• Election made in the year the indeterminate rights were acquired

    If you acquired shares or rights in addition to your indeterminate rights in an income year before 2009–10 and you made a section 139E election in respect of the shares or rights, you must amend your earlier year's income tax return to include the discount given in relation to your indeterminate rights when they become rights to acquire shares.

    Example 12: Taxpayer makes an election in the year in which they acquired the indeterminate rights

    Milena acquired 1,000 qualifying shares and a number of indeterminate rights in the 2008–09 income year. She made a section 139E election for that income year and the discount given in relation to the 1,000 qualifying shares was included in her assessable income.

    In the 2009–10 income year, Milena's indeterminate rights became rights to shares, and she received another 1,000 shares. Under the transitional provisions, her indeterminate rights are considered to have been acquired in the 2008–09 income year. Because Milena has made a section 139E election for the 2008–09 income year, she will be required to amend her assessment for the 2008–09 income year to include the discount in relation to those indeterminate rights in the acquisition year.

    End of example

    Indeterminate rights acquired before 1 July 2009 are non-qualifying when they become rights to shares

    If any shares or rights you receive are non-qualifying, any discount amounts will be assessable in the year of acquisition. As a result, if you acquired indeterminate rights that become rights to shares in a later income year, you must amend your earlier year's income tax assessment to include the discount given in relation to your indeterminate rights, if those rights to shares are considered non-qualifying.

    Cessation time before 1 July 2009 – indeterminate rights became rights to shares after 1 July 2009

    Where you receive indeterminate rights, and a cessation time has occurred before the indeterminate rights become rights to shares, the taxing point will be the date of cessation, provided the rights are qualifying rights and you did not make a section 139E election.

    Where a section 139E election was made for the year the indeterminate rights were acquired, the taxing point will be in the year of acquisition.

    Example 13: Taxpayer allowed to keep indeterminate rights after resignation

    Niko acquired 1,000 qualifying shares and a number of indeterminate rights in the 2007–08 income year. Niko resigned from his employment in the 2008–09 income year and was allowed to keep the indeterminate rights.

    In the 2011–12 income year, Niko's indeterminate rights became qualifying rights to shares, and he receives another 1,000 shares.

    Under the transitional provisions, Niko's indeterminate rights are considered to have been acquired in the 2007–08 income year. Because the rights are qualifying rights, and Niko did not make a section 139E election for that income year, his indeterminate rights will be taxed at the cessation time, which in this case is termination of employment. As a result, Niko will be required to amend his assessment for the 2008–09 income year to include the discount given.

    End of example

    Taxpayer received only indeterminate rights and would like to make a later election

    Where you only received indeterminate rights in an income year prior to 1 July 2009, and those rights later become qualifying rights to acquire shares after 30 June 2009, you may request the Commissioner's discretion to allow a later election to be made for the acquisition year.

    The Commissioner will exercise the discretion on a case-by-case basis.

    Example 14: Taxpayer received only indeterminate rights and would like to make a later election

    Patrick is granted indeterminate rights in the 2008–09 income year. He does not acquire any other employee share scheme interests in that income year and, as a result, could not make a section 139E election. In 2010–11, the indeterminate rights became qualifying rights to acquire shares and are taken to have been acquired in the 2008–09 year. Patrick may request the Commissioner's discretion to allow a later section 139E election for the year of acquisition.

    The Commissioner will exercise the discretion on a case-by-case basis.

    End of example

    Taxpayer was deemed to have made an election in the year they acquired indeterminate rights

    For the 2008–09 income year only, you are deemed to have made an election if you acquired qualifying shares or rights under an employee share scheme that meet the exemption conditions and the total discount related to the shares or rights is not more than $1,000. This means that you are not required to make an election in your tax return for these qualifying shares or rights, nor are you required to include the discount in your assessable income.

    In order to be deemed to have made an election in the 2008–09 income year, the employee share scheme under which the shares or rights are acquired must meet all of the following conditions:

    • the scheme did not have any conditions that could result in any employee forfeiting ownership of the shares or rights
    • the scheme was operated so that no recipient would be permitted to dispose of the shares or rights (or shares acquired on exercise of the rights) before the earlier of
      • three years after their acquisition (or for shares acquired on exercise of the rights, three years after acquisition of the rights)
      • the time the employee's employment ceased with the employer
       
    • the employee share scheme operated on a non-discriminatory basis (including the provision of financial assistance in respect of the acquisition of shares or rights), which means that
      • participation in the scheme is open to at least 75% of permanent employees
      • the time for acceptance of each offer is reasonable
      • the essential features of each offer are the same for at least 75% of permanent employees.
       

    Where you acquire shares or rights with a total discount of less than $1,000 under a scheme that meets the exemption conditions, in the 2008–09 income year, you are deemed to have made an election under section 139E. If, when the indeterminate rights later become rights to acquire shares and the total discount in the acquisition year increases to more than $1,000, you will no longer be deemed to have made an election. As a result, where the rights are qualifying, you will either have to request the Commissioner's discretion to allow a later election or amend the relevant income tax assessments to include the discount income in the year in which the cessation time occurred. If a later election is not requested, the discount in respect of the shares or rights acquired under a scheme that met the exemption conditions will be assessable in the year in which the cessation time occurred.

      Last modified: 17 Aug 2016QC 25098