New arrangements apply with general effect from 28 March 1995 for the taxation of benefits provided under an employee share scheme. Rules were also introduced at the same time to ensure that double taxation does not arise under the FIF measures where FIF interests are issued under an employee share scheme. These rules prevent double taxation by reducing FIF income by the amount which will be taxed under the new employee share scheme arrangements. [SECTION 530A]
Are you entitled to a reduction of FIF income?
You may be entitled to a reduction of FIF income if you acquired a share or right in a FIF under an employee share scheme.
Under the new employee share scheme arrangements, you must normally include in your assessable income a discount you received on a share or right issued under an employee share acquisition scheme. You cannot reduce your FIF income if you included the discount in your assessable income at the time the share or right was issued. There are, however, instances where you can defer the taxation of a discount on a share or right until a later time. In these cases, you can reduce your FIF income by the amount of unrealised gains on a share or right that accrues before the discount becomes assessable.
To work out the reduction of FIF income, you need to work out whether the discount on a share or right has become assessable. If the discount is not assessable until after the end of a notional accounting period of a FIF, your FIF income for the period is reduced for the entire period by the increase in the market value of the share or right. If the discount became assessable during the notional accounting period, your FIF income is reduced only by the increase in the market value of the share or right from the beginning of the period until the time the discount became assessable. You cannot reduce your FIF income if the discount was assessable before the beginning of a notional accounting period. Work out the market value of a share or right on a particular day using the rules provided in the employee share scheme arrangements.
For further information on the rules, contact the Australian Taxation Office.
Using the worksheets to work out FIF income
Record the reduction of FIF income in the relevant worksheet, at the label dealing with a reduction for distributions of the type to which subsection 530(1) applies. If you have already shown an amount at the label referred to, add the amount of the reduction you can claim to that amount.
Use Worksheet 1-part 3, label J-if you are using the market value method.
Use Worksheet 2-part 4, label G-if you are using the deemed rate of return method.
Use Worksheet 3-part 6, label L-if you are using the calculation method.
Use Worksheet 4-part 4, label G-if you are using the deemed rate of return method for FLPs.
Use Worksheet 5-part 3, label L-if you are using the cash surrender value method for FLPs.