Issue
Will the Commissioner approve the initial public offer (IPO) price of shares as their market value under paragraph 139FB(1)(b) of the Income Tax Assessment Act 1936 (ITAA 1936), where a listed company makes an offer of shares or rights to acquire shares under an employee share scheme in association with the public offer?
Decision
Yes. The Commissioner will approve the IPO price of shares as their market value under paragraph 139FB(1)(b) of the ITAA 1936 where a listed company makes an offer of shares or rights to acquire shares under an employee share scheme in association with the public offer.
Facts
The employee acquires shares or rights to acquire shares under an employee share scheme prior to the listing of shares on a stock exchange in association with an IPO of the shares.
The IPO price was set several days prior to listing of the shares. There are no transactions (and there are no offers to buy such shares or rights) during the week leading up to and including the day of acquisition.
Reasons for Decision
Paragraph 139FB(1)(b) of the ITAA 1936 provides that where a share is not quoted on an approved stock exchange, the market value of that share for the purposes of an employee share scheme, is the arm's length value of the share calculated on a reasonable method approved in writing by the Commissioner.
The Explanatory Memorandum to Taxation Laws Amendment Act (No. 5) 2000 , which introduced amendments to the employee share scheme provisions, states that current practice is to accept that the market value of shares issued to employees in association with an IPO of shares is equal to the IPO price.
Accordingly, the Commissioner will accept the IPO price of the shares as their market value as a reasonable method of calculating the arm's length value of the unlisted shares under paragraph 139FB(1)(b) of the ITAA 1936.
Amendment History
Date of Amendment Part Comment 7 November 2014 Reasons for Decision Corrected minor grammatical error
Date of Amendment | Part | Comment
7 November 2014 | Reasons for Decision | Corrected minor grammatical error