Document ID: chunk:federal_register_of_legislation:F2022C00493:reg:5:p1
Version: federal_register_of_legislation:F2022C00493
Segment Type: reg
Provision Reference: reg 5 (pt 1/2)
Character Range: 263001–268024

5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  (200–200) employees × 100 SARs × CU25.00 – CU428,000                 (428,000)                                                                                                               –
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   + 200 employees × 100 SARs × CU25.00                                 500,000
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Total                                                                                                                               72,000
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Total                                                                                                                               1,025,000

Share-based payment transactions with a net settlement feature for withholding tax obligations
IG19A Paragraphs 33E and 33F require an entity to classify an arrangement in its entirety as an equity-settled share-based payment transaction if it would have been so classified in the absence of a net settlement feature that obliges the entity to withhold an amount for an employee's tax obligation associated with a share-based payment. The entity transfers that amount, normally in cash, to the tax authority on the employee's behalf. Example 12B illustrates these requirements.

IG Example 12B
Background
The tax law in jurisdiction X requires entities to withhold an amount for an employee's tax obligation associated with a share-based payment and transfer that amount in cash to the tax authority on the employee's behalf.
On 1 January 20X1 an entity in jurisdiction X grants an award of 100 shares to an employee; that award is conditional upon the completion of four years' service. The entity expects that the employee will complete the service period. For simplicity, this example assumes that none of the employee's compensation qualifies for capitalisation as part of the cost of an asset.
The terms and conditions of the share-based payment arrangement require the entity to withhold shares from the settlement of the award to its employee in order to settle the employee's tax obligation (that is, the share-based payment arrangement has a 'net settlement feature'). Accordingly, the entity settles the transaction on a net basis by withholding the number of shares with a fair value equal to the monetary value of the employee's tax obligation and issuing the remaining shares to the employee on completion of the vesting period.
The employee's tax obligation associated with the award is calculated based on the fair value of the shares on the vesting date. The employee's applicable tax rate is 40 per cent.
At grant date, the fair value of each share is CU2. The fair value of each share at 31 December 20X4 is CU10.
The fair value of the shares on the vesting date is CU1,000 (100 shares × CU10 per share) and therefore the employee's tax obligation is CU400 (100 shares × CU10 × 40%). Accordingly, on the vesting date, the entity issues 60 shares to the employee and withholds 40 shares (CU400 = 40 shares × CU10 per share). The entity pays the fair value of the withheld shares in cash to the tax authority on the employee's behalf. In other words, it is as if the entity had issued all 100 vested shares to the employee,