ATO Interpretative Decision
ATO ID 2003/190 (Withdrawn)
Income Tax
Employee Share Scheme: shares or rights acquired by a non-resident of AustraliaFOI status: may be released
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ATO ID 2003/190 is withdrawn from the database because, following legislative changes which became effective on 14 September 2006, it is no longer current for years of income happening on or after 30 June 2006. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions dealing with the application of paragraph 23(r) of the ITAA 1936 occurring before that date. An ATO ID dealing with the replacement legislation will issue shortly.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the discount given on shares or rights acquired by a taxpayer, whilst a non-resident, from an employee share scheme under Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936), included in the taxpayer's assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), where restrictions relating to acquisition of the shares or rights are lifted after the taxpayer became a resident of Australia?
Decision
No. The discount given on shares or rights acquired by a taxpayer, whilst a non-resident, from an employee share scheme under Division 13A of the ITAA 1936, is not included in the taxpayer's assessable income under section 6-5 of the ITAA 1997, where restrictions relating to acquisition of the shares or rights are lifted after the taxpayer became a resident of Australia.
Facts
The taxpayer is an employee of a multinational company.
While a non-resident of Australia, the taxpayer acquired a number of shares and rights under an employee share scheme. At that time, the taxpayer received salary for work performed overseas.
The shares and rights were issued at a discount and there were restrictions on them.
The restrictions on the shares and rights were not lifted until after the taxpayer became a resident of Australia.
Reasons for Decision
The discount given on the shares and rights acquired in respect of the employment of a taxpayer is employment related income at the date of acquisition of the shares and rights (Donaldson v. FC of T 74 ATC 4192; (1974) 4 ATR 530). Employment income is ordinary income of the taxpayer in the income year of acquisition of the shares and rights under section 6-5 of the ITAA 1997.
Section 10-5 of the ITAA 1997 lists provisions that may impact on various kinds of ordinary income under section 6-5 of the ITAA 1997. One of these provisions is the employee share scheme provisions in Division 13A of the ITAA 1936.
Division 13A applies to discounts given on shares and rights acquired by the taxpayer. The discount is included in the taxpayer's assessable income in the year of acquisition of the shares and rights under subsection 139B(2) of the ITAA 1936 as they are not qualifying shares or rights.
The shares and rights are not qualifying shares or rights under subsection 139CD(3) of the ITAA 1936 as the company is not the employer of the taxpayer 'at the time of their acquisition' by the taxpayer. An employer for Division 13A purposes is defined in section 139GA of the ITAA 1936 as having the same meaning as that term in subsection 221A(1) of the ITAA 1936. The company is not an employer of the taxpayer as defined at that time because it did not pay to the taxpayer work and income support related withholding payments and benefits as defined in subsection 221A(1) of the ITAA 1936. The company was not required under section 12-1 of Schedule 1 to the Taxation Administration Act 1953 to withhold tax from the salary of the taxpayer as the salary is exempt income under paragraph 23(r) of the ITAA 1936. The salary is exempt income because it was not from an Australian source as the taxpayer performed the employment services outside Australia.
Accordingly, Division 13A confirms that the discount on the shares and rights is ordinary income. However, as the discount is not from Australian sources, it is exempt income of the taxpayer under paragraph 23(r) of the ITAA 1936 and does not form part of the taxpayer's assessable income under section 6-5(3) of the ITAA 1997 and subsection 6-15 of the ITAA 1997.
Note: For capital gains purposes, the cost base of the rights and shares is their market value on the date that the taxpayer became a resident of Australia (section 136-40 of the ITAA 1997).
Date of decision: 29 October 2002Year of income: Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001 Year ended 30 June 2002 Year ending 30 June 2003 Year ending 30 June 2004 Year ending 30 June 2005 Year ending 30 June 2006 Year ending 30 June 2007 Year ending 30 June 2008
Legislative References:
Income Tax Assessment Act 1997
section 6-5
subsection 6-5(3)
section 6-15
section 10-5
section 136-40
paragraph 23(r)
subsection 139B(2)
section 139CD(3)
section 139GA
section 221A
Division 13A Taxation Administration Act 1953
section 12-1 of schedule 1
Case References:
Donaldson v. FC of T
74 ATC 4192
Keywords
Residence in Australia
Employee share ownership
Employee share schemes & options
Rights granted by non residents
ISSN: 1445-2782
| Date: | Version: | |
| 29 October 2002 | Original statement | |
| You are here | 1 June 2007 | Archived |