Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 (133 of 2009)

Schedule 1   Employee share schemes

Part 2   Consequential amendments

Income Tax Assessment Act 1997

40   Subdivision 130-D

Repeal the Subdivision, substitute:

Subdivision 130-D - Employee share schemes

Table of sections

130-75 Objects of Subdivision

130-80 ESS interests acquired under employee share schemes

130-85 Interests in employee share trusts

130-90 Shares held by employee share trusts

130-95 Shares and rights in relation to ESS interests

130-100 Application of certain provisions of Division 83A

130-75 Objects of Subdivision

The objects of this Subdivision are:

(a) to recognise that:

(i) Division 83A contains the primary rules for taxing gains on *ESS interests acquired under *employee share schemes; and

(ii) *capital gains and *capital losses on such interests should usually be disregarded during the period in which Division 83A applies to them; and

(b) to align the treatment of ESS interests under Division 83A and the CGT provisions by, for example:

(i) turning off certain special CGT rules; and

(ii) extending some of the deeming provisions of that Division into the CGT provisions; and

(c) to disregard *employee share trusts for most CGT purposes, by treating ESS interests owned by such trusts as being directly owned by the beneficiaries of the trusts.

130-80 ESS interests acquired under employee share schemes

Capital gains and losses

(1) Disregard any *capital gain or *capital loss to the extent that it results from a *CGT event if:

(a) the CGT event happens in relation to an *ESS interest you *acquire under an *employee share scheme; and

(b) the CGT event is not CGT event E4, G1 or K8; and

(c) if Subdivision 83A-B applies to the interest - the time of the acquisition is the time when the CGT event happens; and

(d) if Subdivision 83A-C applies to the interest:

(i) the time of the acquisition is the time when the CGT event happens; or

(ii) the CGT event happens on or before the *ESS deferred taxing point for the ESS interest.

(2) Subsection (1) does not apply if:

(a) Subdivision 83A-C applies to the *ESS interest; and

(b) the *CGT event happens because you forfeit or lose the ESS interest (other than by disposing of it) on or before the *ESS deferred taxing point for the interest.

General acquisition rule

(3) Subsection 109-5(2) (about when you acquire a CGT asset) does not apply to a *CGT asset and a *CGT event if:

(a) the CGT asset is:

(i) a *share; or

(ii) a right to acquire a beneficial interest in a share; and

(b) the CGT event is CGT event A1; and

(c) you acquire an *ESS interest; and

(d) the ESS interest is a beneficial interest in the share or right; and

(e) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest.

Market value substitution rule

(4) Sections 112-20 and 116-30 (about the market value substitution rule) do not apply to the extent that they relate to:

(a) you acquiring an *ESS interest to which Subdivision 83A-C (about employee share schemes) applies; or

(b) you:

(i) forfeiting an ESS interest; or

(ii) forfeiting or losing an ESS interest that is a beneficial interest in a right (without you having disposed of the interest or exercised the right);

if Subdivision 83A-B or 83A-C applies to the ESS interest (ignoring section 83A-310).

130-85 Interests in employee share trusts

Scope

(1) This section applies if:

(a) you *acquire an *ESS interest under an *employee share scheme; and

(b) Subdivision 83A-B or 83A-C applies to the ESS interest; and

(c) the ESS interest is, or arises because of, an interest you hold in an *employee share trust.

Application of Division 83A, Part 3-1 and this Part

(2) Division 83A (Employee share schemes), Part 3-1 (Capital gains and losses: general topics) and this Part apply as if you were absolutely entitled to the relevant *share or right:

(a) from the time of acquisition of the *ESS interest; and

(b) until you no longer have an ESS interest in the share or right.

Note 1: An interest you hold in an employee share trust may give rise to an ESS interest because of the operation of section 83A-320.

Note 2: As a result of subsection (2) of this section, CGT event E5 might happen at the time of acquisition. This may result in the trustee making a capital gain. However, any capital gain made by the beneficiary would be disregarded under section 130-80.

(3) However, if this section applies to you because an *associate of yours *acquired the *ESS interest, Division 83A, this Part and Part 3-3 apply as if your associate were absolutely entitled to the relevant *share or right (instead of you):

(a) either:

(i) if Subdivision 83A-B applies to the ESS interest - from the time of acquisition; or

(ii) if Subdivision 83A-C applies to the ESS interest - from immediately after the *ESS deferred taxing point for the ESS interest; and

(b) until your associate no longer has an ESS interest in the share or right.

Note: Once the ESS interest has been taxed to you under Subdivision 83A-B or 83A-C, section 83A-305 (which treats the interest as having been acquired by you, rather than your associate) is no longer relevant. Subsection (3) of this section ensures that your associate then gets the same tax treatment as you would have, had you originally acquired the interest. This does not, however, imply a disposal from you to your associate.

Meaning of employee share trust

(4) An employee share trust , for an *employee share scheme, is a trust whose sole activities are:

(a) obtaining *shares or rights in a company; and

(b) ensuring that *ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to *associates of employees, of:

(i) the company; or

(ii) a *subsidiary of the company; and

(c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b).

130-90 Shares held by employee share trusts

(1) Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if:

(a) the CGT event is CGT event E5 or E7; and

(b) the CGT event happens in relation to a *share; and

(c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and

(d) the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied.

(2) Subsection (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens.

130-95 Shares and rights in relation to ESS interests

For the purposes of Part 3-1 (Capital gains and losses: general topics) and this Part, treat a *CGT event that happens in relation to a *share or right in the same way as a CGT event that happens in relation to an *ESS interest, if:

(a) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest; and

(b) the ESS interest forms part of the share or right.

130-100 Application of certain provisions of Division 83A

The following provisions have effect for the purposes of this Subdivision in the same way as they have for the purposes of Division 83A:

(a) section 83A-130 (about takeovers and restructures);

(b) section 83A-305 (about associates);

(c) section 83A-320 (about trusts);

(d) section 83A-325 (about relationships similar to employment);

(e) section 83A-335 (about stapled securities);

(f) section 83A-340 (about indeterminate rights).