Tax Laws Amendment (2004 Measures No. 7) Act 2005 (41 of 2005)

Schedule 3   Employee share schemes

Income Tax Assessment Act 1936

11   After Subdivision D of Division 13A of Part III

Insert:

Subdivision DA - Takeovers and restructures

139DP Object of this Subdivision

The object of this Subdivision is to allow this Division to continue to apply, in appropriate circumstances, to 100% takeovers or restructures of companies that have employee share schemes.

139DQ The effect of 100% takeovers and restructures on employee share schemes

Treating acquisitions as continuations of existing shares etc.

(1) To the extent that:

(a) a taxpayer acquires:

(i) shares in a company (the new company ) that can reasonably be regarded as matching shares in another company (the old company ) that the taxpayer had acquired under an employee share scheme; or

(ii) rights in a company (the new company ) that can reasonably be regarded as matching rights in another company (the old company ) that the taxpayer had acquired under an employee share scheme; and

(b) the acquisition occurs in connection with a 100% takeover, or a restructure, of the old company; and

(c) as a result of the takeover or restructure, the taxpayer ceased to hold the shares or rights in the old company;

then, if the conditions in section 139DR are met, the matching shares or rights are treated, for the purposes of this Division, as if they were a continuation of the shares or rights in the old company.

Note: In determining to what extent something can reasonably be regarded as matching shares or rights in the old company, one of the factors to consider is the respective market values of that thing and of those shares or rights.

Treating acquisitions as disposals of existing shares etc.

(2) However, to the extent that, in connection with the takeover or restructure, the taxpayer acquires anything that:

(a) can reasonably be regarded as matching shares or rights in the old company that the taxpayer had acquired under an employee share scheme; but

(b) is not a matching share or right to which subsection (1) applies;

the taxpayer is treated, for the purposes of this Division, as having disposed of shares, or disposed of rights (other than by exercising them), that the taxpayer held, under an employee share scheme, in the old company immediately before the takeover or restructure.

Treating new employment as continuation of existing employment

(3) If subsection (1) applies, any employment of the taxpayer in:

(a) the new company; or

(b) a holding company of the new company; or

(c) a subsidiary of the new company or of a holding company of the new company;

is treated, for the purposes of this Division, as a continuation of the employment in respect of which he or she acquired the shares or rights in the old company or in a subsidiary of the old company.

139DR Conditions for the continuation of shares or rights

(1) The first condition is that, immediately before the takeover or restructure, the taxpayer held shares or rights in the old company under an employee share scheme.

(2) The second condition is that, at or about the time the taxpayer acquires the matching shares or rights, the taxpayer is an employee of:

(a) the new company; or

(b) a holding company of the new company; or

(c) a subsidiary of the new company or of a holding company of the new company.

(3) The third condition is that:

(a) to the extent that the matching shares or rights are shares, they are ordinary shares; or

(b) to the extent that the matching shares or rights are rights, they are rights to acquire ordinary shares.

(4) The fourth condition is that, if subsection 139DQ(1) did not apply, the cessation time, for the shares or rights in the old company to which the matching shares or rights relate, would occur as a result of the takeover or restructure.

(5) The fifth condition is that, at the time the taxpayer acquires the matching shares or rights, the taxpayer does not hold a legal or beneficial interest in more than 5% of the shares of the new company.

(6) The sixth condition is that, at that time, the taxpayer is not in a position to cast, or control the casting of, more than 5% of the maximum number of votes that may be cast at a general meeting of the new company.

139DS Apportionment rules

(1) If:

(a) subsection 139DQ(1) applies to shares or rights that the taxpayer has acquired; and

(b) the taxpayer had paid or given consideration (the original consideration ) for an acquisition, under an employee share scheme, of any of the shares or rights in the old company (the original shares or rights );

the taxpayer is treated as having paid or given, for any of the apportionable assets for the original shares or rights, consideration of an amount worked out by spreading the original consideration proportionately among all the apportionable assets according to their market values immediately after the takeover or restructure.

Note: Subsection 139FA(4) alters the meaning of market value of a share or right for the purposes of this section.

(2) The apportionable assets for the original shares or rights are:

(a) all matching shares or rights held by the taxpayer that are treated because of this Division as a continuation of the original shares or rights; and

(b) anything else that the taxpayer acquired in connection with the takeover or restructure and that can reasonably be regarded as matching the original shares or rights; and

(c) in the case of a restructure - any shares or rights in the old company that the taxpayer held immediately before, and continues to hold immediately after, the restructure and that can reasonably be regarded as matching the original shares or rights.