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Tax Laws Amendment (2007 Measures No. 1) Bill 2007

Schedule 3 Employee share schemes and stapled securities

Part 1 Main amendments

Income Tax Assessment Act 1936

1  Section 139A (after table item dealing with Subdivision DA)

Insert:

DB

Stapled securities

2  After Subdivision DA of Division 13A of Part III

Insert:

Subdivision DB Stapled securities

139DSA   Object of this Subdivision

                   The object of this Subdivision is to allow this Division to apply to stapled securities that include an ordinary share and are listed for quotation on the Australian Stock Exchange, and to rights to acquire such stapled securities.

139DSB   Application of Division to stapled securities

             (1)  This Division (except this Subdivision)applies, with the modifications set out in this Subdivision, in relation to a stapled security in the same way as it applies in relation to a share (including an ordinary share) in a company.

Note 1:       For the definition of stapled security ,see subsection 139GCD(1).

Note 2:       This means the Division also applies to rights to acquire a stapled security in the same way it applies to rights to acquire a share.

Example:    Subsection 139CD(4) will be satisfied if all the securities available for acquisition under the scheme are stapled securities, and all the rights available for acquisition are rights to acquire stapled securities.

             (2)  For the purposes of the application of this Division (except this Subdivision) in relation to a stapled security or right to acquire a stapled security, a company, the shares in which are the subject of this Division, is taken to include (as part of the company) each stapled entity for the stapled security.

Note 1:       For the definition of stapled entity ,see subsection 139GCD(2).

Note 2:       There are some modifications to this rule in this Subdivision.

Note 3:       This rule has the effect that the company is treated as having all the interests in another entity that stapled entities for the stapled security have.

Example:    The condition in subsection 139CD(3) will be satisfied if the company would be a holding company of the employer if all those stapled entities’ interests in the employer were counted together.

139DSC   Discount not to be included in assessable income unless stapled security or right is qualifying

                   Section 139B includes a discount given in relation to a stapled security or right to acquire a stapled security in the assessable income of the taxpayer only if the stapled security or right to acquire a stapled security is treated as a qualifying share or qualifying right because of this Subdivision.

139DSD   Division does not also apply to share part of stapled security

             (1)  If a stapled security or right to acquire a stapled security is treated as a qualifying share or qualifying right because of this Subdivision, this Division does not also apply separately in relation to a share that is a part of the stapled security.

             (2)  However, if a stapled security is not treated as a qualifying share because of this Subdivision, the rest of this Division applies separately in relation to each share that is a part of the stapled security. To avoid doubt, section 139DSC does not prevent a discount given in relation to such a share from being included in the assessable income of a taxpayer.

139DSE   Modifications relating to employment

Proportion of permanent employees of employer

             (1)  Subsection 139DSB(2) does not affect a provision setting out a condition relating to a specified proportion of the permanent employees of a stapled entity that is the employer.

Example:    In applying subsection 139CD(5), the employer of the taxpayer is not taken to include any other stapled entities. The condition in that subsection will be satisfied if it is satisfied for the employing entity alone.

             (2)  The reference in paragraph 139CD(5)(b) to a holding company of an employer includes a reference to the stapled entities for the stapled security if:

                     (a)  the employer is not a stapled entity for the stapled security; and

                     (b)  a company that included the stapled entities as parts of the company would be a holding company of the employer.

Cessation of employment

             (3)  For the purposes of working out the time when a taxpayer ceases to be employed by the employer of the taxpayer, that employer is taken to include (as part of it) each other stapled entity for the stapled security.

Note:          This rule affects the operation of subsections 139CA(2), 139CB(1) and 139CE(3).

139DSF   Modification relating to legal or beneficial interest

                   A taxpayer is taken to satisfy a condition that the taxpayer not hold a legal or beneficial interest in more than 5% of the shares in a company at a time only if the taxpayer does not hold a legal or beneficial interest in more than 5% of any of the following at that time:

                     (a)  the shares in any company that is a stapled entity for the stapled security;

                     (b)  the units in any unit trust that is a stapled entity for the stapled security.

Note:          This rule affects the operation of subsections 139CD(6) and 139DR(5).

139DSG   Modification relating to voting rights

                   A taxpayer is taken to satisfy a condition that the taxpayer not be in a position to cast, or control the casting of, more than 5% of the maximum number of votes that might be cast at a general meeting of a company only if the taxpayer is not in a position to control the casting of more than 5% of the maximum number of votes that might be cast at a general meeting of:

                     (a)  a company that is a stapled entity for the stapled security because an ordinary share in the company is part of the stapled security; or

                     (b)  if more than one company is a stapled entity for the stapled security because an ordinary share in the company is part of the stapled security—each of those companies.

Note:          This rule affects the operation of subsections 139CD(7) and 139DR(6).

139DSH   Cessation time when stapling arrangement ceases

                   The cessation time for a stapled security or right to acquire a stapled security is the earlier of:

                     (a)  the time when any of the interests forming the stapled security cease to be stapled together; and

                     (b)  the time when the stapled security ceases to be listed for quotation in the official list of the ASX Limited;

if that time is earlier than:

                     (c)  in the case of a stapled security where subsection 139CA(1) does not apply—the earliest time when an event described in any of paragraphs 139CA(2)(a) to (d) happens; and

                     (d)  in the case of a right to acquire a stapled security—the earliest time when an event described in any of paragraphs 139CB(1)(a) to (e) happens.

Note:          The times mentioned in paragraphs (a) and (b) are additional to the times mentioned in subsections 139CA(2) and 139CB(1). The actual cessation time is the time that is the earliest, unless subsection 139CA(1) applies (when the cessation time is the time of acquisition).

139DSI   Deduction to be apportioned

             (1)  If a stapled security is jointly provided by 2 or more taxpayers to another person in a year of income, each of those taxpayers is entitled to an allowable deduction in respect of income of the year of income under section 139DC if, because of this Subdivision:

                     (a)  the stapled security is treated as a qualifying share; and

                     (b)  the conditions in subsection 139DC(1) are satisfied for the stapled security.

             (2)  The amount of the deduction worked out under subsection 139DC(2) in respect of the stapled security must be apportioned between each of the taxpayers on a reasonable basis.

3  Subsection 139GB(1)

Omit “a company”, substitute “an employer”.

4  Paragraphs 139GB(1)(a) and (b)

Omit “the company”, substitute “the employer”.

5  Subsection 139GB(2)

Omit “the company” (first occurring), substitute “an employer that is a company”.

6  After section 139GCC

Insert:

139GCD   Meaning of stapled security and stapled entity

             (1)  A security consisting of 2 or more interests is a stapled security if:

                     (a)  each interest is either a share in a company or a unit in a unit trust; and

                     (b)  at least one of the interests is an ordinary share; and

                     (c)  all the interests are stapled together; and

                     (d)  the security is listed for quotation in the official list of the ASX Limited.

             (2)  A stapled entity for a stapled security is a company or a unit trust covered by subsection (1) for the stapled security.

7  Section 139GH (after table item dealing with Restructure)

Insert:

Stapled entity

139GCD

Stapled security

139GCD



 

Part 2 Consequential amendments

A New Tax System (Goods and Services Tax) Act 1999

8  Paragraph 84-14(a)

Omit “share or right”, substitute “share, right or stapled security (within the meaning of Division 13A of Part III of the * ITAA 1936)”.

9  Paragraph 84-14(b)

Omit “shares or rights”, substitute “shares, rights or stapled securities (within the meaning of that Division)”.

10  Section 195-1 (definition of employee share scheme )

After “section 139C”, insert “(including as affected by Subdivision DB of Division 13A of Part III)”.

Fringe Benefits Tax Assessment Act 1986

11  Subsection 136(1) (paragraph (ha) of the definition of fringe benefit )

After “share or right”, insert “to acquire a share”.

12  Subsection 136(1) (after paragraph (ha) of the definition of fringe benefit )

Insert:

                  (haa)  a benefit constituted by the acquisition by a person under an employee share scheme (within the meaning of that Division) of a stapled security or right to acquire a stapled security that is treated as a qualifying share or qualifying right for the purposes of that Division because of Subdivision DB of that Division; or

13  Subsection 136(1) (after paragraph (hb) of the definition of fringe benefit )

Insert:

                    (hc)  a benefit constituted by the acquisition by a trust of money or other property where the sole activities of the trust are obtaining stapled securities or rights to acquire stapled securities that are treated as qualifying shares or qualifying rights for the purposes of Division 13A of Part III of the Income Tax Assessment Act 1936 because of Subdivision DB of that Division, and providing those stapled securities or rights:

                              (i)  to employees of a stapled entity (within the meaning of that Division) for the stapled securities, or to associates of those employees; or

                             (ii)  to persons who are engaged in foreign service (within the meaning of section 139GBA of the Income Tax Assessment Act 1936 ) for a stapled entity for the stapled securities, or associates of those persons; or

                            (iii)  for a case where, if all the stapled entities for any of the stapled securities were part of one company, that company would be a holding company (within the meaning of the Corporations Act 2001 ) of another company—to employees, or associates of employees of that other company; or

                            (iv)  for a case where, if all the stapled entities for any of the stapled securities were part of one company, that company would be a holding company (within the meaning of the Corporations Act 2001 ) of another company—to persons who are engaged in foreign service (within the meaning of section 139GBA of the Income Tax Assessment Act 1936 ) for that other company, or associates of those persons; or

Income Tax Assessment Act 1936

14  Section 109H

Omit “certain shares or rights under an employee share scheme”, substitute “certain shares, rights or stapled securities under an employee share scheme”.

15  Subsection 109NB(1)

Repeal the subsection, substitute:

             (1)  A private company is not taken under section 109D to pay a dividend because of a loan made solely for the purpose of enabling the shareholder or an associate of the shareholder to acquire:

                     (a)  qualifying shares or qualifying rights under an employee share scheme; or

                     (b)  a stapled security or right to acquire a stapled security that is treated as a qualifying share or qualifying right because of Subdivision DB of Division 13A.

16  At the end of section 530A

Add:

             (3)  This section applies in relation to a stapled security or right to acquire a stapled security that is treated as a qualifying share or qualifying right because of Subdivision DB of Division 13A of Part III in the same way as it applies in relation to a share or right.

             (4)  The cessation time for the stapled security or right is the cessation time provided for in that Division.

Income Tax Assessment Act 1997

17  Subsection 115-30(1A)

Omit “another share or right for the purposes of Division 13A of Part III of that Act”, substitute “another share, right or stapled security (as defined in Division 13A of Part III of that Act) for the purposes of that Division”.

18  After subsection 115-30(1A)

Insert:

          (1B)  A * CGT asset that forms part of a stapled security (as defined in Division 13A of Part III of the Income Tax Assessment Act 1936 ) that is treated under section 139DQ of that Act as if it were a continuation of another * share or stapled security for the purposes of that Division, is treated for the purposes of item 8 of the table in subsection (1) of this section as if it were a continuation of each CGT asset that was, or was a part of, the other share or stapled security.

Note:          This Part applies in relation to a CGT asset that forms part of a stapled security acquired under an employee share scheme in the same way as it applies in relation to a share acquired under an employee share scheme: see section 130-97.

19  Paragraph 125-75(3)(a)

Repeal the paragraph, substitute:

                     (a)  either:

                              (i)  would be a * qualifying share or a * qualifying right * acquired under an * employee share scheme if Division 13A of Part III of the Income Tax Assessment Act 1936 applied to ownership interests in a trust; or

                             (ii)  forms part of a stapled security (within the meaning of that Division) that is treated as a qualifying share because of Subdivision DB of that Division; and

20  At the end of section 130-90

Add:

Stapled securities

             (6)  This section applies, in the same way as it applies in relation to a * share or right in a company, in relation to a * CGT asset that:

                     (a)  forms part of a stapled security (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ); or

                     (b)  is a right to * acquire a stapled security (within the meaning of that Division).

             (7)  For the purposes of that application, a * withholding payment from a stapled entity (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ) for the stapled security is taken to be a withholding payment from the company.

21  At the end of Subdivision 130-D

Add:

130-97   Stapled securities

             (1)  This section sets out what happens if you * acquire a stapled security (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ) that:

                     (a)  is treated as a * qualifying share because of Subdivision DB of that Division; or

                     (b)  because of section 139DQ of that Act is treated, for the purposes of that Division, as if it were a continuation of:

                              (i)  a qualifying share acquired under an * employee share scheme; or

                             (ii)  another stapled security (within the meaning of that Division) that is treated as a qualifying share because of Subdivision DB of that Division.

             (2)  The provisions (the applied provisions ) of Part 3-1, this Part (except this section), Subdivision 768-R and Division 855 apply, with the modifications set out in subsections (3), (4) and (5), in relation to each * CGT asset that forms part of the stapled security in the same way as the applied provisions apply in relation to:

                     (a)  a CGT asset that is a * share * acquired under an * employee share scheme; and

                     (b)  a CGT asset that is a * qualifying share.

Note 1:       The assets that form part of a stapled security are an ordinary share and one or more other interests that are either shares or units in a unit trust: see section 139GCD of the Income Tax Assessment Act 1936.

Note 2:       There are modifications to this application in subsections 115-30(1A) and (1B).

             (3)  The applied provisions apply as if an election under section 139E of the Income Tax Assessment Act 1936 in relation to the stapled security were an election in relation to each of the assets.

             (4)  The applied provisions apply as if the * cessation time for the stapled security were the cessation time for each of the assets.

Modification relating to cost base and reduced cost base

             (5)  Subsection (6) applies for the purposes of the application, in relation to a * CGT asset that forms part of a stapled security, of a provision of this Subdivision providing that the first element of the * cost base and * reduced cost base of a * share is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936 ) at a time.

             (6)  The first element of the * cost base and * reduced cost base of a * CGT asset that forms part of the stapled security is so much of the market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936 ) of the stapled security at that time as is reasonably attributable to the asset.

22  Section 208-215

Before “A * share”, insert “(1)”.

23  At the end of section 208-215

Add:

             (2)  A * share in a company is acquired by a person under an * employee share scheme in circumstances that are relevant for the purposes of paragraph 208-205(b) and 208-235(b) if the share is part of a stapled security (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ) that is treated as a * qualifying share because of Subdivision DB of that Division.

24  Subsections 703-35(1), (2), (3) and (4)

Repeal the subsections, substitute:

             (1)  The object of this section is to ensure that an entity (the first entity ) is not prevented from being a * subsidiary member of a * consolidated group or * consolidatable group just because there are minor holdings of * membership interests in an entity (the employee share scheme entity ) issued under * arrangements for employee shareholdings. (It does not matter whether the employee share scheme entity is the first entity or is interposed between the first entity and a * member of the group.)

Note:          A company that is prevented from being a subsidiary member of a consolidated group may be a head company (so there could be 2 consolidated or consolidatable groups, instead of the one that this section ensures exists).

             (2)  This Part (except Division 719) operates as if an entity that meets the requirement of subsection (3) at a particular time were a * wholly-owned subsidiary of an entity (the holding entity ) at the time.

             (3)  The entity must be one that would be a * wholly-owned subsidiary of the holding entity at the time if the * membership interests in the entity that are to be disregarded under subsection (4) did not exist.

             (4)  Disregard:

                     (a)  each of the * shares described in subsection (5) if the total number of those shares is not more than 1% of the number of ordinary shares in the company; and

                     (b)  each of the * membership interests in an entity described in subsection (7) if the total number of those membership interests is not more than 1% of the number of membership interests of that kind in the entity.

25  Subsection 703-35(5)

Omit “the company” (first occurring), substitute “a company”.

26  At the end of section 703-35

Add:

             (7)  A * membership interest of a particular kind in an entity that is beneficially owned by another entity may be disregarded under subsection (4) if:

                     (a)  the membership interest forms part of a stapled security (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ); and

                     (b)  the stapled security is treated as a * qualifying share because of Subdivision DB of that Division.

Note:          The kinds of membership interest that form part of a stapled security are an ordinary share and one or more other interests that are either shares or units in a unit trust: see section 139GCD of the Income Tax Assessment Act 1936.

27  Subsection 719-30(1)

Omit “ * shares in a company”, substitute “ * membership interests in an entity”.

28  Subsection 719-30(2)

Repeal the subsection, substitute:

             (2)  For the purposes of this Division, in determining whether an entity is a * wholly-owned subsidiary of another entity, disregard:

                     (a)  particular * shares in a company if the shares are covered by subsection (3) and the total number of those shares is not more than 1% of the number of ordinary shares in the company; and

                     (b)  particular * membership interests in an entity if the membership interests are covered by subsection (5) and the total number of those membership interests is not more than 1% of the number of membership interests of that kind in the entity.

29  At the end of section 719-30

Add:

             (5)  A * membership interest of a particular kind in an entity that is beneficially owned by another entity is covered by this subsection if:

                     (a)  the membership interest forms part of a stapled security (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ); and

                     (b)  the stapled security is treated as a * qualifying share because of Subdivision DB of that Division.

Note:          The kinds of membership interest that form part of a stapled security are an ordinary share and one or more other interests that are either shares or units in a unit trust: see section 139GCD of the Income Tax Assessment Act 1936.

30  Subsection 768-920(1) (note)

After “Note”, insert “1”.

31  At the end of subsection 768-920(1) (after the note)

Add:

Note 2:       For a stapled security acquired under an employee share scheme, the operation of this Subdivision is affected by section 130-97.

32  Subsection 768-920(2) (note)

After “Note”, insert “1”.

33  At the end of subsection 768-920(2) (after the note)

Add:

Note 2:       For a stapled security acquired under an employee share scheme, the operation of this Subdivision is affected by section 130-97.

34  Subsection 995-1(1) (definition of cessation time )

Omit “and 139CB”, substitute “, 139CB and 139DSH”.

35  Subsection 995-1(1) (definition of employee share scheme )

Repeal the definition, substitute:

employee share scheme : a * share or right, including a right to * acquire a stapled security that is treated because of Subdivision DB of Division 13A of Part III of the Income Tax Assessment Act 1936 as a qualifying right for the purposes of that Division, is acquired under an employee share scheme if it is acquired (within the meaning of section 139G of that Act) in the way described in section 139C of that Act.

36  Subsection 995-1(1) (definition of qualifying right )

Repeal the definition, substitute:

qualifying right has the meaning given by section 139CD of the Income Tax Assessment Act 1936 , and includes a right to * acquire a stapled security that is treated because of Subdivision DB of Division 13A of Part III of that Act as a qualifying right for the purposes of that Division.

Taxation Administration Act 1953

37  Subsection 14-5(3) of Schedule 1

After “share or right”, insert “to acquire a share”.

38  At the end of subsection 14-5(3) of Schedule 1

Add:

               ; or (e)  a benefit constituted by the acquisition under an employee share scheme (within the meaning of that Division) of a stapled security or right to acquire a stapled security that is treated as a qualifying share or qualifying right for the purposes of that Division because of Subdivision DB of that Division.

39  Application

(1)        The amendments made by this Schedule apply to acquisitions of stapled securities, and of rights to acquire stapled securities, on or after 1 July 2006.

(2)        In this item:

acquisition has the same meaning as in Division 13A of Part III of the Income Tax Assessment Act 1936 .