Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012318076141

Ruling

Subject: Employee share scheme - rights - risk of forfeiture

Question 1:

Can you apply the valuation tables from regulations 83A-315.8 and 83A-315.9 of the Income Tax Assessment Regulations 1997 (ITAR 1997) in order to determine the market value and whether the employee share scheme (ESS) interests have been issued at a discount at the grant date?

Answer:

Yes.

Question 2: If the answer to question one is yes and the value per the tables is nil are the rights then not covered by Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) as they have not been issued at a discount?

Answer:

No.

Question 3: Is the cost base for capital gains tax (CGT) purposes nil and is the acquisition date for CGT purposes the date the rights were granted to you?

Answer:

Yes.

Question 4: Upon satisfaction of the performance hurdles can Division 83A of the ITAA 1997 be applied?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You will be issued with rights from your employer in late this year, which on the face of it would be covered by Division 83A of the ITAA 1997.

The rights are subject to performance conditions and have a real risk of forfeiture.

For the purpose of this ruling all other employee share scheme (ESS) conditions relating to the transaction can be assumed to be satisfied.

Based on the regulation 83A-315.07 of the ITAR 1997 you have determined that both the market value and tax value of the right would be valued at nil.

An independent third part has provided a draft valuation under the Black-Scholes option pricing model which has given a value of less than $0.10 per right.

For the purpose of this ruling:

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 83A

Income Tax Assessment Act 1997 Section 83A-315

Income Tax Assessment Act 1997 Subdivision 83A-B

Income Tax Assessment Act 1997 Subdivision 83A-C

Income Tax Assessment Act 1997 Section 112-20

Income Tax Assessment Regulations 1997 Section 83A

Income Tax Assessment Regulations 1997 Section 83A-315

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1:

You can apply the valuation tables from regulations 83A-315.8 and 83A-315.9 of the Income Tax Assessment Regulations 1997 (ITAR 1997) in order to determine the market value and hence the discount applicable on the rights you have received.

Where the right is an unlisted right and the exercise price of the right is known at the time of acquisition and it is not nil, you can use the provisions of subsection 83A-315 of the ITAR 1997 to apply.

For subsection 83A-315 of the ITAR 1997, to apply the amount in relation to an unlisted right that must be exercised within 10 years after the day when the beneficial interest in the right was acquired is, at the choice of the individual:

However, if the ESS deferred taxing point for an ESS interest is:

Therefore, you can choose to use the valuation tables from regulations 83A-315.8 and 83A-315.9 of the ITAR 1997 in order to determine the market value of the rights you received.

Question 2:

As the value of your rights are nil under the valuation tables from regulations 83A-315.8 and 83A-315.9 of the ITAR 1997 they are covered by Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997).

Under section 83A-10(1) of the ITAA 1997, an ESS interest in a company, is a beneficial interest in:

Under section 83A-10(2), an employee share scheme is a scheme under which ESS interests in a company are provided to employees, or associates of employees, including past or prospective employees of:

Subdivision 83A-B of the ITAA 1997 applies where you receive shares or rights under an employee share scheme at a discount. The discount amount is included in your assessable income when you acquire the beneficial interest in those shares or rights.

Subdivision 83A-B of the ITAA 1997 does not apply as you paid nothing to acquire your rights.

Subdivision 83A-C of the ITAA 1997, applies if there is a real risk you might forfeit the share or right you acquired under an employee share scheme.

Where there is a real risk that the benefits of an ESS interest may never be realised because the ESS interest may forfeited, the tax will be deferred until a deferred taxing point.

The deferred taxing point for a right is the earliest of the following times:

Division 83A of the ITAA 1997 does still apply to your circumstances, but nothing is assessed under it.

Question 3:

The cost base of your rights for CGT purposes is nil. The acquisition date for CGT purposes of your rights is the date they were granted to you.

Under subsection 112-20(3) of the ITAA 1997 the market value substitution rules do not apply where you acquire the right to acquire shares in a company and you do not pay or give anything for the rights.

Therefore, in your case there is no modification to the cost base and the normal CGT rules apply.

A person acquires a share or right if:

For CGT purposes, the acquisition date is the date the rights were granted to you.

Question 4:

Upon satisfaction of the performance hurdles Division 83A of the ITAA 1997 does not apply.

As previous stated above subdivision 83A-B of the ITAA 1997 does not apply to your situation.

Therefore, Division 83A does not apply upon the satisfaction of any performance hurdles.

We have also enclosed the following fact sheets which may be of some assistance to you in relation to employee share schemes:

Information is also available on our website - www.ato.gov.au.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).