Class Ruling CR 2003/28


Class of entities or scheme: 3. The class of persons to whom this Ruling applies are the Australian resident employees of UNiTAB Limited and its Group Companies listed in paragraph 4 ('UNiTAB'), who receive shares in UNiTAB Limited under the UNiTAB Limited Employee Share Bonus Plan ('Plan'). In this Ruling, this class of persons is referred to as the 'Participating Employees'. 4. The UNiTAB Group of companies involved in this Plan include UNiTAB Limited and its 100% owned subsidiaries: 5. This Ruling does not apply to a person who, immediately after first participating in the Plan, either holds a legal or beneficial interest in more than 5% of the shares in UNiTAB, or is in a position to cast or control the casting of more than 5% of the maximum number of votes that might be cast at a general meeting of UNiTAB. | Qualifications: 6. The Commissioner makes this Ruling based on the precise arrangement identified in this Ruling. 7. The class of persons defined in this Ruling may rely on its contents provided the arrangement actually carried out is carried out in accordance with the arrangement described below at paragraphs 11 to 12. 8. If the arrangement actually carried out is materially different from the arrangement that is described in this Ruling: 9. 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: 10. This Ruling applies from the 2002/2003 year of income. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 to 22 of Taxation Ruling TR 92/20). Furthermore, the Ruling only applies to the extent that: 11. The arrangement that is the subject of the Ruling is described below. This description is based on the documents listed below as (a) to (f) inclusive. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or parts of documents incorporated into this description are: 12. The following is a brief description of the Plan:- [All legislative references are to the ITAA 1936 unless stated otherwise] | The following rulings apply to Participating Employees who make an election under section 139E: 13. The discount given to a Participating Employee on Plan shares will be included in the Participating Employee's assessable income for the year of income in which the shares are acquired (subsection 139B(2) applies). 14. The discount will be calculated in accordance with subsection 139CC(2). The discount is the market value of the shares at the time they are acquired. 15. Pursuant to section 139BA only the amount of discount that is greater than $1,000 (if any) will be included in the Participating Employee's assessable income. 16. Where a Plan share is sold by a Participating Employee, a capital gain arises to the extent that the capital proceeds from the sale exceed the cost base of the share. A capital loss occurs where those capital proceeds are less than the reduced cost base of the share (section 104-10 of the ITAA 1997 applies). 17. The first element of the cost base of Plan shares will be their market value at the time they were acquired (subsection 130-80(2) of the ITAA 1997 applies). 18. A capital gain on disposal of a Plan share will be a discount capital gain if the disposal occurs at least 12 months after it was acquired by the Participating Employee (section 115-5 of the ITAA 1997 applies). | The following rulings apply to Participating Employees who do not make an election under section 139E: 19. The discount given to a Participating Employee on Plan shares will be included in the Participating Employee's assessable income for the year of income in which the cessation time occurs (subsection 139B(3) applies). 20. Pursuant to subsection 139CA(2), the cessation time for a Plan share will be the earlier of when: 21. Where a Participating Employee disposes of the Plan shares in an arm's length transaction within 30 days of the cessation time, the discount assessable under subsection 139B(3) will be the consideration received on disposal of the shares (subsection 139CC(3) applies) 22. A capital gain or capital loss made as a consequence of such a disposal will be disregarded pursuant to subsection 130-83(2) of the ITAA 1997. 23. Where Plan shares are not disposed of by the Participating Employee in an arm's length transaction within 30 days of the cessation time, the discount assessable under subsection 139B(3) will be the market value of the shares at the cessation time (subsection 139CC(4) applies). 24. Where a Plan share is disposed of by a Participating Employee after 30 days of the cessation time, a capital gain arises to the extent that the capital proceeds from the disposal exceed the cost base of the share. A capital loss occurs where those capital proceeds are less than the reduced cost base of the share (section 104-10 of the ITAA 1997 applies). 25. The first element of the cost base of a Plan share will be its market value at the cessation time (subsection 130-83(3) of the ITAA 1997 applies). 26. A capital gain on disposal of a Plan share will be a discount capital gain if the disposal occurs at least 12 months after it was acquired by the Participating Employee (section 115-5 of the ITAA 1997 applies). | Division 13A: 27. Division 13A of Part III of the ITAA 1936 provides for the taxation treatment of shares acquired under employee share schemes. 28. Participating Employees will acquire Plan shares under an employee share scheme as the Plan shares are acquired for less than their market value and in respect of or in relation to the Participating Employee's employment (subsections 139C(1) and 139C(3)). | Qualifying Shares: 29. If shares acquired under an employee share scheme are qualifying shares, certain concessions may be available to the taxpayer under Division 13A. 30. The shares acquired under the Plan by Participating Employees meet the six conditions for qualifying shares contained in section 139CD as follows: 31. Therefore, as the six conditions in section 139CD are satisfied for all persons to whom this Ruling applies, Plan shares for these persons will be qualifying shares under Division 13A. | Where the employee makes an election: 32. A Participating Employee can make an election under section 139E that subsection 139B(2) applies for a year of income. The election will apply to each qualifying share acquired by the Participating Employee in that year of income. Subsection 139B(2) includes the discount given in relation to these shares in the employee's assessable income in the year the shares were acquired. 33. An election under section 139E must be made in writing in a form approved by the Commissioner, before the Participating Employee lodges his or her return of income for the year of income or within such further time as the Commissioner allows. Notwithstanding this, paragraph 3 of TD 97/23 provides that unless specifically requested to do so, taxpayers should not forward their section 139E elections to the Australian Taxation Office. 34. The discount given in relation to Plan shares is calculated in accordance with subsection 139CC(2). As the Participating Employee does not provide any consideration for the acquisition of a Plan share the discount will be the market value of the Plan share at the time it was acquired by the Participating Employee. 35. As Plan shares are unlisted at the time they are acquired by Participating Employees, their market value at this time is determined under section 139FB. Under section 139FB the market value of an unlisted Plan share is the arm's length value of a Plan share: 36. Given that UNiTAB ordinary shares are quoted on the ASX, it is considered that, if an application were made for an approved method under section 139FB(1)(b), the method provided under paragraph 139FA(1)(a) and subparagraph 139FA(1)(b)(i) would most likely be preferred. 37. It is noted that the Company is using a similar method to that in paragraph 139FA(1)(a) as the basis of its offer to Eligible Employees consisting of the weighted average closing price of ordinary UNiTAB shares on ASX for the ten trading days immediately preceding the day of valuation. The company may adopt the values under its method with the support of a report by a qualified person for the purposes of paragraph 139FB(1)(a). Alternatively, it may apply for approval under paragraph 139FB(1)(b) if it can be demonstrated that the outcomes are substantially similar as those produced by the statutory methods for listed shares. | $1,000 tax-free threshold: 38. The Plan currently satisfies the exemption conditions in section 139CE as it: The condition is satisfied as the Plan is open to all permanent employees of the UNiTAB Group (as defined in section 139GB), at least 75% of whom - being full time - will receive offers for the same number of shares. 39. As the Plan satisfies the exemption conditions in section 139CE, subsection 139BA(2) will apply so that only the discount greater than $1,000 (if any) will be included in the employees assessable income. | Capital gains tax: 40. CGT event A1 happens if a Participating Employee sells a share acquired under the Plan (section 104-10 of the ITAA 1997 applies). The Participating Employee will make a capital gain if the proceeds from the sale are more than the cost base for the share. Where the capital proceeds from the sale are less than the reduced cost base of the share, a capital loss arises. 41. Subsection 130-80(2) of the ITAA 1997 indicates that the first element of the Participating Employee's cost base for a Plan share is its market value at the time it was acquired (see paragraph 35 above). 42. If a Plan share is sold within 12 months of its acquisition by the Participating Employee then any capital gain resulting from the sale cannot be a discount capital gain because the requirements of section 115-25 of the ITAA 1997 are not met. 43. If the Plan share is sold 12 months or after it was acquired by the Participating Employee, any capital gain resulting from the sale will be a discount capital gain for the purposes of section 115-5 of the ITAA 1997. This is because the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 are met. The discount percentage for a discount capital gain is 50 per cent (paragraph 115-100(a) of the ITAA 1997 applies). | Where the employee does not make an election: 44. Where a Participating Employee does not make an election under section 139E, as the Plan shares are qualifying shares, the discount in relation to these shares will be included in the Participating Employee's assessable income under subsection 139B(3) for the year of income in which the cessation time occurs (the cessation year). 45. As the shares acquired under the Plan will have restrictions on their disposal, subsection 139CA(2) will determine when the cessation time occurs. 46. Under the Plan, the cessation time will be the earliest of: 47. Exactly when an employee is no longer employed by the UNiTAB Group is a question of fact. It is expected that in the case of permanent full time or part time employees the point of time that the employment comes to an end will usually be fairly obvious because it co-incides with a termination of the contract of employment initiated by either the employer or employee. In relation to casual employees, the employment relationship may consist of a series of engagements or separate contracts of employment. For the purposes of section 139CA it is accepted that the employment will not end while the employment relationship continues even though for the time being there is no contract of employment on foot. For Participating Employees engaged as casuals on a regular or systematic basis this means that the cessation time with respect to shares acquired under the Plan will not be triggered merely because a particular engagement under the employment relationship has come to an end. | Disposal within 30 days of cessation time: 48. Subsection 139CC(3) calculates the discount to be included in the Participating Employee's assessable income where they dispose of Plan shares in an arm's length transaction within 30 days of the cessation time. As no consideration has been given by the Participating Employee for the shares, the entire proceeds received on disposal will represent the discount to be included in the Participating Employee's assessable income in the cessation year. | Capital gains tax: 49. As a Plan share is a qualifying share and no election is made under section 139E for the year of income in which the share was acquired, a capital gain or loss made on the disposal will be disregarded in accordance with subsection 130-83(2) of the ITAA 1997. | No disposal within 30 days of cessation time: 50. The discount to be included in a Participating Employee's assessable income in the cessation year in respect of Plan shares that are not disposed of by the Participating Employee in an arm's length transaction within 30 days of the cessation time is calculated in accordance with subsection 139CC(4). As no consideration was given by the Participating Employee for Plan shares, under subsection 139CC(4) the discount will be the market value of the Plan shares at the cessation time. 51. If the Plan shares have been listed on the stock market at the cessation time, the market value of the Plan shares at the cessation time will be determined in accordance with section 139FA. 52. Under section 139FA, the market value of a listed Plan share at the cessation time will be: 53. If the Plan shares have not been listed at the cessation time, their market value at this time is determined under section 139FB, as set out in paragraph 35 above. | Capital gains tax: 54. The cost base of the Plan shares for the purposes of the capital gains tax provisions will be determined in accordance with subsection 130-83(3) of the ITAA 1997, the first element being the market value of the Plan shares calculated at the cessation time, (see paragraphs 51 to 53 above). 55. If a Plan share is sold within 12 months of its acquisition, any capital gain resulting from the sale cannot be a discount capital gain because the requirements of section 115-25 of the ITAA 1997 are not met. 56. If a Plan share is sold 12 months or more after it was acquired by the Participating Employee, any capital gain resulting from the sale will be a discount capital gain for the purposes of section 115-5 of the ITAA 1997 because the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 will be met. The discount percentage for a discount capital gain is 50 per cent (paragraph 115-100(a) of the ITAA 1997 applies). 57. Below is a detailed contents list for this Class Ruling: Commissioner of Taxation 26 March 2003 Not previously issued in draft form.

Ruling: 13. The discount given to a Participating Employee on Plan shares will be included in the Participating Employee's assessable income for the year of income in which the shares are acquired (subsection 139B(2) applies). 14. The discount will be calculated in accordance with subsection 139CC(2). The discount is the market value of the shares at the time they are acquired. 15. Pursuant to section 139BA only the amount of discount that is greater than $1,000 (if any) will be included in the Participating Employee's assessable income. 16. Where a Plan share is sold by a Participating Employee, a capital gain arises to the extent that the capital proceeds from the sale exceed the cost base of the share. A capital loss occurs where those capital proceeds are less than the reduced cost base of the share (section 104-10 of the ITAA 1997 applies). 17. The first element of the cost base of Plan shares will be their market value at the time they were acquired (subsection 130-80(2) of the ITAA 1997 applies). 18. A capital gain on disposal of a Plan share will be a discount capital gain if the disposal occurs at least 12 months after it was acquired by the Participating Employee (section 115-5 of the ITAA 1997 applies). | The following rulings apply to Participating Employees who do not make an election under section 139E: 19. The discount given to a Participating Employee on Plan shares will be included in the Participating Employee's assessable income for the year of income in which the cessation time occurs (subsection 139B(3) applies). 20. Pursuant to subsection 139CA(2), the cessation time for a Plan share will be the earlier of when: 21. Where a Participating Employee disposes of the Plan shares in an arm's length transaction within 30 days of the cessation time, the discount assessable under subsection 139B(3) will be the consideration received on disposal of the shares (subsection 139CC(3) applies) 22. A capital gain or capital loss made as a consequence of such a disposal will be disregarded pursuant to subsection 130-83(2) of the ITAA 1997. 23. Where Plan shares are not disposed of by the Participating Employee in an arm's length transaction within 30 days of the cessation time, the discount assessable under subsection 139B(3) will be the market value of the shares at the cessation time (subsection 139CC(4) applies). 24. Where a Plan share is disposed of by a Participating Employee after 30 days of the cessation time, a capital gain arises to the extent that the capital proceeds from the disposal exceed the cost base of the share. A capital loss occurs where those capital proceeds are less than the reduced cost base of the share (section 104-10 of the ITAA 1997 applies). 25. The first element of the cost base of a Plan share will be its market value at the cessation time (subsection 130-83(3) of the ITAA 1997 applies). 26. A capital gain on disposal of a Plan share will be a discount capital gain if the disposal occurs at least 12 months after it was acquired by the Participating Employee (section 115-5 of the ITAA 1997 applies). | Division 13A: 27. Division 13A of Part III of the ITAA 1936 provides for the taxation treatment of shares acquired under employee share schemes. 28. Participating Employees will acquire Plan shares under an employee share scheme as the Plan shares are acquired for less than their market value and in respect of or in relation to the Participating Employee's employment (subsections 139C(1) and 139C(3)). | Qualifying Shares: 29. If shares acquired under an employee share scheme are qualifying shares, certain concessions may be available to the taxpayer under Division 13A. 30. The shares acquired under the Plan by Participating Employees meet the six conditions for qualifying shares contained in section 139CD as follows: 31. Therefore, as the six conditions in section 139CD are satisfied for all persons to whom this Ruling applies, Plan shares for these persons will be qualifying shares under Division 13A. | Where the employee makes an election: 32. A Participating Employee can make an election under section 139E that subsection 139B(2) applies for a year of income. The election will apply to each qualifying share acquired by the Participating Employee in that year of income. Subsection 139B(2) includes the discount given in relation to these shares in the employee's assessable income in the year the shares were acquired. 33. An election under section 139E must be made in writing in a form approved by the Commissioner, before the Participating Employee lodges his or her return of income for the year of income or within such further time as the Commissioner allows. Notwithstanding this, paragraph 3 of TD 97/23 provides that unless specifically requested to do so, taxpayers should not forward their section 139E elections to the Australian Taxation Office. 34. The discount given in relation to Plan shares is calculated in accordance with subsection 139CC(2). As the Participating Employee does not provide any consideration for the acquisition of a Plan share the discount will be the market value of the Plan share at the time it was acquired by the Participating Employee. 35. As Plan shares are unlisted at the time they are acquired by Participating Employees, their market value at this time is determined under section 139FB. Under section 139FB the market value of an unlisted Plan share is the arm's length value of a Plan share: 36. Given that UNiTAB ordinary shares are quoted on the ASX, it is considered that, if an application were made for an approved method under section 139FB(1)(b), the method provided under paragraph 139FA(1)(a) and subparagraph 139FA(1)(b)(i) would most likely be preferred. 37. It is noted that the Company is using a similar method to that in paragraph 139FA(1)(a) as the basis of its offer to Eligible Employees consisting of the weighted average closing price of ordinary UNiTAB shares on ASX for the ten trading days immediately preceding the day of valuation. The company may adopt the values under its method with the support of a report by a qualified person for the purposes of paragraph 139FB(1)(a). Alternatively, it may apply for approval under paragraph 139FB(1)(b) if it can be demonstrated that the outcomes are substantially similar as those produced by the statutory methods for listed shares. | $1,000 tax-free threshold: 38. The Plan currently satisfies the exemption conditions in section 139CE as it: The condition is satisfied as the Plan is open to all permanent employees of the UNiTAB Group (as defined in section 139GB), at least 75% of whom - being full time - will receive offers for the same number of shares. 39. As the Plan satisfies the exemption conditions in section 139CE, subsection 139BA(2) will apply so that only the discount greater than $1,000 (if any) will be included in the employees assessable income. | Capital gains tax: 40. CGT event A1 happens if a Participating Employee sells a share acquired under the Plan (section 104-10 of the ITAA 1997 applies). The Participating Employee will make a capital gain if the proceeds from the sale are more than the cost base for the share. Where the capital proceeds from the sale are less than the reduced cost base of the share, a capital loss arises. 41. Subsection 130-80(2) of the ITAA 1997 indicates that the first element of the Participating Employee's cost base for a Plan share is its market value at the time it was acquired (see paragraph 35 above). 42. If a Plan share is sold within 12 months of its acquisition by the Participating Employee then any capital gain resulting from the sale cannot be a discount capital gain because the requirements of section 115-25 of the ITAA 1997 are not met. 43. If the Plan share is sold 12 months or after it was acquired by the Participating Employee, any capital gain resulting from the sale will be a discount capital gain for the purposes of section 115-5 of the ITAA 1997. This is because the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 are met. The discount percentage for a discount capital gain is 50 per cent (paragraph 115-100(a) of the ITAA 1997 applies). | Where the employee does not make an election: 44. Where a Participating Employee does not make an election under section 139E, as the Plan shares are qualifying shares, the discount in relation to these shares will be included in the Participating Employee's assessable income under subsection 139B(3) for the year of income in which the cessation time occurs (the cessation year). 45. As the shares acquired under the Plan will have restrictions on their disposal, subsection 139CA(2) will determine when the cessation time occurs. 46. Under the Plan, the cessation time will be the earliest of: 47. Exactly when an employee is no longer employed by the UNiTAB Group is a question of fact. It is expected that in the case of permanent full time or part time employees the point of time that the employment comes to an end will usually be fairly obvious because it co-incides with a termination of the contract of employment initiated by either the employer or employee. In relation to casual employees, the employment relationship may consist of a series of engagements or separate contracts of employment. For the purposes of section 139CA it is accepted that the employment will not end while the employment relationship continues even though for the time being there is no contract of employment on foot. For Participating Employees engaged as casuals on a regular or systematic basis this means that the cessation time with respect to shares acquired under the Plan will not be triggered merely because a particular engagement under the employment relationship has come to an end. | Disposal within 30 days of cessation time: 48. Subsection 139CC(3) calculates the discount to be included in the Participating Employee's assessable income where they dispose of Plan shares in an arm's length transaction within 30 days of the cessation time. As no consideration has been given by the Participating Employee for the shares, the entire proceeds received on disposal will represent the discount to be included in the Participating Employee's assessable income in the cessation year. | Capital gains tax: 49. As a Plan share is a qualifying share and no election is made under section 139E for the year of income in which the share was acquired, a capital gain or loss made on the disposal will be disregarded in accordance with subsection 130-83(2) of the ITAA 1997. | No disposal within 30 days of cessation time: 50. The discount to be included in a Participating Employee's assessable income in the cessation year in respect of Plan shares that are not disposed of by the Participating Employee in an arm's length transaction within 30 days of the cessation time is calculated in accordance with subsection 139CC(4). As no consideration was given by the Participating Employee for Plan shares, under subsection 139CC(4) the discount will be the market value of the Plan shares at the cessation time. 51. If the Plan shares have been listed on the stock market at the cessation time, the market value of the Plan shares at the cessation time will be determined in accordance with section 139FA. 52. Under section 139FA, the market value of a listed Plan share at the cessation time will be: 53. If the Plan shares have not been listed at the cessation time, their market value at this time is determined under section 139FB, as set out in paragraph 35 above. | Capital gains tax: 54. The cost base of the Plan shares for the purposes of the capital gains tax provisions will be determined in accordance with subsection 130-83(3) of the ITAA 1997, the first element being the market value of the Plan shares calculated at the cessation time, (see paragraphs 51 to 53 above). 55. If a Plan share is sold within 12 months of its acquisition, any capital gain resulting from the sale cannot be a discount capital gain because the requirements of section 115-25 of the ITAA 1997 are not met. 56. If a Plan share is sold 12 months or more after it was acquired by the Participating Employee, any capital gain resulting from the sale will be a discount capital gain for the purposes of section 115-5 of the ITAA 1997 because the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 will be met. The discount percentage for a discount capital gain is 50 per cent (paragraph 115-100(a) of the ITAA 1997 applies). 57. Below is a detailed contents list for this Class Ruling: Commissioner of Taxation 26 March 2003 Not previously issued in draft form.




What this Class Ruling is about | Preamble: The number, subject heading, and the What this Class Ruling is about (including Tax law(s), Class of persons and Qualifications sections), Date of effect, Arrangement and Ruling parts of this document are a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953. CR 2001/1 explains Class Rulings and Taxation Rulings TR 92/1 and TR 97/16 together explain when a Ruling is a public ruling and how it is binding on the Commissioner. | What this Class Ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the 'tax law(s)' identified below apply to the defined class of persons, who take part in the arrangement to which this Ruling relates. | Tax law(s): 2. The tax law(s) dealt with in this Ruling are sections:


Related rulings: CR 2001/1 TR 92/1 TR 92/20 TR 97/16 TD 97/23
Legislative references: ITAA Division 13A Part III ITAA 1936 139B ITAA 1936 139B(2) ITAA 1936 139B(3) ITAA 1936 139BA ITAA 1936 139BA(2) ITAA 1936 139C ITAA 1936 139C(1) ITAA 1936 139C(3) ITAA 1936 139CA ITAA 1936 139CA(2) ITAA 1936 139CA(2)(b) ITAA 1936 139CA(2)(c) ITAA 1936 139CC ITAA 1936 139CC(2) ITAA 1936 139CC(3) ITAA 1936 139CC(4) ITAA 1936 139CD ITAA 1936 139CD(2) ITAA 1936 139CD(3) ITAA 1936 139CD(4) ITAA 1936 139CD(5) ITAA 1936 139CD(6) ITAA 1936 139CD(7) ITAA 1936 139CE ITAA 1936 139CE(2) ITAA 1936 139CE(3) ITAA 1936 139CE(4) ITAA 1936 139E ITAA 1936 139FA ITAA 1936 139FA(1)(a) ITAA 1936 139FB ITAA 1936 139FB(1)(b) ITAA 1936 139FB(1)(b)(i) ITAA 1936 139FG ITAA 1936 139GB ITAA 1936 139GF ITAA 1997 104-10 ITAA 1997 115-5 ITAA 1997 115-10 ITAA 1997 115-15 ITAA 1997 115-20 ITAA 1997 115-25 ITAA 1997 115-100 ITAA 1997 115-100(a) ITAA 1997 130-80 ITAA 1997 130-80(2) ITAA 1997 130-83 ITAA 1997 130-83(2) ITAA 1997 130-83(3) TAA 1953 Part IVAAA Copyright Act 1968
Subject references: capital gains tax CGT discount cost base employee share acquisition scheme employee share ownership employee share schemes and option employees share discounts on employee share schemes