ATO Interpretative Decision

ATO ID 2007/218 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that does not apply to CGT events happening at or after 7.30pm, by legal time in the Australian Capital Territory, on 13 May 2008. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions before 7.30pm, by legal time in the Australian Capital Territory, on 13 May 2008.

  This ATO ID applies only to capital gains tax (CGT) events that happened before 7:30pm, by legal time in the Australian Capital Territory, on 13 May 2008. The ATO ID does not apply to CGT events happening after this time, because of amendments made to section 130-90 of the Income Tax Assessment Act 1997 by the Tax Laws Amendment (Budget Measures) Act 2008 (Act No. 59 of 2008) which received Royal Assent on 30 June 2008.

  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will a capital gain or loss made by a trustee pursuant to CGT event E5 in section 104-75 of the Income Tax Assessment Act 1997 (ITAA 1997), when a beneficiary becomes absolutely entitled to shares held by the trustee, be disregarded by section 130-90 of the ITAA 1997 if the rights to the shares had been previously acquired by the beneficiary under an employee share scheme?

Decision

No. Section 130-90 of the ITAA 1997 will not apply to disregard the capital gain or loss of the trustee.

Facts

An employer granted its employees rights to be provided with a stipulated number of shares. The rights were provided at a discount and were subject to certain employment conditions being satisfied.

The shares were held in a trust established by the employer. Each employee to whom rights had been granted by the employer became absolutely entitled to the shares as against the trustee when the employment conditions were satisfied.

Reasons for Decision

Prior to becoming absolutely entitled as against the trustee to a specified number of shares, the employees had acquired rights to be provided with shares when certain employment conditions were satisfied. The rights were received by the employees in respect of their employment and had been provided to them at a discount. The rights were therefore acquired under an employee share scheme within the meaning of section 139C of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 139C(4) of the ITAA 1936 relevantly provides that a share is not acquired under an employee share scheme if the share is acquired as a result of the exercise of a right that was itself acquired under an employee share scheme. The exercise of a right does not necessarily require an action or activity by the owner of the right. A right will consequently have been exercised for the purposes of Division 13A of the ITAA 1936 where the right operates to give a share to the owner of the right upon the satisfaction of subject conditions. Any share acquired pursuant to a right that was itself acquired under an employee share scheme is not therefore acquired under an employee share scheme.

Subsection 130-90(3) of the ITAA 1997 provides that section 130-90 does not apply in relation to a share unless that share was acquired under an employee share scheme. As the shares were not acquired under an employee share scheme, section 130-90 has no application to the capital gain or loss made by the trustee when CGT event E5 happens pursuant to subsection 104-75(1) of the ITAA 1997.

Year of income:  30 June 2008

Legislative References:
Income Tax Assessment Act 1936
   section 139C
   subsection 139C(4)

Keywords
CGT event E5-beneficiary becoming entitled to a trust asset
Employee share schemes & options

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  30 November 2007

ISSN: 1445-2782