ATO Interpretative Decision
ATO ID 2011/62
Income Tax
Income Tax: employee share scheme - director solely remunerated by issue of optionsFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a director of a listed company who was remunerated only by way of the issue of options entitled to the deferral concession under former Division 13A of Part III (Division 13A) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Where a director's only remuneration was in the form of options issued by the company, the director is not entitled to the deferral concession under former Division 13A of the ITAA 1936.
Facts
An Australian listed public company issued options to acquire shares in the company to a director of the company as a reward and incentive for their services.
The options were issued prior to 1 July 2009 and were rights provided under an employee share scheme within the meaning of former Division 13A of the ITAA 1936.
The director did not pay anything for the options.
The options entitled the director, on payment of an exercise price, to acquire a corresponding number of shares in the company.
Neither the director nor any associated entity received, or was entitled to receive, any other remuneration for the director's services.
The director was at all relevant times an Australian resident within the meaning of subsection 6(1) of the ITAA 1936.
Neither former section 26AAC of the ITAA 1936, nor Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) applies in relation to the receipt of the options.
Reasons for Decision
Former Division 13A of the ITAA 1936 provides for the taxation treatment of shares and rights acquired prior to 1 July 2009 under employee share schemes.
Taxpayers were eligible to have the assessment in relation to the discount from rights deferred until a later year of income provided the rights were qualifying rights within the meaning of the former section 139CD of the ITAA 1936.
One of the conditions in former section 139CD of the ITAA 1936 for rights to be qualifying is that the company is the employer of the taxpayer or a holding company of the employer of the taxpayer.
'Employer' is relevantly defined by former subsection 139GA(3) of the ITAA 1936 to be a person who pays, or is liable to pay, work and income support related withholding payments and benefits.
'Work and income support related withholding payments and benefits' are in turn relevantly defined in subsection 6(1) of the ITAA 1936 to include:
- •
- payments from which an amount must be withheld under a provision of Subdivision 12-B in Schedule 1 (other than section 12-55) to the Tax Administration Act 1953 (TAA); and
- •
- certain non-cash benefits in relation to which an amount must be paid to the Commissioner under Division 14 in Schedule 1 to the TAA.
As the director's only remuneration from the company was in the form of options provided under an employee share scheme, no payment was made to the Director from which an amount must be withheld under a provision of Subdivision 12-B in Schedule 1 to the TAA.
The options granted to the director are rights acquired under an employee share scheme within the meaning of former Division 13A of the ITAA 1936. While they are non-cash benefits, former paragraph 14-5(3)(d) of Division 14 in Schedule 1 to the TAA (as applicable at the time the director received the options) specifically excludes such employee share scheme benefits from the operation of that Division.
Thus the company was not at the time the options were provided, the employer of the taxpayer or a holding company of the employer of the taxpayer.
Accordingly, the rights acquired by the director are not qualifying rights.
As the rights are not qualifying rights, the director is not eligible for the deferral concession under former Division 13A of the ITAA 1936. The discount is assessable in the year of income in which the rights were acquired.
Date of decision: 25 July 2011Year of income: Year ended 30 June 2007
Legislative References:
Income Tax Assessment Act 1936
subsection 6(1)
section 26AAC
Division 13A of Part III
section 139CD
subsection 139GA(3)
division 83A Taxation Administration Act 1953
subdivision 12-B of Schedule 1
division 14 of Schedule 1
paragraph 14-5(3)(d) ATO Interpretative Decisions overturned by this decision
ATO ID 2011/31
Keywords
Employee share schemes & options
Directors remuneration
ISSN: 1445-2782