Dear Malvernmoe,
I replied to your request for level headed correction. However, I am now bored with this subject as I am sure is everyone else other than yourself.
The difference between my assertions is that they are backed by reasoning and facts rather than making unsupported statements. Your post above, almost humorous in irony, actually makes a strong case as to one of the many ways in which you misunderstand the scheme. Now let me (unlike you) immediately support this statement: You asked me what direct cost has/is being incurred for the shares by Mr Welborn. The answer is 23c. You have claimed that is gibberish. The legal cost base for Mr Welborn is 23c. This is a fact. The ATO will use this cost base in any taxation calculations related to these shares. Welborn owns the shares and has acquired them for the price of 23c each (funded by a loan). If the 23c loan is not repaid then the shares are forfeited. When/if the shares are sold the assessable income will be calculated against the cost base which is the amount that will have been paid against them which is and will be 23c. .
If, as you claim, your questions were rhetorical, this is even more evidence of a lack of understanding in that my responses would appear to contradict what you appear to have been trying to communicate with your rhetorical statements. Read my responses as they demonstrate that you were making incorrect assertions. For example if "How are the options being exercised?" was rhetorical, I assume it was therefore intended to communicate that there is no option and/or there is no way they were going to be exercised and that the original contention that the scheme was created effectively a similar economic outcome to an option was incorrect. My response demonstrates that in fact the scheme does have the effect of an economic option with an exercise price and explains how. In contrast your rhetorical statement has no justification and is, again, another of your many incorrect assertions.
You then further illustrate your misunderstanding by incorrectly asserting that your simple example is relevant to the circumstances. Again, I will demonstarte why you have used an erroneous example, which, rhetorical or not, I will respond to:
If you said to me, here’s a brand new car worth 20k but you don’t have to pay me anything for it, I would say that is a free car. I would take the car, pay nothing for it and enjoy it. When I sold the car I would keep all the money. The cost to me for the car would be, as you imply, zero. However, this is not an accurate example of what we are discussing. You have removed the essential funding mechanism of the loan and its many terms which include a cost base and a repayment obligation. If you genuinely think your example is relevant than I can understand why you continue to misunderstand and are motivated to continue to argue the point that the shares are free. In my view this position is making you look, at best, a little dim.
A more relevant question, based on your example and the actual facts, is:
If I said to you, I have an important job for you to do and as part of the job you can purchase this brand new car worth 20k from me, but, because I want you motivated to do a good job, you don’t have to pay me anything for the car now because I will loan you the entire purchase price of $20k interest free and only take security over the car itself and you can have the car immediately, but you will ultimately have to actually pay me back the loan, but not until 5 years time, or when you sell the car, or when you stop working for me (which ever is first) and if you rent the car to someone and receive income you have to use 50% of that income to reduce the loan, and if for any reason you do not ultimately repay me the $20k loan then I will repossess the car from you, however if you do ultimately pay me the $20k loan then the car will be yours and i will remove the security and you can have it, would you say the cost to own the car is 0 or 20k? The cost to actually own the car is $20k. If you don't pay the $20k loan then you don't get the car.
Bottom line: Leased assets, mortgaged assets, lay-by assets, vendor financed assets, and share loan scheme assets are all not FREE assets. It is only free if it is a gift or if the loan is somehow avoided or not repaid.
Get over it.
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(20min delay)