On 17 August 2016, the Commissioner issued a class ruling on the Royal Dutch Shell plc takeover of BG Group plc, so far as it affected the Australian resident employees who held ESS interests under the BG Group employee share scheme (Participants). Broadly, these Participants had their ESS interests in the BG Group replaced by interests in Shell. [‘ITAA97’ =  Income Tax Assessment Act 1997; ‘Transitional Provisions =  Subdivision 83A-A of the Income Tax (Transitional Provisions) Act 1997].

  • Some of these ESS interests were issued prior to the current ESS provisions, of the ITAA97, taking effect (1 July 2009) but became subject to the Div 83A-C deferred taxing provisions under Div 83A (under the Transitional Provisions) because the deferral on taxation straddled the introduction of Div 83A.
  • Some of the ESS interests were acquired after the current Div 83A came into effect, but before the takeover.
  • Some of the interests were acquired after the takeover, but before being swapped for Shell shares or interests in them.

The pivotal part of the ruling confirmed that the Participants did not trigger assessment on swapping to interests in Shell shares (by creating an ‘ESS deferred taxing point’ – per s83A-115 & s83A-120) because the takeover was, relevantly, a ‘takeover’ for the purposes of s83A-130, which gives taxpayers a rollover of their ESS taxation, until the relevant events apply to the replacement interests.

[ATO website – CR 2016/59] [LTN 158, 17/8/16]

The Entities the subject of the ruling

4. The class of entities to which this Ruling applies is employees of BG Group plc (BG) and its subsidiaries at the time BG was acquired by Royal Dutch Shell plc (Shell) (the Combination) who:

  • immediately prior to the Combination, held a beneficial interest in ordinary shares in BG (BG Shares) and/or held rights to ordinary shares in BG (BG Rights) where the BG Shares or BG Rights were obtained:
    • before 1 July 2009 and the shares or rights were qualifying shares or rights within the meaning of former section 139CD of the ITAA 1936 and the employee made no election pursuant to former section 139E of the ITAA 1936 (and no cessation time happened to the interest for the purposes of former subsection 139B(3) of the ITAA 1936 before the Combination), or
    • on or after 1 July 2009, Subdivision 83A-C applies to the shares or rights (and no ESS deferred taxing point happened to the shares or rights before the Combination)
  • were, from the time of acquisition of the BG Shares or BG Rights until immediately prior to the Combination:
    • residents of Australia within the meaning of that expression in subsection 6(1) of the ITAA 1936, or
    • temporary residents within the meaning of that expression in subsection 995-1(1) and had no periods of foreign employment from when options were granted
  • became employees of a Shell Group company following the Combination
  • had their BG Shares or BG Rights replaced or partially replaced with Shell A shares and/or Shell B shares (Shell Shares) or rights to Shell Shares (Shell Rights), and
  • are not subject to the Taxation of financial arrangements rules in Division 230.
(Note: Division 230 will generally not apply to individuals unless they have made an election for it to apply)

In this Ruling, a person belonging to the class of entities is referred to as a ‘Participant’. Where the term ‘participant’ is used, this refers to a particular plan.

The critical section ruled on

65. The Combination is a ‘takeover’ for the purposes of Subdivision DA of former Division 13A of the ITAA 1936 and section 83A-130.

Note:   The existence of a ‘takeover’ is what prevented an ESS deferred taxing point arising, when the ESS interests were swapped.


There are a great many types of interest ruled. They are explained at para 9 and following and the ruling is at para 62 and following.

There is also a good explanation of the the law and how it operates (in Appendix 1).