ATO ID 2003/1130: Employee share scheme: fractional interest in a share
Date of decision: 11 April 2003
Year of income: Year ended 30 June 2001
Business line: Private Groups and High Wealth Individuals

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
Summary: A share is acquired under an employee share scheme if 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).

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
Subject references: Employee share schemes & options Shares Market Value Discount Beneficial Ownership Legal Ownership