Private ruling: Employee share schemes
Date of advice: 12 May 2022
Published: August 2022
Ruling period: Year ending 30 June 2021
Date scheme commenced: 1 July 2019

Ruling: Q1: Will the Commissioner accept for the purposes of section 83A-315 of the Income Tax Assessment Act 1997 (ITAA 1997) that the market value of a share in Company A as at July 20XX was $Z? | A1: Yes. The Commissioner has considered the valuation provided and accepts that valuation reflects the market value of the Company shares as at July 20XX.

Relevant facts and circumstances: You are an employee of Company A. You participated in an Employee Share Scheme (ESS) Incentive Plan and received call options in Company A. Each Call Option provided an entitlement to one share in Company A. Company A conducted an equity capital raise with strategic investors in February 20XX. The capital raise valued Company A shares at $Y each. In July 20XX, you exercised a number of these Call Options in Company A at $X each. Company A determined that the Discount from Deferral Schemes on the Employee Incentive Plan was $XX! for the purposes of ESS reporting. In February 20XX when the strategic equity raise was conducted, Company A was primarily engaged in its business as usual. Their revenue streams were catastrophically impacted by the COVID pandemic and consequently, Company A's revenues and profitability plummeted. In this context, and when compared to Company A's ASX and internationally listed peers at the time, you assert that the share price of Company A would have been much lower than the capital raise value if its securities were actively traded when the Call Options were exercised. As an unlisted private company that had experienced no trade in its securities between the equity capital raise and the exercise of Call Options, no transactions in the securities of Company A could be used to validate a contemporaneous market price for its shares. Company A made a decision to use the equity capital raise as a basis to value the Call Options for the purposes of ESS reporting. You do not believe this figure to be appropriate in the circumstances that prevailed when the Call Options were exercised. You provided a Valuation report. That report considered that the market value of a Company A share to be $Z. Based on the Valuation your Discount from Deferral Schemes on the Employee Incentive Plan is $X!.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 Section 83A-315