If you acquired shares or rights under an employee share scheme (ESS) and a corporate restructure or takeover happens, tax relief may be available under the ESS rules if you received replacement shares or rights.
From 1 July 2004 rollover relief applies if all of the following occur:
- you acquired shares, stapled securities or rights (including options) to acquire them (ESS interests) under an employee share scheme (ESS) and have deferred declaring the discount on those ESS interests as income until the cessation time or deferred taxing point
- there is a 100% corporate takeover or a corporate restructure that is a merger, a demerger or other form of restructure that results in you acquiring replacement shares or rights in the new company
- as a result of the corporate takeover or restructure, your ESS interests were replaced, wholly or partly, by ESS interests in one or more companies (the new company) that match the ESS interests you held in an old company or group (the old company)
- as a result of the corporate takeover or restructure, you no longer hold the ESS interests in the old company
- after the corporate takeover or restructure, you are an employee of
- the new company
- a subsidiary of the new company
- a holding company of the new company
- a subsidiary of the holding company of the new company
- without rollover relief, you would have had a cessation time or deferred taxing point because of the corporate takeover or restructure.
Rollover relief may also be available if:
- you acquired ESS interests before 1 July 2009 and made an election to include the discount as income in the year that you acquired the ESS interests, or
- you acquired the ESS interests under a section 26AAC ITAA 1936 ESS, and
- you were subject to a corporate restructure.
Before 1 July 2004, a corporate restructure could trigger a cessation time if you disposed of your ESS interests in the old company or your employment ceased at the time of the corporate restructure. The law has been changed so that ESS interests held by you may no longer have a cessation time as a result of a corporate restructure that happens after 30 June 2004.
Rollover relief conditions
From 1 July 2006 the ESS rules, and related capital gains tax treatment, will apply to certain stapled securities that both:
- include an ordinary share (acquired after 30 June 2006)
- are listed for quotation on the official list of the Australian Securities Exchange.
If you acquire qualifying ESS interests (ESS interests that meet certain qualifying conditions), you will not be required to declare the discount on those ESS interests as assessable income until cessation time (up to 10 years from the date of acquisition – earlier if certain events happen). Alternatively, you can elect to declare the discount as income in the year in which you acquired the ESS interests.
The rules are different depending on when you acquired your ESS interests and when the takeover or restructure affecting them occurred.
Acquisition before 1 July 2009, takeover or restructure before 1 July 2009
Where you have not elected to declare the discount at acquisition and a cessation time has not already occurred in relation to your ESS interests in the old company, you can receive rollover relief where a corporate takeover or restructure results in those ESS interests being replaced by ESS interests in the new company. Rollover relief applies if your replacement ESS interests:
- match the ESS interests in the old company, and
- meet certain conditions.
Your replacement ESS interests in the new company that are matching ESS interests are treated as if they are a continuation of your ESS interests in the old company. You can continue to defer declaring the discount as income for up to 10 years after the time you acquired the original ESS interests in the old company.
Acquisition after 30 June 2009, takeover or restructure after 30 June 2009
If you acquire ESS interests, you are required to report the discount as income received at acquisition. However, where specified criteria are met, you may be eligible to defer declaring the discount. The discount on those ESS interests will be reported at a deferred taxing point.
If you have deferred declaring the discount as income and a deferred taxing point has not already occurred in relation to your ESS interests in the old company, you can receive rollover relief where a corporate takeover or restructure results in those ESS interests being replaced by ESS interests in the new company. Rollover relief applies if your replacement ESS interests:
- match the ESS interests in the old company, and
- meet certain conditions under the new ESS provisions.
Your replacement ESS interests in the new company that are matching ESS interests are treated as if they are a continuation of your ESS interests in the old company.
You can continue to defer declaring the discount as income for up to 15 years (seven years for ESS interests acquired before 1 July 2015) after you acquired the original shares or rights in the old company.
Acquisition before 1 July 2009, takeover or restructure after 30 June 2009
Where a takeover or restructure occurs after 30 June 2009 to ESS interests acquired before 1 July 2009, follow the rules for ESS interests acquired after 30 June 2009.
Rollover relief FAQs
Frequently asked questions about rollover relief include:
- Does rollover relief apply to all types of corporate takeovers or restructures?
- What are matching ESS interests?
- Are there conditions that need to be met for rollover relief to apply?
- How does the rollover relief operate?
- Does rollover relief apply if you receive matching ESS interests, cash and other consideration in a corporate takeover or restructure?
- How is a payment by you for ESS interests in the old company apportioned?
- Will rollover relief be available where the matching ESS interests do not have the same restrictions or conditions as the ESS interests in the old company?
- Will you have capital gains tax (CGT) consequences from the corporate restructure where rollover relief applies?
Does rollover relief apply to all types of corporate takeovers or restructures?
No. Rollover relief does not apply to all types of corporate takeovers or restructures. It applies to 100% takeovers, mergers, demergers or other forms of restructure that result in you acquiring replacement ESS interests in the new company.
What are matching ESS interests?
Matching ESS interests are the ESS interests you received in the new company that replace the ESS interests you had before the corporate takeover or restructure.
To be eligible to continue to defer your discount, the value of matching ESS interests, together with any cash or other consideration provided to you, should be no more than the value of your ESS interests in the old company immediately before the corporate takeover or restructure happened.
In relation to stapled securities or rights to acquire stapled securities, rollover relief can also apply to the replacement of:
- a share with a stapled security
- a stapled security with a different stapled security, and
- a stapled security with a share.
Are there conditions that need to be met for rollover relief to apply?
Yes. The conditions that need to be met for rollover relief to apply to you are all of the following:
- immediately before the corporate takeover or restructure, you held shares or rights in the old company that you acquired under an ESS
- at or about the time you acquired the matching ESS interests, you were an employee of the new company (or its holding company or subsidiary)
- your matching ESS interests are ordinary shares or rights to acquire ordinary shares
- without the rollover relief, you would have had a cessation time or deferred taxing point resulting from the corporate takeover or restructure, and
- at the time you acquired the matching ESS interests
- you did not hold a legal or beneficial interest in more than 10% of the shares in the new company (5% if you acquired the interests before 1 July 2015)
- you did not control more than 10% of the maximum voting rights in the new company (5% if you acquired the interests before 1 July 2015).
- Your 10% ownership and voting rights includes the ownership and voting rights of your associates. It also includes the ownership of shares and the voting rights you would have if you exercised any rights you hold to acquire shares in the new company.
How does the rollover relief operate?
On a corporate takeover or restructure, if you receive matching ESS interests in the new company that replace ESS interests in the old company and the conditions for rollover relief are satisfied, rollover relief will be provided by treating your:
- matching ESS interests as if they were a continuation of your ESS interests in the old company, and
- employment with the new company (or its holding company or subsidiary) as a continuation of your employment in the old company (or its subsidiary).
Does rollover relief apply if you receive matching ESS interests, cash and other consideration in a corporate takeover or restructure?
Yes. Rollover relief applies to the extent that your matching ESS interests are regarded as a continuation of your ESS interests in the old company. You will have a cessation time or deferred taxing point for your ESS interests in the old company to the extent that you receive for the disposal of those ESS interests:
- cash or other consideration, or
- matching ESS interests that are not treated as a continuation of your ESS interests in the old company - for example, if you are not an employee of the new company (or the new company's holding company, subsidiary or subsidiary of its holding company).
How is a payment by you for ESS interests in the old company apportioned?
Where you paid an amount to acquire ESS interests in the old company, the payment is apportioned between:
- your matching ESS interests in the new company, that are treated as a continuation of your ESS interests in the old company, and
- anything else that matches your ESS interests in the old company, including:
- cash or other consideration you received under the corporate takeover or restructure
- other matching ESS interests you hold in companies (including the old company) immediately after the corporate takeover or restructure.
The apportionment is based on their market values immediately after the corporate takeover or restructure. This allows you to apportion your payment between your ESS interests in the old company that have rollover relief and those that have a cessation time or deferred taxing point.
Where you acquired different parcels of ESS interests in the old company at different prices, you need to apportion the payment based on an average of those prices. (See Examples to demonstrate how this applies to you.)
Will rollover relief be available where the matching ESS interests do not have the same restrictions or conditions as the ESS interests in the old company?
If you acquire matching ESS interests before 1 July 2009 and they do not have the same restrictions or conditions attached to them, rollover relief is still available provided you satisfy the conditions for rollover. Relief will be available for you until the cessation time or deferred taxing point occurs.
For matching ESS interests acquired after 30 June 2009, rollover relief will only apply where the new interests can reasonably be regarded as matching the old interests.
Will you have capital gains tax (CGT) consequences from the corporate restructure where rollover relief applies?
No. You disregard any capital gain or loss that results from the happening of a CGT event on a corporate takeover or restructure where rollover relief applies to you.
Examples – rollover relief
Example 1: Application of rollover relief to takeovers
Fred acquires 1,000 shares in company A under an ESS. He defers declaring his discount as income. Two years later, company B buys all shares in company A under a takeover. Fred's shares in company A which had a market value of $1 at the takeover time are replaced with 2,000 shares in company B which had a market value of $0.50 at the takeover time. Following the takeover, Fred is employed by company B. Fred satisfies the conditions for rollover relief.
Before takeover |
After takeover |
|---|---|
Company A Fred:
|
Company B Fred:
|
Fred is entitled to rollover relief. This is achieved by treating:
- the 2,000 matching shares in company B as if they were a continuation of the 1,000 shares in company A
- his employment with company B as a continuation of his employment with company A.
Example 2: Application of rollover relief to restructure
Steve acquires 1,000 shares in company D under an ESS for $500. He defers declaring his discount as income.
Three years later, company E buys all shares in company D under a takeover providing consideration of 80% shares and 20% cash.
Steve's 1,000 shares in company D which had a market value of $1 at the takeover time are replaced with 1,600 shares in company E which had a market value of $0.50 at the takeover time and $200 cash. Following the takeover, Steve is employed by company E.
Before takeover |
After takeover |
|---|---|
Company D Steve:
|
Company E Steve:
|
Steve's tax position after the restructure is:
- the 1,600 matching shares in company E – rollover relief applies as these shares are treated as if they were a continuation of the 800 shares in company D (80% of 1,000 shares) and his employment with company E is treated as a continuation of his employment with company D.
- the $200 cash – a cessation time will occur for 200 shares in company D (20% of 1,000 shares) because these shares were replaced by cash. The $200 cash matches the value of the 200 shares in company D (200 shares × $1).
As Steve paid $500 for the 1,000 shares in company D, he will apportion this payment as follows:
- $400 (80% of $500) to the shares in company D that received rollover relief
- $100 (20% of $500) to the shares in company D that have a cessation time or deferred taxing point. Steve will include a discount of $100 ($200 less $100) in his assessable income in the income year of the takeover.
Example 3: Application of rollover relief to restructures
Julie acquires 1,000 shares in company X under an ESS for $1,000. She defers declaring her discount as income.
Company X is subsequently restructured, with 60% becoming company Y and 40% becoming company Z.
Julie is employed by company Y after the restructure. Julie's 1,000 shares in company X which had a market value of $8 at the restructure time are replaced with 1,200 matching shares in company Y which had a market value of $4 at the restructure time and 800 matching shares in company Z which had a market value of $4 at the restructure time.
Before takeover |
After takeover |
|---|---|
Company X Julie:
|
Company Y Julie:
Company Z Julie:
|
Julie's tax position after the restructure is:
- the 1,200 matching shares in company Y – rollover relief applies as these shares are treated as if they were a continuation of the 600 shares in company X (60% of the 1,000 shares) and her employment with company Y is treated as a continuation of employment with company X
- the 800 matching shares in company Z – a cessation time or deferred taxing point will occur for the 400 shares in company X (40% of 1,000 shares) because there is no continuation of employment in company X.
As Julie paid $1,000 for the 1,000 shares in company X, Julie will apportion this payment as follows:
- $600 (60% of $1,000) to the shares in company X that received rollover relief
- $400 (40% of $1,000) to the shares in company X that have a cessation time or deferred taxing point. Julie will include a discount of $2,800 ($4 × 800 shares in company Z less $400) in her assessable income in the income year of the restructure.
See also:
Tax relief under the employee share scheme (ESS) rules if you received replacement shares or rights.