02 Dec 13 Value of stapled securities excluded from employee share scheme income - Stewart
The AAT (Middleton J and O'Loughlin SM) has held that a taxpayer who exercised 60,000 options in Toll Holdings Limited ("Toll), the parent company of his employer, pursuant to an employee share acquisition scheme to which the former Div 13A of ITAA 1936 applied, was only subject to tax on the market value of the 60,000 shares in Toll, and was not subject to tax on the value of stapled securities subsequently issued by another company, Asciano Limited, to shareholders in Toll pursuant to a demerger arrangement entered into by Toll ("the Scheme").
As from 6 June 2007, Toll shares traded on the ASX on an ex-entitlement basis. Anyone purchasing Toll shares from that date on ASX paid a price that reflected a Toll share that would not be entitled to participate in the Scheme and, in particular, receive Asciano Stapled Securities. The taxpayer acquired his shares on 12 June 2007; however, under the terms of the employee share acquisition scheme, the shares entitled the taxpayer to participate in the scheme.
Section 139FA detailed the procedures for valuing listed shares by reference to the prices at which they trade on an approved stock exchange (and the ASX is such an exchange) or by reference to prices at which offers are made on such an exchange. If there has been a trade of shares of the same class or an offer made to buy of the same class within one week to and including the day of exercise of the options, then a weighted average trading price, or the offer price (if there have not been any trades) is called for and that becomes the value used to calculate the assessable discount if there be one.
The prices at which Toll shares traded over the relevant dates showed the impact of the division of the Toll group assets and liabilities among the two groups. Toll shares that moved from cum entitlement to ex-entitlement, dropped in value by $10.51 and Asciano Stapled Securities had started trading on ASX from 6 June 2007, with a closing price of $10.76 on that day. The weighted average trading price of the Toll shares reflected this drop in value. For the purposes of s 139FA, the value of the taxpayer's Toll shares was $152,400, whilst the value of the Asciano Stapled Securities was $647,301.
The Commissioner's arguments that the taxpayer's entitlements under the scheme should have been taken into account in valuing the taxpayer's Toll shares, rather than the weighted average trading price, was rejected. The AAT said, at para 73:
"The terms of Division 13A, and s 139FA, are not such that they call for identification of shareholders with a common or community of interest that need to be treated separately or differently. Division 13A calls for identification of types of shares and uses, as a touch stone, shares of classes traded on stock exchanges. The ordinary Toll shares were a single class of shares under ASX rules and that touch stone used in the statutory scheme of Division 13A indicates that ordinary shares cum and ex entitlements are to be regarded as a single class of share."
The AAT concluded that the value of the Asciano Stapled Securities, namely $647,310, that the taxpayer acquired following exercise of his options and acquiring Toll shares was not brought to tax under Division 13A or ss 6-5 or 15-2; in contrast the value of the Toll shares was properly included in the taxpayer's assessable income. As the taxpayer had failed to include the value of the Toll shares, the AAT held that a 25% penalty on the tax shortfall amount was correctly imposed and that the omission, by the taxpayer, of this amount was not reasonably arguable.
Stewart and FCT  AATA 845 (AAT, Middleton J and O'Loughlin SM, 28 November 2013).