Senate

Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - Employee share schemes

Summary of the amendments

Purpose of the amendments

The proposed amendment will allow taxpayers to calculate the market value of listed shares or rights either under the existing provisions or under the amended provisions contained in Schedule 3 of the Taxation Laws Amendment Bill (No.1) 1997 .

Date of effect

The amendment will apply to shares or rights acquired under an employee share scheme on or after 28 March 1995 and before 12 December 1996 (date of introduction of the Bill)/

Background to the legislation

A statutory method for calculating the market value of listed shares or rights is provided by paragraph 139FA(a) of the Income Tax Assessment Act 1936. Under this method, the market value is determined by averaging the weighted value of trading prices during the week before the day of valuation. However, under the method a market value cannot be determined where the day of valuation is the day that shares or rights are first listed or where there has been no market trading in the share or right in the relevant period.

Item 13 of Schedule 3 of Taxation Laws Amendment Bill (No.1) 1997 amends paragraph 139FA(a) to provide for a calculation of market value determined over a period which includes the day of valuation. Concerns have been raised that, as this amendment applies from 28 March 1995, taxpayers might be required to amend income tax returns which were lodged using existing provisions.

Request for amendment 1 inserts item 26 to provide that, up until 12 December 1996, the market value of a listed share or right may be calculated under either the existing section 139FA or under section 139FA as amended by Schedule 3 of the Bill.