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Edited version of private advice
Authorisation Number: 1052211021259
Date of advice: 16 January 2024
Ruling
Subject: ESS - market value
Question
Will the Commissioner accept for the purposes of section 83A-110 of the Income Tax Assessment Act 1997 (ITAA 1997) that the market value of a share in Company A at the deferred taxing point was $xx.xx?
Answer
Yes.The Commissioner has considered the valuation provided and accepts that valuation reflects the market value of the Company A shares at the deferred taxing point.
This ruling applies for the following period:
Year ending 30 June 20xx
The scheme commenced on:
1 July 20xx
Relevant facts and circumstances
You were employed by Company A Australia Pty Ltd ("Company A Australia") for approximately X years. Company A Australia is a wholly owned subsidiary of Company A, an unlisted corporation and resident of Country A.
During the course of your employment with Company A Australia you were granted stock options to purchase shares in Company A's common stock under the Company A Stock Plan as follows:
Table 1Stock options plan
|
Grant Date |
Interests Held at deferred taxing point (i.e. Shares Acquirable) |
Exercise Price (Country A currency) |
|
|
xx xxxx 20xx |
XX,XXX |
$xx.xx |
|
|
xx xxxx 20xx |
XX,XXX |
$xx.xx |
|
|
xx xxxx 20xx |
XX,XXX |
$xx.xx |
|
|
xx xxxx 20xx |
XX,XXX |
$xx.xx |
|
|
xx xxxx 20xx |
X,XXX |
$xx.xx |
|
|
xx xxxx 20xx |
X,XXX |
$xx.xx |
|
|
xx xxxx 20xx |
XXX |
$xx.xx |
|
|
Total |
XXX,XXX |
|
|
You have accepted advice that the date you ceased employment is the deferred taxing point for your ESS interests.
You received an ESS statement for the year ended 30 June 20xx which adopted a presumed market value of Company A shares at the deferred taxing point.
You contend that the presumed value in the ESS statement does not reflect the true market value of the shares for the purposes of Australian tax law. You note that:
• Company A have issued correspondence stating that the presumed market value is a valuation for the purposes of Country A tax law.
• The ESS statement states: "However, you may wish to use an alternative method of calculating market value which is consistent with the ordinary meaning of 'market value'."
• Company A is not a publicly listed company and there is no secondary market for the sale of its shares.
Consequently, you engaged a professional valuation firm ("the valuer") to provide an independent valuation of Company A shares at the deferred taxing point.
The valuer provided you with a valuation report. The report was prepared in accordance with the Accounting and Professional Standards and Ethics Board professional standards 225 (Valuation Services). The report is based on a Limited Scope Valuation Engagement, meaning there is a limitation or restriction on performing the valuation that may have a material effect on the outcome had the limitation or restriction not been present.
The valuer used publicly available information about Company A, information you provided, and comparative analysis with similar companies to determine the overall value of the company. On this basis the report valued your Company A options at the deferred taxing point in a small range in Country A currency.
You intend to use the mid-point of this range to calculate the amount included in your assessable income for the 20xx income year under section 83A-110 of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 83A-110