Private ruling: Employee share scheme - rights - no risk of forfeiture
Published: September 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you apply the valuation tables from regulations 83A-315.8 and 83A-315.9 of the Income Tax Assessment Regulations 1997 (ITAR 1997) in order to determine the market value and hence the discount applicable on the rights you have received? | A1: Yes. | Q2: If the answer to question one is yes and the value per the tables is nil are the rights then not covered by Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: No. | Q3: Is the cost base for capital gains tax (CGT) purposes nil and is the acquisition date for CGT purposes be the grant date? | A3: Yes. | Q4: If the rights are exercised at a later date would Division 83A of the ITAA 1997 then be applied as at the exercise date? | A4: No.

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. You will be issued with rights from your employer in late this year, which on the face of it would be covered by Division 83A of the ITAA 1997. The rights will not have a real risk of forfeiture and will vest immediately. For the purposes of this ruling all other employee share scheme (ESS) conditions relating to the transaction are satisfied. Based on the regulation 83A-315.07 of the ITAR 1997 you have determined that both the market value and tax value of the right would be valued at nil. An independent third party has provided a draft valuation under the Black-Scholes option pricing model which has given a value of less than $0.10 per right.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 83A | Income Tax Assessment Act 1997 Section 83A-315 | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 Subdivision 83A-C | Income Tax Assessment Act 1997 Section 116-20 | Income Tax Assessment Regulations 1997 Section 83A | Income Tax Assessment Regulations 1997 Section 83A-315

Reasons for decision: Detailed Reasoning - Question 1:: You can apply the valuation tables from regulations 83A-315.8 and 83A-315.9 of the Income Tax Assessment Regulations 1997 (ITAR 1997) in order to determine the market value and hence the discount applicable on the rights you have received. Where the right is an unlisted right and the exercise price of the right is known at the time of acquisition and it is not nil, you can use the provisions of subsection 83A-315 of the ITAR 1997 to apply. For subsection 83A-315 of the ITAR 1997, the amount in relation to an unlisted right that must be exercised within 10 years after the day when the beneficial interest in the right was acquired is, at the choice of the individual: · the market value of the right, or · the amount determined by the application of 83A-315.02 to 83A-315.09 of the ITAR 1997. However, if the ESS deferred taxing point for an ESS interest is: · the day when the individual disposes of the interest (other than by exercised the right), or · if the individual exercised the right - the day when the individual disposes of the beneficial interest in the share, · the amount is the market value of the right or share. Therefore, you can choose to use the valuation tables from regulations 83A-315.8 and 83A-315.9 of the ITAR 1997 in order to determine the market value of the rights you received. | Detailed Reasoning - Question 2:: As the value of your rights are nil under the valuation tables from regulations 83A-315.8 and 83A-315.9 of the ITAR 1997 they are covered by Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997). Under section 83A-10(1) of the ITAA 1997, an ESS interest in a company, is a beneficial interest in: · a share in the company, or · a right to acquire a beneficial interest in a share in the company. Under section 83A-10(2), an employee share scheme is a scheme under which ESS interests in a company are provided to employees, or associates of employees, including past or prospective employees of: · the company, or · subsidiaries of the company, · in relation to the employees' employment. Subdivision 83A-B of the ITAA 1997 applies where you receive shares or rights a discount under an employee share scheme at a discount. The discount amount is included in your assessable income when you acquire the beneficial interest in those shares or rights. Subdivision 83A-B of the ITAA 1997 does not apply as you paid nothing to acquire your rights. Subdivision 83A-C of the ITAA 1997, applies if there is a real risk you might forfeit the share or right you acquired under an employee share scheme. Subdivision 83A-C of the ITAA 1997 does not apply to you as there are no forfeiture rights in your employee share scheme. Division 83A of the ITAA 1997 does still apply to your circumstances, but nothing is assessed under it. | Detailed Reasoning - Question 3:: The cost base of your rights for CGT purposes is nil. The acquisition date for CGT purposes of your rights is the date they were granted to you. Under subsection 112-20(3) of the ITAA 1997 the market value substitution rules do not apply where you acquire the right to acquire shares in a company and you do not pay or give anything for the rights. Therefore, in your case there is no modification to the cost base and the normal CGT rules apply. A person acquires a share or right if: · the share or right is transferred to that person · in the case of a right, the right created in that person, or · they acquire a legal or beneficial interest in the share or right from another person. For CGT purposes, the acquisition date is the date the rights were granted to you. | Detailed Reasoning - Question 4:: Division 83A of the ITAA 1997 does not apply if the rights are exercised at a later date. As previously stated above subdivision 83A-B of the ITAA 1997 and subdivision 83A-C of the ITAA 1997 does not apply to your situation. Therefore, Division 83A does not apply if the rights are exercised at a later date. We have also enclosed the following fact sheet - Employee share schemes - guide to employees which may be of some assistance to you in relation to employee share schemes: Information is also available on our website - www.ato.gov.au.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | For the purpose of this ruling: · the exercise price of the rights is less than $1.00 | · the expiration date is a specified number of months from vesting | · the current market value of the underlying share is less than $0.50 | · the employer is Australian Stock Exchange listed, and | · the rights are unlisted but upon exercising you will receive one listed share per exercised right.