ATO ID 2002/250: Employee Share Scheme: Market valuation of unlisted rights, Table 1 percentage
Date of decision: 21 September 2001
Year of income: 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Does a taxpayer use the lower Table 1 percentage under subsection 139FM(1) of the Income Tax Assessment Act 1936 (ITAA 1936), to calculate the market value of an unlisted right acquired under an employee share scheme, where the calculation percentage or exercise period is the top of one range and the bottom of another range in that table?

Decision
Yes. The note at the end of section 139FN of the ITAA 1936 provides that the lower Table 1 percentage under subsection 139FM(1) of the ITAA 1936 is used where the calculation percentage or exercise period falls within two ranges of that table.

Facts
The taxpayer was granted unlisted rights to acquire shares under an employee share scheme for no consideration. The taxpayer was required to pay an amount in order to exercise the rights. The exercise period of the rights was less than 10 years. The taxpayer's calculation percentage under subsection 139FK(1) of the ITAA 1936 is equal to or greater than 50% but less than 110%.

Reasons for decision
Summary: For the purposes of calculating the discount of a right under subsections 139CC(2) and 139CC(4) of the ITAA 1936, the market value of a right is determined on the particular day (valuation day) under section 139F of the ITAA 1936. The valuation day is the date of acquisition of the right if an election under section 139E of the ITAA 1936 has been made. However, if the taxpayer has not made an election and the rights are not exercised at cessation time under subsection 139CB(1) of the ITAA 1936, the valuation day is the date of cessation time. Sections 139FJ to 139FN of the ITAA 1936 provides the method for calculating the market value of an unlisted right to acquire a share on the valuation day. Where the calculation percentage determined under subsection 139FK(1) of the ITAA 1936 is equal to or greater than 50% but less than 110%, section 139FL of the ITAA 1936 provides that Table 1 in subsection 139FM(1) is to be used to work out the market value of the right. The market value is calculated by selecting the percentage (Table 1 percentage) that corresponds to the period in months from the valuation day until the last day on which the right may be exercised and the calculation percentage. The Table 1 percentage is then multiplied by the amount or lowest amount that must be paid to exercise the right to determine the market value. If the exercise period or the calculation percentage is in the top of one range and also the bottom of another range in Table 1, the note at the end of section 139FN of the ITAA 1936 states that the Table 1 percentage is taken to be in the lower range and not in the higher range. The taxpayer will therefore use the lower range to determine the Table 1 percentage for calculating the market value of the right on the valuation day where either the calculation percentage or the exercise period is in two ranges.

Legislative references: Income Tax Assessment Act 1936 subsection 139CB(1) subsection 139CC(2) subsection 139CC(4) section 139E section 139F section 139FJ subsection 139FK(1) section 139FL subsection 139FM(1) section 139FN subsection 139FN(1)
Subject references: Employee share schemes & options