Class Ruling CR 2010/75
Date of effect: 1 July 2008

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. 2. In this Ruling, Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936), as in force at the time occurring just before Schedule 1 to the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 commenced is referred to as 'former Division 13A' and the provisions in force at that time are referred to as 'former' provisions of the ITAA 1936. Relevant provision(s) 3. The relevant provisions dealt with in this Ruling are: All subsequent legislative references in this Ruling are to the ITAA 1997 unless otherwise indicated. Class of entities 4. The class of entities to which this Ruling applies is all persons who acquire performance rights (rights) under the Breville Group Limited Performance Rights Plan (the plan) while they are employees of the Breville Group Limited (Breville) or any of its wholly owned subsidiaries (Breville group). They are persons who: where the rights are acquired prior to 1 July 2009 they are persons whose rights: In this Ruling, a person belonging to this class of entities is referred to as a participant. Qualifications 5. The Commissioner makes this Ruling based on the precise arrangement identified in this Ruling. 6. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 10 to 25 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 4. The class of entities to which this Ruling applies is all persons who acquire performance rights (rights) under the Breville Group Limited Performance Rights Plan (the plan) while they are employees of the Breville Group Limited (Breville) or any of its wholly owned subsidiaries (Breville group). They are persons who: where the rights are acquired prior to 1 July 2009 they are persons whose rights: In this Ruling, a person belonging to this class of entities is referred to as a participant. | Qualifications: 5. The Commissioner makes this Ruling based on the precise arrangement identified in this Ruling. 6. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 10 to 25 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 9. This Ruling applies from 1 July 2008. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 10. The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them form part of and are to be read with the description: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. | The plan: 11. Breville established the plan in 2009 as part of its reward and retention policy for its senior executives. 12. Under the plan, Breville invites eligible employees to apply for performance rights (rights) to acquire fully paid ordinary shares (shares) in Breville. 13. Where rights are granted to employees they are granted for no consideration and the date of grant is specified in the invitation. 14. Rights were first granted to participants in the year ending 30 June 2009 (2009 rights) and the applicant has advised that rights will be offered in the year ending 30 June 2011 and subsequent income years (post 2009 rights). 15. The exercise of rights is subject to the satisfaction of a performance condition and the meeting of certain other conditions, including that a participant remain an employee of the Breville group during the vesting period. 16. The rights vest on a date which is more than 12 months after they are granted, if the performance condition is satisfied. 17. The participants are notified by Breville once the rights have vested and participants have 30 days to exercise their rights. The amount payable upon exercise is nil. 18. Once exercised, a right becomes an entitlement to a share which can be satisfied under the plan rules by: 19. Where a participant exercises their rights, shares will be either issued or transferred to the participant or allocated to the participant by the trustee of the trust established by Breville and held for the benefit of the participant. 20. Shares issued, transferred or allocated to a participant are not subject to forfeiture. Where shares are issued or transferred to a participant the participant acquires legal title, and where the trustee allocates shares to a participant, the participant becomes absolutely entitled to the shares. 21. The applicant has advised that at the time of grant no participant will hold a beneficial interest in more than five per cent of the shares in Breville or be in a position to cast, or to control the casting of, more than five per cent of the maximum number of votes that might be cast at a general meeting of Breville. | Disposal restriction - lock period: 22. Where shares are issued, transferred or allocated, a participant is not entitled to dispose of their shares until the earlier of: 23. The Board has a discretion to permit a participant to dispose of their shares at an earlier date. However, the applicant has advised that the Board will only consider exercising its discretion to permit a participant to trade in their shares prior to the end of the lock period in exceptional circumstances, such as when a participant is having severe and unforseen medical or financial related issues. | Lapsing of the rights: 24. Each unvested right will lapse on the earlier of: 25. The applicant has advised that where the Board has a discretion in relation to the lapsing of unvested rights, the Board will only exercise that discretion in exceptional circumstances, and not on a routine basis. | Assessability of rights under Subdivision 83A-C: 26. Where a participant acquires a right under the plan, Subdivision 83A-C applies in relation to the right. 27. No amount will be included in the participant's assessable income in relation to the right until the ESS deferred taxing point occurs. | Rights acquired pre 1 July 2009: 28. The ESS deferred taxing point for 2009 rights acquired by a participant under the plan will be the cessation time mentioned in former subsection 139B(3) of the ITAA 1936, pursuant to subsection 83A-5(4) of the IT(TP)A 1997, which will be the earlier of: however, if the participant disposes of the share acquired on exercise of the right within 30 days of the cessation time, the ESS deferred taxing point will instead be the time of the disposal, under paragraph 83A-5(4)(c) of the IT(TP)A 1997. | Rights acquired post 1 July 2009: 29. The ESS deferred taxing point for post 2009 rights acquired by a participant under the plan will, pursuant to section 83A-120, be the earlier of the following times: however, if the participant disposes of the right, or the share acquired on exercise of the right within 30 days after the first to occur of the above times, the ESS deferred taxing point will instead be the time of the disposal. | Amount to be included in assessable income: 30. The market value of the right is included in the participant's assessable income under section 83A-110 in the income year in which the ESS deferred taxing point occurs. | Forfeiture or loss of rights: 31. Division 83A will be taken never to have applied and no amount will be included in the assessable income of a participant if: | Certain capital gains and losses disregarded: 32. The granting of a right to a participant does not result in a CGT event for the participant. 33. Any capital gain or loss made by a participant from the exercise of a right by the participant and the issue or transfer of a share to the participant or the allocation of a share by the trustee to the participant is disregarded, in accordance with subsection 130-80(1). 34. Where the ESS deferred taxing point of a right happens at the time of disposal of the share acquired pursuant to the right, any capital gain or capital loss made by a participant from that disposal is disregarded in accordance with subsection 130-80(1). | First element of cost base of shares: 35. The first element of the cost base and reduced cost base of a share acquired by a participant pursuant to a right to which this ruling applies is the market value of the share immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125, section 112-15, subsection 110-25(2) and subsection 110-55(2). | Time of acquisition of shares: 36. For the purposes of Division 115, the time of acquisition of a share acquired pursuant to a 2009 right to which this ruling applies is: in accordance with sub-paragraph 83A-5(4)(f)(i) of the IT(TP)A 1997. 37. The time of acquisition of a share acquired pursuant to a post 2009 right to which this ruling applies is immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125. Commissioner of Taxation 15 December 2010 | Assessability of rights under Subdivision 83A-C: 38. Division 83A applies to shares, rights and stapled securities acquired under an employee share scheme on or after 1 July 2009. 39. Division 83A of the ITAA 1997 also applies to certain shares, rights and stapled securities acquired before 1 July 2009 under Division 83A of the IT(TP)A 1997. | Rights acquired pre 1 July 2009: 40. By reason of subsection 83A-5(2) of the IT(TP)A 1997, Subdivision 83A-C of the ITAA 1997 (and the rest of Division 83A to the extent that it relates to that Subdivision) applies in relation to a 2009 right granted to a participant under the plan because: 41. Subdivision 83A-C (and the rest of Division 83A of the ITAA 1997) applies to the 2009 right subject to the modifications contained in subsection 83A-5(4) of the IT(TP)A 1997. | Rights acquired post 1 July 2009: 42. Subdivision 83A-B will apply to a post 2009 right granted to a participant under the plan, unless Subdivision 83A-C applies. 43. Subdivision 83A-C allows for the deferral of tax on the amount assessable in respect of an ESS interest if certain conditions are satisfied. Subdivision 83A-C applies, and Subdivision 83A-B does not apply, to an ESS interest which is a right if the following conditions are satisfied: 44. In relation to the first condition, Subdivision 83A-B would, apart from subsection 83A-105(1), apply to a post 2009 right because the right: 45. In relation to the second condition, subsection 83A-35(3), subsection 83A-35(4), subsection 83A-35(5) and subsection 83A-35(9) apply to a post 2009 right granted to a participant because: 46. In relation to the third condition, Subdivision 83A-C applies to a post 2009 right if, under the conditions of the plan when the right is granted, there is a real risk that a participant will forfeit or lose the right (other than disposing of it, exercising the right or letting it lapse). Real risk of forfeiture 47. The Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009, which inserted Division 83A into the ITAA 1997, explains the real risk of forfeiture test at paragraph 1.156 as follows: 48. In order for the 'real risk of forfeiture' test to be satisfied, in relation to an ESS interest acquired by an employee under an employee share scheme, a reasonable person must consider that there is an actual possibility of forfeiture. Furthermore, the risk of forfeiture must be 'real', not nominal, artificial or contrived. There must be more than a mere possibility. 49. Where ESS interests are subject to both performance conditions and service conditions (such as a minimum term of employment) and the service conditions are sufficient to satisfy the real risk of forfeiture test at the time of acquisition, it is not necessary to consider whether the performance conditions also satisfy the test. 50. As rights acquired by participants are subject to a vesting period which is greater than 12 months (that is, they will lapse if the employee ceases employment prior to vesting) and the applicant has advised that the Board's discretion in relation to the lapsing of unvested rights will only be exercised in exceptional circumstances, and not on a routine basis, the Commissioner accepts that the post 2009 rights granted under the plan will be subject to a real risk of forfeiture and subsection 83A-105(3) applies. Accordingly, it is not necessary to consider whether the performance conditions alone satisfy the real risk of forfeiture test. 51. As a result, Subdivision 83A-C applies to post 2009 rights granted under the plan, and Subdivision 83A-B does not apply. The taxation of discounts received under the plan will be deferred until a deferred taxing point. | Rights acquired pre 1 July 2009: 52. Under subsection 83A-110(1), an amount will be included in the assessable income of a participant in respect of their ESS interest in the income year in which the ESS deferred taxing point occurs. 53. The ESS deferred taxing point for a right is worked out under section 83A-120 of the ITAA 1997. However, because Subdivision 83A-C of the ITAA 1997 applies to a 2009 right held by a participant in the plan by virtue of subsection 83A-5(2) of the IT(TP)A 1997, subsection 83A-5(4) of the IT(TP)A 1997 also applies. 54. The ESS deferred taxing point for a 2009 right will be the cessation time mentioned in former subsection 139B(3) of the ITAA 1936, subject to subsection 83A-120(3) of the ITAA 1997. The cessation time will be the earlier of: 55. However, if the participant disposes of the share acquired on exercise of the right within 30 days after the cessation time, the ESS deferred taxing point will instead be the time of the disposal, under paragraph 83A-5(4)(c) of the IT(TP)A 1997. | Rights acquired post 1 July 2009: 56. The ESS deferred taxing point for a post 2009 right is worked out under section 83A-120. It will be at the earlier of the following times: 57. The Commissioner accepts that the disposal restrictions described at paragraph 22 of this Ruling are genuine restrictions. 58. If the participant disposes of the right, or the share acquired on exercise of the right within 30 days after the first to occur of the above times, the ESS deferred taxing point will instead be the time of the disposal. | Amount to be included in assessable income: 59. In accordance with section 83A-110 the amount to be included in assessable income at the ESS deferred taxing point will be the market value of the ESS interest reduced by the cost base of the interest. 60. As the 2009 rights and post 2009 rights are granted for nil consideration and no exercise price is payable on exercise of the rights, the cost base of the interest will be nil. | Determining the market value: 61. The term 'market value' is not defined for the purposes of Division 83A and therefore the ordinary meaning of market value is used for determining the value of ESS interests. 62. However, subsection 83A-315(1) provides that when determining 'market value' for the purposes of Division 83A, an amount specified as market value in the regulations is to be used, if the regulations specify such an amount. 63. Subregulation 83A-315.01(1) of the Income Tax Assessment Regulations 1997 (ITAR) applies to unlisted rights that must be exercised within ten years of acquisition and therefore applies to rights granted under the plan. Under this regulation a participant can choose to value their right at either: 64. However, a participant must use the market value of the right, according to its ordinary meaning, if the deferred taxing point occurs on the day the participant disposes of the right. 65. Similarly, a participant must use the market value of the share acquired on exercise of the right if the deferred taxing point occurs on the day the participant disposes of that share. If the disposal is at arm's length then the Commissioner will accept the amount received as being the market value. 66. Regulation 83A-315.03 of the ITAR provides that if the lowest amount that must be paid to exercise a right to acquire a beneficial interest in a share is nil, the value of the right on a particular day is the same as the market value of the share on that day. 67. As a participant is not required to pay an exercise price for a right granted under the plan, the value of the right at the ESS deferred taxing point is the same as the market value of a share on that day. | Forfeiture or loss of rights: 68. Where under Division 83A an amount is included in assessable income in respect of ESS interests granted under an employee share scheme, and the interests are subsequently forfeited or lost, section 83A-310 may apply to ensure Division 83A is taken never to have applied. 69. Section 83A-310 will apply if: | Rights acquired pre 1 July 2009: 70. Subparagraph 83A-5(4)(d)(i) of the IT(TP)A 1997 applies in relation to the 2009 rights acquired by participants under the plan because paragraph 83A-5(2)(a) of the IT(TP)A 1997 applies. Subparagraph 83A-5(4)(d)(i) of the IT(TP)A 1997 relevantly provides that the requirements in section 83A-310 of the ITAA 1997 must be treated as being satisfied in relation to an interest if the two requirements mentioned in former section 139DD of the ITAA 1936 are satisfied in relation to that interest. 71. The two requirements in former section 139DD of the ITAA 1936, in relation to the 2009 right, are that: 72. If a participant loses their 2009 rights without having exercised them, the two requirements in section 139DD of the ITAA 1936 are satisfied and therefore the requirements of section 83A-310 of the ITAA 1997 are also satisfied. 73. Accordingly, Division 83A will be taken never to have applied in relation to the 2009 right and no amount will be included in the assessable income of the participant in relation to the right under Division 83A. 74. Where an amount has been included in a participant's assessable income of an earlier year, the participant can request an amendment to exclude that amount. There is no time limit for amending an assessment in these circumstances, pursuant to section 170(10AA) of the ITAA 1936. | Rights acquired post 1 July 2009: 75. Where under the plan: then section 83A-310 will apply and Division 83A will be taken to have never applied to the right. 76. No amount will be included in a participant's assessable income in respect of a post 2009 right that was forfeited or lost in these circumstances. Where an amount has been included in an earlier year a participant can request an amendment to exclude that amount. As explained above, there is no time limit for amending an assessment in these circumstances. | Certain capital gains and losses disregarded: 77. The granting of a right to a participant does not result in a CGT event for the participant. 78. Any capital gain or loss made by a participant from the exercise of a right by the participant and the issue or transfer of a share to the participant or the allocation of a share by the trustee to the participant is disregarded, in accordance with subsection 130-80(1). 79. Where the ESS deferred taxing point of a right happens at the time of disposal of the share acquired pursuant to the right, any capital gain or capital loss made by a participant from that disposal is disregarded in accordance with subsection 130-80(1). | First element of cost base of shares: 80. The first element of the cost base and reduced cost base of a share acquired by a participant pursuant to a right to which this ruling applies is the market value of the share immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125, section 112-15, subsection 110-25(2) and subsection 110-55(2). | Time of acquisition of shares: 81. For the purposes of Division 115, the time of acquisition of a share acquired pursuant to a 2009 right to which this ruling applies is: in accordance with sub-paragraph 83A-5(4)(f)(i) of the IT(TP)A 1997. 82. The time of acquisition of a share acquired pursuant to a post 2009 right to which this ruling applies is immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125. 83. The following is a detailed contents list for this Ruling:

Ruling: Assessability of rights under Subdivision 83A-C: 26. Where a participant acquires a right under the plan, Subdivision 83A-C applies in relation to the right. 27. No amount will be included in the participant's assessable income in relation to the right until the ESS deferred taxing point occurs. | Rights acquired pre 1 July 2009: 28. The ESS deferred taxing point for 2009 rights acquired by a participant under the plan will be the cessation time mentioned in former subsection 139B(3) of the ITAA 1936, pursuant to subsection 83A-5(4) of the IT(TP)A 1997, which will be the earlier of: however, if the participant disposes of the share acquired on exercise of the right within 30 days of the cessation time, the ESS deferred taxing point will instead be the time of the disposal, under paragraph 83A-5(4)(c) of the IT(TP)A 1997. | Rights acquired post 1 July 2009: 29. The ESS deferred taxing point for post 2009 rights acquired by a participant under the plan will, pursuant to section 83A-120, be the earlier of the following times: however, if the participant disposes of the right, or the share acquired on exercise of the right within 30 days after the first to occur of the above times, the ESS deferred taxing point will instead be the time of the disposal. | Amount to be included in assessable income: 30. The market value of the right is included in the participant's assessable income under section 83A-110 in the income year in which the ESS deferred taxing point occurs. | Forfeiture or loss of rights: 31. Division 83A will be taken never to have applied and no amount will be included in the assessable income of a participant if: | Certain capital gains and losses disregarded: 32. The granting of a right to a participant does not result in a CGT event for the participant. 33. Any capital gain or loss made by a participant from the exercise of a right by the participant and the issue or transfer of a share to the participant or the allocation of a share by the trustee to the participant is disregarded, in accordance with subsection 130-80(1). 34. Where the ESS deferred taxing point of a right happens at the time of disposal of the share acquired pursuant to the right, any capital gain or capital loss made by a participant from that disposal is disregarded in accordance with subsection 130-80(1). | First element of cost base of shares: 35. The first element of the cost base and reduced cost base of a share acquired by a participant pursuant to a right to which this ruling applies is the market value of the share immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125, section 112-15, subsection 110-25(2) and subsection 110-55(2). | Time of acquisition of shares: 36. For the purposes of Division 115, the time of acquisition of a share acquired pursuant to a 2009 right to which this ruling applies is: in accordance with sub-paragraph 83A-5(4)(f)(i) of the IT(TP)A 1997. 37. The time of acquisition of a share acquired pursuant to a post 2009 right to which this ruling applies is immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125. Commissioner of Taxation 15 December 2010


Appendix: Assessability of rights under Subdivision 83A-C: 38. Division 83A applies to shares, rights and stapled securities acquired under an employee share scheme on or after 1 July 2009. 39. Division 83A of the ITAA 1997 also applies to certain shares, rights and stapled securities acquired before 1 July 2009 under Division 83A of the IT(TP)A 1997. | Rights acquired pre 1 July 2009: 40. By reason of subsection 83A-5(2) of the IT(TP)A 1997, Subdivision 83A-C of the ITAA 1997 (and the rest of Division 83A to the extent that it relates to that Subdivision) applies in relation to a 2009 right granted to a participant under the plan because: 41. Subdivision 83A-C (and the rest of Division 83A of the ITAA 1997) applies to the 2009 right subject to the modifications contained in subsection 83A-5(4) of the IT(TP)A 1997. | Rights acquired post 1 July 2009: 42. Subdivision 83A-B will apply to a post 2009 right granted to a participant under the plan, unless Subdivision 83A-C applies. 43. Subdivision 83A-C allows for the deferral of tax on the amount assessable in respect of an ESS interest if certain conditions are satisfied. Subdivision 83A-C applies, and Subdivision 83A-B does not apply, to an ESS interest which is a right if the following conditions are satisfied: 44. In relation to the first condition, Subdivision 83A-B would, apart from subsection 83A-105(1), apply to a post 2009 right because the right: 45. In relation to the second condition, subsection 83A-35(3), subsection 83A-35(4), subsection 83A-35(5) and subsection 83A-35(9) apply to a post 2009 right granted to a participant because: 46. In relation to the third condition, Subdivision 83A-C applies to a post 2009 right if, under the conditions of the plan when the right is granted, there is a real risk that a participant will forfeit or lose the right (other than disposing of it, exercising the right or letting it lapse). Real risk of forfeiture 47. The Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009, which inserted Division 83A into the ITAA 1997, explains the real risk of forfeiture test at paragraph 1.156 as follows: 48. In order for the 'real risk of forfeiture' test to be satisfied, in relation to an ESS interest acquired by an employee under an employee share scheme, a reasonable person must consider that there is an actual possibility of forfeiture. Furthermore, the risk of forfeiture must be 'real', not nominal, artificial or contrived. There must be more than a mere possibility. 49. Where ESS interests are subject to both performance conditions and service conditions (such as a minimum term of employment) and the service conditions are sufficient to satisfy the real risk of forfeiture test at the time of acquisition, it is not necessary to consider whether the performance conditions also satisfy the test. 50. As rights acquired by participants are subject to a vesting period which is greater than 12 months (that is, they will lapse if the employee ceases employment prior to vesting) and the applicant has advised that the Board's discretion in relation to the lapsing of unvested rights will only be exercised in exceptional circumstances, and not on a routine basis, the Commissioner accepts that the post 2009 rights granted under the plan will be subject to a real risk of forfeiture and subsection 83A-105(3) applies. Accordingly, it is not necessary to consider whether the performance conditions alone satisfy the real risk of forfeiture test. 51. As a result, Subdivision 83A-C applies to post 2009 rights granted under the plan, and Subdivision 83A-B does not apply. The taxation of discounts received under the plan will be deferred until a deferred taxing point. | Rights acquired pre 1 July 2009: 52. Under subsection 83A-110(1), an amount will be included in the assessable income of a participant in respect of their ESS interest in the income year in which the ESS deferred taxing point occurs. 53. The ESS deferred taxing point for a right is worked out under section 83A-120 of the ITAA 1997. However, because Subdivision 83A-C of the ITAA 1997 applies to a 2009 right held by a participant in the plan by virtue of subsection 83A-5(2) of the IT(TP)A 1997, subsection 83A-5(4) of the IT(TP)A 1997 also applies. 54. The ESS deferred taxing point for a 2009 right will be the cessation time mentioned in former subsection 139B(3) of the ITAA 1936, subject to subsection 83A-120(3) of the ITAA 1997. The cessation time will be the earlier of: 55. However, if the participant disposes of the share acquired on exercise of the right within 30 days after the cessation time, the ESS deferred taxing point will instead be the time of the disposal, under paragraph 83A-5(4)(c) of the IT(TP)A 1997. | Rights acquired post 1 July 2009: 56. The ESS deferred taxing point for a post 2009 right is worked out under section 83A-120. It will be at the earlier of the following times: 57. The Commissioner accepts that the disposal restrictions described at paragraph 22 of this Ruling are genuine restrictions. 58. If the participant disposes of the right, or the share acquired on exercise of the right within 30 days after the first to occur of the above times, the ESS deferred taxing point will instead be the time of the disposal. | Amount to be included in assessable income: 59. In accordance with section 83A-110 the amount to be included in assessable income at the ESS deferred taxing point will be the market value of the ESS interest reduced by the cost base of the interest. 60. As the 2009 rights and post 2009 rights are granted for nil consideration and no exercise price is payable on exercise of the rights, the cost base of the interest will be nil. | Determining the market value: 61. The term 'market value' is not defined for the purposes of Division 83A and therefore the ordinary meaning of market value is used for determining the value of ESS interests. 62. However, subsection 83A-315(1) provides that when determining 'market value' for the purposes of Division 83A, an amount specified as market value in the regulations is to be used, if the regulations specify such an amount. 63. Subregulation 83A-315.01(1) of the Income Tax Assessment Regulations 1997 (ITAR) applies to unlisted rights that must be exercised within ten years of acquisition and therefore applies to rights granted under the plan. Under this regulation a participant can choose to value their right at either: 64. However, a participant must use the market value of the right, according to its ordinary meaning, if the deferred taxing point occurs on the day the participant disposes of the right. 65. Similarly, a participant must use the market value of the share acquired on exercise of the right if the deferred taxing point occurs on the day the participant disposes of that share. If the disposal is at arm's length then the Commissioner will accept the amount received as being the market value. 66. Regulation 83A-315.03 of the ITAR provides that if the lowest amount that must be paid to exercise a right to acquire a beneficial interest in a share is nil, the value of the right on a particular day is the same as the market value of the share on that day. 67. As a participant is not required to pay an exercise price for a right granted under the plan, the value of the right at the ESS deferred taxing point is the same as the market value of a share on that day. | Forfeiture or loss of rights: 68. Where under Division 83A an amount is included in assessable income in respect of ESS interests granted under an employee share scheme, and the interests are subsequently forfeited or lost, section 83A-310 may apply to ensure Division 83A is taken never to have applied. 69. Section 83A-310 will apply if: | Rights acquired pre 1 July 2009: 70. Subparagraph 83A-5(4)(d)(i) of the IT(TP)A 1997 applies in relation to the 2009 rights acquired by participants under the plan because paragraph 83A-5(2)(a) of the IT(TP)A 1997 applies. Subparagraph 83A-5(4)(d)(i) of the IT(TP)A 1997 relevantly provides that the requirements in section 83A-310 of the ITAA 1997 must be treated as being satisfied in relation to an interest if the two requirements mentioned in former section 139DD of the ITAA 1936 are satisfied in relation to that interest. 71. The two requirements in former section 139DD of the ITAA 1936, in relation to the 2009 right, are that: 72. If a participant loses their 2009 rights without having exercised them, the two requirements in section 139DD of the ITAA 1936 are satisfied and therefore the requirements of section 83A-310 of the ITAA 1997 are also satisfied. 73. Accordingly, Division 83A will be taken never to have applied in relation to the 2009 right and no amount will be included in the assessable income of the participant in relation to the right under Division 83A. 74. Where an amount has been included in a participant's assessable income of an earlier year, the participant can request an amendment to exclude that amount. There is no time limit for amending an assessment in these circumstances, pursuant to section 170(10AA) of the ITAA 1936. | Rights acquired post 1 July 2009: 75. Where under the plan: then section 83A-310 will apply and Division 83A will be taken to have never applied to the right. 76. No amount will be included in a participant's assessable income in respect of a post 2009 right that was forfeited or lost in these circumstances. Where an amount has been included in an earlier year a participant can request an amendment to exclude that amount. As explained above, there is no time limit for amending an assessment in these circumstances. | Certain capital gains and losses disregarded: 77. The granting of a right to a participant does not result in a CGT event for the participant. 78. Any capital gain or loss made by a participant from the exercise of a right by the participant and the issue or transfer of a share to the participant or the allocation of a share by the trustee to the participant is disregarded, in accordance with subsection 130-80(1). 79. Where the ESS deferred taxing point of a right happens at the time of disposal of the share acquired pursuant to the right, any capital gain or capital loss made by a participant from that disposal is disregarded in accordance with subsection 130-80(1). | First element of cost base of shares: 80. The first element of the cost base and reduced cost base of a share acquired by a participant pursuant to a right to which this ruling applies is the market value of the share immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125, section 112-15, subsection 110-25(2) and subsection 110-55(2). | Time of acquisition of shares: 81. For the purposes of Division 115, the time of acquisition of a share acquired pursuant to a 2009 right to which this ruling applies is: in accordance with sub-paragraph 83A-5(4)(f)(i) of the IT(TP)A 1997. 82. The time of acquisition of a share acquired pursuant to a post 2009 right to which this ruling applies is immediately after the ESS deferred taxing point of the right, in accordance with section 83A-125.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | The 'real risk of forfeiture' test does not require employers to provide schemes in which their employee share scheme benefits are at a significant or substantial risk of being lost. However, 'real' is regarded as something more than a mere possibility. Something is not a real risk if a reasonable person would disregard the risk as highly unlikely to occur or as nothing more than a rare eventuality or possibility. | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10
Legislative references: ITAA 1936 ITAA 1936 6(1) ITAA 1936 Pt III Div13A ITAA 1936 139B(3) ITAA 1936 139CB ITAA 1936 139CB(2) ITAA 1936 139CD ITAA 1936 139DD ITAA 1936 139E ITAA 1936 170(10AA) ITAA 1997 ITAA 1997 Div 83A ITAA 1997 Subdiv 83A-B ITAA 1997 Subdiv 83A-C ITAA 1997 83A-10(1) ITAA 1997 83A-35(3) ITAA 1997 83A-35(4) ITAA 1997 83A-35(5) ITAA 1997 83A-35(9) ITAA 1997 83A-105(1) ITAA 1997 83A-105(3) ITAA 1997 83A-110 ITAA 1997 83A-110(1) ITAA 1997 83A-120 ITAA 1997 83A-120(2) ITAA 1997 83A-120(3) ITAA 1997 83A-125 ITAA 1997 83A-310 ITAA 1997 83A-315(1) ITAA 1997 83A-330 ITAA 1997 110-25 ITAA 1997 110-25(2) ITAA 1997 110-55 ITAA 1997 110-55(2) ITAA 1997 112-15 ITAA 1997 Div 115 ITAA 1997 130-80 ITAA 1997 130-80(1) ITAA 1997 995-1(1) IT(TP)A 1997 Div 83A IT(TP)A 1997 83A-5 IT(TP)A 1997 83A-5(2) IT(TP)A 1997 83A-5(2)(a) IT(TP)A 1997 83A-5(4) IT(TP)A 1997 83A-5(4)(c) IT(TP)A 1997 83A-5(4)(d)(i) IT(TP)A 1997 83A-5(4)(f)(i) ITAR 1997 Div 83A ITAR 1997 83A-315.01(1) ITAR 1997 83A-315.03 TAA 1953 Copyright Act 1968
Subject references: acquisition of shares capital gains tax cessation disposal of shares employee share ownership employee share schemes & options securities rights & options
Other references: Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009