ATO Interpretative Decision
ATO ID 2005/237
Income Tax
PAYG Instalment Income and Employee Share SchemeFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the discount that a taxpayer receives, as an employee, on a qualifying right that the taxpayer acquires under an employee share acquisition scheme included in the taxpayer's PAYG instalment income if the taxpayer does not make an election under subsection 139E(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No, the discount that the taxpayer, an employee receives, on a qualifying right that the taxpayer acquires under an employee acquisition share scheme is not included in the taxpayer's PAYG instalment income if the taxpayer does not make an election under subsection 139E(1) of the ITAA 1936.
Facts
The taxpayer is an employee who is granted rights to acquire shares at a discount under an employee share acquisition scheme. The right has an expiration date of a number of years from the date of granting the right. The rights are qualifying rights for the purposes of Division 13A of the ITAA 1936.
The taxpayer has not made an election under subsection 139E(1) of the ITAA 1936 to include the discount on the qualifying rights in the taxpayer's assessable income in the year in which the rights were acquired.
Reasons for Decision
Section 45-120 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that instalment income for a period includes ordinary income derived during that period, but only to the extent that it is assessable income of the income year that is or includes that period.
Under subsection 139B(1) of the ITAA 1936, if a taxpayer has acquired a right under an employee share scheme, the assessable income of the taxpayer includes the discount in relation to the share or right.
In relation to a qualifying right, the discount on the right is not included in the taxpayer's assessable income in the year of income in which the right is acquired if the taxpayer has not made an election under subsection 139E(1) of the ITAA 1936 for the year of income in which the share or right is acquired. Rather, the discount is included in the taxpayer's assessable income of the year in which the cessation time occurs under subsection 139B(3) of the ITAA 1936. In this case, the discount is not included in the taxpayer's instalment income in the year that the rights were acquired because the discount is not assessable in that year. In the later income year (cessation time), the discount is not included in the taxpayer's instalment income because the discount is not ordinary income derived in the later year.
Accordingly, the discount that the taxpayer, an employee receives, on a qualifying right granted under an employee acquisition share scheme is not included in the taxpayer's PAYG instalment income if the taxpayer does not make an election under subsection 139E(1) of the ITAA 1936.
Amendment History
| Date of amendment | Part | Comment |
|---|---|---|
| 23 May 2014 | Reasons for Decision | Edited for clarity
Amend reference to section 45 120 of Schedule 1 to the TAA 1953 |
| Legislative reference | Amend reference to section 45 120 of Schedule 1 to the TAA 1953 |
Year of income: Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1936
section 139B
section 139E
section 45-120 of Schedule 1
Keywords
Employee share schemes & options
PAYG instalment income
Qualifying rights
Date reviewed: 23 October 2017
ISSN: 1445-2782
| Date: | Version: | |
| 4 August 2005 | Original statement | |
| You are here | 23 May 2014 | Updated statement |