’s entitlement to shares may be confirmed at a later time.