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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1051179643794

Date of advice: 16 January 2017

Ruling

Subject: Capital gains tax - Shares acquired by exercising performance rights granted under an employee share scheme

Question 1:

Is the vesting date the acquisition date of the 20YY parcel of shares under Subdivision 109-A of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes.

Question 2:

Is the acquisition date of the 20XX parcel of shares acquired by the Trustee the date the Trustee entered into the contract to purchase the shares on the market under Subdivision 109-A of the ITAA 1997?

Answer:

No.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20YY; and

Income year ending 30 June 20ZZ.

The scheme commences on:

1 July 20WW

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.

Company A offered its eligible employees the opportunity to participate in their Performance Rights Plan (the Plan).

Grants to you and vesting of the Performance Rights

You participated in the Plan and were granted certain performance rights

You did not pay any consideration to acquire the Performance Rights.

During 20XX, some of the Performance Rights vested. In 20YY, other performance rights vested.

The Plan is a deferral scheme for employee share scheme purposes. Therefore, the Performance Rights were taxable for employee share scheme purposes at the deferred taxing points, which for all Performance Rights has occurred on their respective vesting dates.

Exercise of the Performance Rights and allocation of company A shares

Under the Plan, the Performance Rights were automatically exercised when they vested. You did not have to pay any consideration to exercise the Performance Rights.

A Clause of the Plan provides for the issue of company A shares after the Performance Rights vest and allows company A to either allot new shares or use an Employee Share Trust to acquire the company A shares on the market and then transfer them to you.

Immediately after the 20XX vesting date, an Employee Share Trust (the EST) was created.

Company A instructed the Trustee to acquire shares on the market in relation to the Performance Rights that vested in 20XX. The Trustee acquired these shares (the 20XX parcel of shares) shortly afterward.

When these purchases were complete, the legal ownership interests in the 20XX parcel of shares were transferred into your name.

In 20YY, the remainder of the performance rights were exercised (on the vesting date) and new shares (the 20YY parcel of shares) were issued to you.

Sale of shares

On the 20YY vesting date, you sold all of the company A shares that you acquired under the Plan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 83A,

Income Tax Assessment Act 1997 Part 3-1 and

Income Tax Assessment Act 1997 Part 3-3.

Reasons for decision

Question 1

Summary

The vesting date is the acquisition date of the 20YY parcel of shares under Subdivision 109-A of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

The acquisition date of a CGT asset is generally determined under Subdivision 109-A of the ITAA 1997. Specifically, section 109-10 of the ITAA 1997 applies when you acquire a CGT asset without a CGT event occurring.

Item 2 in the Table in section 109-10 of the ITAA 1997 states:

In respect to the 20YY parcel of shares, all relevant events have occurred on the vesting date being:

Therefore, there is only one possible acquisition date for the 20YY parcel of shares and that is the vesting date.

Note: the employee share scheme provisions do not apply to change the acquisition date of the 20YY parcel of shares because the ESS deferred taxing point occurred at the same time these shares were disposed of.

Question 2

Summary

The acquisition date of the 20XX parcel of shares acquired by the Trustee is not the date the Trustee entered into the contract to purchase the shares on the market under Subdivision 109-A of the ITAA 1997.

Detailed reasoning

The Performance Rights provided you with the right to acquire company A shares once they vested. For capital gains purposes, the Performance Rights, once exercised, are part of the contract for the acquisition of the 20XX parcel of shares.

The Plan is another part of the contract for the acquisition of the 20XX parcel of shares. It gave company A two alternative methods of sourcing the company A shares that you were to ultimately receive.

In relation to the 20XX parcel of shares, company A engaged the EST to acquire company A shares on the market and then transfer them to you. This means that you acquired pre-existing shares.

In this regard, the EST was acting as agent for company A and performing their part of the contract rather than as a trust of which you were a beneficiary. Therefore, you are acquiring the company A shares from the EST due to the Performance Rights being exercised.

The acquisition date of a CGT asset is generally determined under Subdivision 109-A of the ITAA 1997. Specifically, subsection 109-5(2) of the ITAA 1997 applies when you acquire a CGT asset as a result of a CGT event occurring.

Case 1 for CGT event A1 in the Table in section 109-5 of the ITAA 1997 states:

From the above, it can be seen that the 'disposal contract' was entered into when the Performance Rights were exercised.

Therefore, the question becomes 'When were the Performance Rights exercised?'

At the very least, the Performance Rights would be considered to be exercised when company A acknowledged that they had vested and that it had an obligation to provide shares as a result.

This acknowledgement could have been in the form of a media release, Stock Exchange announcement or the direction to the EST to commence its buying activities.

In any event, the Performance Rights will have been exercised before the EST began buying company A shares and therefore your acquisition date of the 20XX parcel of shares was likewise before the buying began.

Consequently, there is more than 12 months between your acquisition of the 20XX parcel of shares for capital gains purposes and the date you sold them (being the 20YY vesting date).

Note: the employee share scheme provisions adjust the acquisition date of the Performance Rights but do not apply to change the acquisition date of the 20XX parcel of shares.

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