ATO Interpretative Decision

ATO ID 2011/97 (Withdrawn)

Income Tax

Employee Share Scheme: valuing rights provided as consideration for the acquisition of new rights
FOI status: may be released
  • This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that does not apply after the 2008-2009 income year. Despite its withdrawal, this ATO ID continues to be precedential ATO view in respect of decisions for income years up to, and including, the 2008-2009 income years.
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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where prior to 1 July 2009 unlisted rights (old rights) are provided as consideration for the acquisition of new rights, when working out whether the new rights have been acquired under an employee share scheme to which former Division 13A of Part III (Division 13A) of the Income Tax Assessment Act 1936 (ITAA 1936) applies, is it necessary to value the old rights using former section 139FC of the ITAA 1936?

Decision

Yes. When working out whether the new rights have been acquired under an employee share scheme for the purposes of former Division 13A of the ITAA 1936, the value of the old rights provided as consideration for the new rights must be valued using former section 139FC of the ITAA 1936.

Facts

On 1 January 2003 an employee was granted unlisted rights to shares

On 1 January 2005 the employee was granted further rights (new rights) to shares.

As consideration for the grant of the new rights, the employee surrendered the old rights they had acquired on 1 January 2003.

The new rights were granted in relation to the employee's employment and entitled the employee to acquire shares in the employer company.

Reasons for Decision

Former Division 13A of the ITAA 1936 provides for the taxation treatment of shares and rights acquired by taxpayers prior to 1 July 2009 under employee share schemes.

Where prior to 1 July 2009 an employee acquired a right to acquire a share, and the right was acquired in relation to the employee's employment for less than market value, the discount given in relation to the right was included in the employee's assessable income under former subsection 139B(1) of the ITAA 1936.

However, if the consideration for the acquisition is equal to, or more than, the market value of the right at the time it is acquired, the employee is taken not to have acquired the right under an employee share scheme.

To determine whether the new rights have been acquired at a discount (that is, for less than market value), both the old rights provided as consideration and the new rights must be valued.

Section 21 of the ITAA 1936 applies where consideration is given otherwise than in cash. Under subsection 21(1) of the ITAA 1936 the money value of the consideration is deemed to have been paid or received.

The money value of shares or rights in these circumstances is the same as the market value of the shares or rights (Case 88 13 CTBR (NS) 571).

Where the consideration given is a right (irrespective of whether the right was acquired under an employee share scheme or otherwise) Subdivision F of former Division 13A of the ITAA 1936 applies to determine the market value of the right where the market value is required to be determined for any of the purposes of Division 13A.

Determining the market value of consideration provided for the acquisition of a right under an employee share scheme is clearly such a purpose.

Former section 139FC of the ITAA 1936 provides the methodology for calculating the market value of an unlisted right on a particular day.

The market value of the old rights provided as consideration must therefore be determined in accordance with section 139FC of the ITAA 1936

Date of decision:  8 November 2011

Year of income:  Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1936
   section 21
   subsection 21(1)
   Division 13A of Part III
   subsection 139B(1)
   Subdivision F of Division 13A of Part III
   section 139FC

Case References:
Case 88
   13 CTBR (NS) 571

Keywords
Employee share ownership
Employee share schemes & options
Share discounts on employee share schemes

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  2 December 2011

ISSN: 1445-2782

history
  Date: Version:
  8 November 2011 Original statement
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