After "this section", insert "and section 26AAD".

Omit "does", substitute "and section 26AAD do".

Insert:

Treating acquisitions as continuations of existing shares etc.

(1)

To the extent that:

(a) a taxpayer acquires:
(i) shares in a company (the new company ) that can reasonably be regarded as matching shares in another company (the old company ) that the taxpayer had acquired under a scheme for the acquisition of shares by employees; or
(ii) rights to acquire shares in a company (the new company ) that can reasonably be regarded as matching rights in another company (the old company ) that the taxpayer had acquired under a scheme for the acquisition of shares by employees; and
(b) the acquisition occurs in connection with a 100% takeover, or a restructure, of the old company; and
(c) as a result of the takeover or restructure, the taxpayer ceased to hold the shares or rights in the old company;

then, if the conditions in subsections (3) to (5) are met, the matching shares or rights are treated, for the purposes of section 26AAC, as if they were a continuation of the shares or rights in the old company.

Note: In determining to what extent something can reasonably be regarded as matching shares or rights in the old company, one of the factors to consider is the respective market values of that thing and of those shares or rights.

Treating acquisitions as disposals of existing shares etc.

(2)

However, to the extent that, in connection with the takeover or restructure, the taxpayer acquires anything that:

(a) can reasonably be regarded as matching any shares or rights in the old company that the taxpayer had acquired under a scheme for the acquisition of shares by employees; but
(b) is not a matching share or right to which subsection (1) applies;

the taxpayer is treated, for the purposes of section 26AAC, as having disposed of shares, or disposed of rights (other than by exercising them), that the taxpayer held, under a scheme for the acquisition of shares by employees, in the old company immediately before the takeover or restructure.

Conditions for the continuation of shares or rights

(3)

The first condition is that, immediately before the takeover or restructure, the taxpayer held shares, or rights to acquire shares, in the old company under a scheme for the acquisition of shares by employees.

(4)

The second condition is that:

(a) to the extent that the matching shares or rights are shares, they are ordinary shares; or
(b) to the extent that the matching shares or rights are rights, they are rights to acquire ordinary shares.

(5)

The third condition is that the matching shares or rights are subject to:

(a) the same conditions or restrictions as; or
(b) conditions or restrictions that have the same effect as;

the conditions or restrictions (if any) that attached to the shares or rights in the old company that they can reasonably be regarded as matching.

Apportionment rules

(6)

If:

(a) subsection (1) applies to shares or rights that the taxpayer has acquired; and
(b) the taxpayer had paid or given consideration (the original consideration ) for an acquisition, under a scheme for the acquisition of shares by employees, of any of the shares or rights in the old company (the original shares or rights );

the taxpayer is treated as having paid or given, for any of the apportionable assets for the original shares or rights, consideration of an amount worked out by spreading the original consideration proportionately among all the apportionable assets according to their market values immediately after the takeover or restructure.

(7)

The apportionable assets for the original shares or rights are:

(a) all matching shares or rights held by the taxpayer that are treated because of this section as a continuation of the original shares or rights; and
(b) anything else that the taxpayer acquired in connection with the takeover or restructure and that can reasonably be regarded as matching the original shares or rights; and
(c) in the case of a restructure—any shares or rights in the old company that the taxpayer held immediately before, and continues to hold immediately after, the restructure and that can reasonably be regarded as matching the original shares or rights.

Definitions

(8)

In this section:

After "that", insert ", subject to subsection (3A),".

Insert:

(3A)

Subsection (3) does not apply in relation to a share or right that, because of section 139DQ, is treated, for the purposes of this Division, as if it were a continuation of a share or right acquired under an employee share scheme.

Repeal the subsection, substitute:

(2A)

To avoid doubt:

(a) the taxpayer does not lose the right if, because of section 139DQ, another right is treated, for the purposes of this Division, as if it were a continuation of that right; but
(b) the taxpayer loses the right if the taxpayer loses the other right without having exercised it.

Omit "is" (second occurring), substitute "was, at the time the right was acquired,".

Insert:

(3B)

If, but for subsection 139DR(2), rights acquired by the taxpayer would, because of section 139DQ, be treated for the purposes of this Division as a continuation of other rights, the rights are to be treated for the purposes of this section as if they were a continuation of the other rights.

Omit "at or about the time the taxpayer acquires the matching shares or rights, the taxpayer is", substitute "if the taxpayer has not made an election under section 139E covering the share or right, the taxpayer is, at or about the time the taxpayer acquires the matching shares or rights,".

Repeal the subsection.

Omit "fifth", substitute "fourth".

Omit "sixth", substitute "fifth".

Income Tax Assessment Act 1997

Insert:

(1A)

A ^* share or right that, under section 139DQ of the Income Tax Assessment Act 1936 , is treated as if it were a continuation of another share or right for the purposes of Division 13A of Part III of that Act is treated in the same way for the purposes of item 8 of the table in subsection (1) of this section.

Add:

Note: The fact that you made an election under section 139E of the Income Tax Assessment Act 1936 does not prevent a share or right from being treated as a continuation of a share or right acquired under an employee share scheme.

Income Tax (Transitional Provisions) Act 1997

Add:

(3)

Shares, or rights to acquire shares, that, under section 26AAD of the Income Tax Assessment Act 1936 , are treated as a continuation of shares, or rights to acquire shares, in a company for the purposes of section 26AAC of that Act:

(a) are treated in the same way for the purposes of this section; and
(b) are taken, for the purposes of this section, to have been acquired at the time of the last acquisition of the shares or rights that was not treated as such a continuation for the purposes of section 26AAC of that Act.

Add:

(4)

Shares or rights that, under section 139DQ of the Income Tax Assessment Act 1936 , are treated as a continuation of shares or rights in a company for the purposes of Division 13A of Part III of that Act:

(a) are treated in the same way for the purposes of this section; and
(b) are taken, for the purposes of this section, to have been acquired at the time of the last acquisition of the shares or rights that was not treated as such a continuation for the purposes of that Division.

Add:

(3)

Shares, or rights to acquire shares, that, under section 26AAD of the Income Tax Assessment Act 1936 , are treated as a continuation of shares, or rights to acquire shares, in a company for the purposes of section 26AAC of that Act:

(a) are treated in the same way for the purposes of this Subdivision; and
(b) are taken, for the purposes of this Subdivision, to have been acquired at the time of the last acquisition of the shares or rights that was not treated as such a continuation for the purposes of section 26AAC of that Act.

Repeal the subsection, substitute:

(5)

Either:

(a) there must have been an acquisition of a share or a right to acquire a share by the PAYE earner or associate under a scheme for the acquisition of shares by employees to which section 26AAC of the Income Tax Assessment Act 1936 applies; or
(b) there must be a share or right that, because of section 26AAD of that Act, was treated, for the purposes of section 26AAC of that Act, as if it were a continuation of a share or right in a company.

Taxation Laws Amendment Act (No. 3) 2003

Add:

(4) A share or right that, under section 139DQ of the Income Tax Assessment Act 1936 , is treated as if it were a continuation of another share or right for the purposes of Division 13A of Part III of that Act:

(a) is treated in the same way for the purposes of subitem (3) of this item; and
(b) is taken, for the purposes of that subitem, to have been acquired at the time of the last acquisition of the share or right that was not treated as such a continuation for the purposes of that Division.

(1) The amendments made by this Schedule apply, and are taken to have applied, to acquisitions of shares or rights on or after 1 July 2004.
(2) In this item:

acquisition , of a share or right:

(a) in relation to the application of items 1 to 3, 15, 17 and 18 of this Schedule, has the same meaning as in section 26AAC of the Income Tax Assessment Act 1936 ; or
(b) in relation to the application of items 4 to 14, 16 and 19 of this Schedule, has the same meaning as in Division 13A of Part III of the Income Tax Assessment Act 1936 .