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Where a share is issued to a trustee of an employee share acquisition scheme subject to conditions that limit the right of the employee to dispose of the share until it has been fully paid, the employee acquires a right to acquire the share only. Where the right to acquire the share is subsequently forfeited, prior to the removal of restrictions, an acquisition for the purposes of paragraph 26AAC(15)(b) does not take place (see Case X43 90 ATC 354; (1990) 21 ATR 3377). Accordingly, the lump sum payment (being the excess of the sale price of the share over the unpaid acquisition price of the share) received by the employee from the trustee is not assessable income under section 26AAC.

Similarly, the payment is not assessable income of the employee under subsection 25(1) or paragraph 26(e) (see FC of T v. McArdle 89 ATC 4051; (1988) 19 ATR 1901). However, when the trustee sells a share acquired after 19 September 1985 this will constitute a disposal by the trustee for capital gains tax purposes. Generally, where the participating employee is not under a legal disability, section 97 will deem any capital gain realised by the trustee on the disposal of the share to be included in the assessable income of the employee.

The same treatment applies to payments received on surrender of share options and share rights prior to the removal of restrictions.