ATO Interpretative Decision
ATO ID 2003/1068 (Withdrawn)
Income Tax
Employee share scheme: ordinary share requirement for 'qualifying rights'FOI status: may be released
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This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that doesn't apply after the 2008-2009 income year. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2008-2009 income year. See ATO ID 2010/62 for the precedential ATO view in respect of the ordinary share condition in subsection 83A-35(4) of the Income Tax Assessment Act 1997 for decisions for income years after 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are rights granted to the taxpayer under an employee share scheme 'qualifying rights' in terms of section 139CD of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. The shares available for acquisition under the employee share scheme have no voting rights and thus are not ordinary shares for the purposes of subsection 139CD(4) of the ITAA 1936. Therefore, the rights granted to the taxpayer under the scheme are not rights to acquire ordinary shares and they are not 'qualifying rights' in terms of section 139CD of the ITAA 1936.
Facts
The taxpayer is an employee of a company.
The taxpayer is granted rights to acquire shares under an employee share scheme of the employer company.
The rights are issued at a discount.
The shares do not have voting rights.
Reasons for Decision
Division 13A of the ITAA 1936 provides for the taxation treatment of certain employee share scheme shares and rights acquired after 6 pm in the Australian Capital Territory on 28 March 1995, subject to certain application and transitional provisions.
The taxpayer acquires rights under an employee share scheme that falls within the Division as the rights are acquired in respect of, or for or in relation directly or indirectly to, the employment of the taxpayer and are the consideration for the acquisition is less than their market value at the time of acquisition (subsections 139C(1) and 139C(3) of the ITAA 1936).
The taxing point for the discount given on the rights acquired by the taxpayer depends on whether the rights are 'qualifying rights', and if the taxpayer has made an election under section 139E of the ITAA 1936.
For a right to be a 'qualifying right', five conditions in section 139CD of the ITAA 1936 must be satisfied. One of these conditions is that all the rights available for acquisition under an employee share scheme are rights to acquire ordinary shares.
Division 13A of the ITAA 1936 was enacted as a replacement for section 26AAC of the ITAA 1936 and it is considered that the policy intent is the same in respect of both regimes. In relation to the 'ordinary share' requirement in paragraph 26AAC(4A)(d) of the ITAA 1936, the explanatory memorandum to the Taxation Laws Amendment Bill (No.5) 1988 (which introduced subsections 26AAC(4A) to 26AAC(4F)) stated that:
...all the shares, including shares that may be acquired under a right, are ordinary shares - this requirement will ensure that the shares offered under a scheme are not disadvantaged in respect of voting rights in comparison with similar shares offered by the employer companies (subparagraphs 4(A)(d)(ii) and (iii).
The views set out by the Commissioner in Taxation Ruling IT 2516, (at paragraph 4), to the effect that the relevant shares have the same voting rights as ordinary shares of the company, and in paragraph 21 of Taxation Ruling IT 2609, with respect to section 26AAC of the ITAA 1936 are equally applicable to Division 13A of the ITAA 1936.
The shares available for acquisition under the employee share scheme of the employer company are not ordinary shares for the purposes of section 139CD of the ITAA 1936, as the shares do not have voting rights. Therefore, the rights granted to the taxpayer under the scheme are not rights to acquire ordinary shares and they are not 'qualifying rights' in terms of section 139CD of the ITAA 1936.
Date of decision: 19 February 2003Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1936
section 26AAC
subsection 139C(1)
subsection 139C(3)
section 139CD
subsection 139CD(4)
section 139E
Related Public Rulings (including Determinations)
Taxation Ruling IT 2516
Taxation Ruling IT 2609
Keywords
Employee share schemes & options
Shareholders
Employee share ownership
Securities ownership & interests
Share discounts on employee share schemes
Ordinary shares
Qualifying rights
ISSN: 1445-2782
| Date: | Version: | |
| 19 February 2003 | Original statement | |
| You are here | 16 April 2010 | Archived |
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