ATO Interpretative Decision
ATO ID 2002/888 (Withdrawn)
Income Tax
Employee Share Scheme - rights granted by third party to employee under contractual arrangementFOI status: may be released
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This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that does not apply after the 2008-2009 income year. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to, and including, the 2008-2009 income year.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does subsection 139C(1) of the Income Tax Assessment Act 1936 ('ITAA 1936') apply to rights granted under an employee share scheme of company B to an employee of company A, under a contractual arrangement between company A and company B?
Decision
Yes. Subsection 139C(1) of the ITAA 1936 does apply to rights granted under an employee share scheme of company B to an employee of company A, under a contractual arrangement between company A and company B.
Facts
The taxpayer was an employee of company A.
Company A contracted with company B to provide services for company B's project.
As part of the contract, company B agreed to issue rights to company A's employees involved in the project.
The taxpayer was granted rights as part of company B's employee share scheme. The taxpayer paid no consideration for the rights.
Reasons for Decision
Division 13A of the ITAA 1936 provides for the taxation treatment of rights acquired under employee share schemes.
Subsection 139C(1) of the ITAA 1936 provides that shares or rights are acquired under an employee share scheme if the shares or rights are acquired by the taxpayer in respect of, or for or in relation directly or indirectly to, any employment of the taxpayer.
In Smith v. Federal Commissioner of Taxation (1987) 164 CLR 513; 87 ATC 4883; (1987) 19 ATR 274 the taxpayer, upon completion of a management certificate course, received a payment from his employer under its 'encouragement to study' program. The High Court held that the amount received by the taxpayer was an amount allowed, given or granted to him in respect of his employment being a substantial reason for the payment, was not paid voluntarily for reasons extraneous to employment, and was a product of an employees incentive program embodied in the rules of the entity.
In Payne v. FC of T (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516, the taxpayer received rewards under a frequent flyer program from points that were accumulated from travel as an employee. The Federal Court held that the reward resulted from a personal contractual relationship between the employee and Qantas, and there was no relationship between the benefit granted and the employment of the employee. This relationship was absent as the employer had no part in the program and did not encourage, arrange or pay for the employee to participate in the program.
Company A negotiated the granting of rights to the taxpayer by company B, as part of its contractual agreement to provide services to company B. The reason for the grant of rights to the taxpayer is due to the taxpayer's employment with company A that required the taxpayer to provide services to company B, under the contract between company A and company B.
Accordingly, the rights were granted to the taxpayer in respect of the taxpayer's employment in accordance with subsection 139C(1) of the ITAA 1936.
The rights are not qualifying rights under section 139CD of the ITAA 1936 as they are not rights of company A or its holding company. Therefore, subsection 139B(2) of the ITAA 1936 will include the discount given on the rights in the taxpayer's assessable income in the year of acquisition of the rights.
Date of decision: 27 June 2002Year of income: Year ended 30 June 1996
Legislative References:
Income Tax Assessment Act 1936
Division 13A
subsection 139B(2)
section 139C
subsection 139C(1)
section 139CD
Case References:
Smith v. Federal Commissioner of Taxation
(1987) 164 CLR 513
87 ATC 4883
(1987) 19 ATR 274
(1996) 66 FCR 299
96 ATC 4407
Keywords
Employee share schemes & rights
Share discounts on employee share schemes
In respect of employment
Employment Contracts
ISSN: 1445-2782
| Date: | Version: | |
| 27 June 2002 | Original statement | |
| You are here | 20 February 2015 | Archived |