ATO Interpretative Decision

ATO ID 2003/1130

Income Tax

Employee share scheme: fractional interest in a share
FOI status: may be released

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the market value of a fractional interest in a share, acquired by a taxpayer through an employee share scheme, calculated by applying the same fraction to the market value of a full share in the company for the purposes of subsections 139CC(2) and (4) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. The market value of the fractional interest in a share is calculated by using that fraction against the market value of a full share in the same company.

Facts

The taxpayer is an Australian resident employee of an overseas company.

The company offers their employees shares in an employee share scheme.

The taxpayer acquired a legal interest in a fraction of a share.

The taxpayer also acquired a beneficial interest in shares held in an employee share scheme trust.

Reasons for Decision

A share is acquired under an employee share scheme if

•: it is acquired in respect of, or in relation directly or indirectly to any employment or services of the taxpayer or an associate of the taxpayer and
•: the consideration for the acquisition is less than the market value of the share at the time of acquisition (subsections 139C(1) and (3) of the ITAA 1936).

A taxpayer who acquires a fractional interest in a share does so under section 139G of the ITAA 1936 because they acquire a legal or beneficial interest in the share. This recognises an acquisition of a fractional interest in a share.

The market value of the share is calculated in accordance with sections 139FA, 139FAA and section 139FB of the ITAA 1936.

In establishing the discount given on the fractional interest in a share, under subsections 139CC(2) and (4) of the ITAA 1936, the market value of that fractional interest is calculated based on the same fraction that it represents of the market value of a full share.

The discount given on the fractional interest in a share is included in the taxpayer's assessable income, either in the year of acquisition, due to an election (subsection 139B(2)), or the year of cessation time (subsection 139B(3) of the ITAA 1936).

Date of decision: 11 April 2003

Year of income: Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   section 139B(2)
   section 139B(3)
   section 139C(1)
   section 139C(3)
   section 139CC(2)
   section 139CC(4)
   section 139FA
   section 139FAA
   section 139FB
   section 139G

Keywords
Employee share schemes & options
Shares
Market Value
Discount
Beneficial Ownership
Legal Ownership

Siebel/TDMS Reference Number: 283888; 1-5SUC4Y5

Business Line: Private Groups and High Wealth Individuals

Date of publication: 12 December 2003
Date reviewed: 18 May 2015

ISSN: 1445-2782

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