ATO Interpretative Decision
ATO ID 2003/24
Company tax
Employee share scheme: Permanent Employees requirement for Qualifying SharesFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will shares acquired by a taxpayer under an employee share scheme be qualifying shares under section 139CD of the Income Tax Assessment Act 1936 (ITAA 1936), if an employer has no permanent employees for the purposes of subsection 139CD(5) of the ITAA 1936?
Decision
Yes. Shares acquired by a taxpayer under an employee share scheme will be qualifying shares under section 139CD of the ITAA 1936, if an employer has no permanent employees for the purposes of subsection 139CD(5) of the ITAA 1936.
Facts
The taxpayer is an employee of a company.
The taxpayer acquired discounted shares under the company operated employee share scheme.
The scheme has restrictions on the disposal of shares.
The only employees of the company are full-time or permanent part-time, none of whom have been employed by the company for more than 36 months.
The directors of the company are also entitled to shares under the employee share scheme.
The shares satisfy the first, second, third, fifth and sixth conditions of section 139CD of the ITAA 1936.
Reasons for Decision
The taxing point for the discount given on shares acquired under an employee share scheme depends on whether the shares are qualifying shares, and if the taxpayer has made an election under section 139E of the ITAA 1936.
Section 139CD of the ITAA 1936 sets out the six conditions that need to be satisfied for a share to be a qualifying share for the purposes of Division 13A of the ITAA 1936.
The taxpayer's shares will be qualifying shares if the fourth condition relating to permanent employees in subsection 139CD(5) of the ITAA 1936 is satisfied, as all other conditions are met.
This fourth condition requires that at least 75 per cent of permanent employees of the company were, or at some earlier time had been, entitled to acquire shares under the employee share scheme.
A permanent employee of a company is defined as a full-time employee or permanent part-time employee with at least 36 months of service (subsection 139GB(1) of the ITAA 1936).
A director is excluded from being a 'permanent employee' of the company (subsection 139GB(2) of the ITAA 1936).
The employees and directors of the company are not 'permanent employees' for the purposes of the fourth condition in subsection 139CD(5) of the ITAA 1936. As there are no 'permanent employees' of the company, the fourth condition is satisfied. Accordingly, the taxpayer's shares are qualifying shares for the purposes of section 139CD of the ITAA 1936.
As the shares are qualifying shares under section 139CD of the ITAA 1936, the discount is included in the taxpayer's assessable income in the income year of acquisition if an election is made (subsection 139B(2) of the ITAA1936) or in the income year that the cessation time occurs (subsection 139B(3) of the ITAA 1936).
Date of decision: 24 September 2002Year of income: Year ending 30 June 2003 Year ending 30 June 2004 Year ending 30 June 2005
Legislative References:
Income Tax Assessment Act 1936
Division 13A
subsection 139B(2)
subsection 139B(3)
section 139CD
subsection 139CD(5)
section 139E
subsection 139GB(1)
subsection 139GB(2)
Keywords
Employee share ownership
Acquisition of shares
Shares
Employee share schemes & options
Share discounts on employee share schemes
Permanent employees
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 24 September 2002 | Original statement |
| 31 October 2014 | Updated statement |