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Edited version of private ruling
Authorisation Number: 1011494190494
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Ruling
Subject: Cash settled restricted stock units
Question 1
Do you include the discount on the restricted stock units as assessable income under Division 83A of the Income Tax Assessment Act 1997?
Answer
No.
Question 2
Do you include the amount received from the restricted stock units as ordinary income in your Australian income tax return?
Answer
Yes.
This ruling applies for the following periods:
Period ending 30 June 2010
Period ending 30 June 2011
Period ending 30 June 2012
Period ending 30 June 2013
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You were a foreign resident for the entire 2009 calendar year and were subject to foreign tax on your employment income for this period.
As a result of your performance during the 2009 year you were awarded a bonus. Part of the bonus was paid in case settled restricted stock units (RSUs) these were granted in the 2010 financial year.
The underlying interest that you will receive in relation to the RSUs is cash not shares.
You did not pay anything for the RSUs and you will receive the cash equivalent of the shares over three years, one-third each year.
Other than remaining in employment there were no other conditions for you to receive the RSUs.
From the 2011 income tax year onwards (inclusive) you will be returning to Australia as a resident for tax purposes.
This ruling only applies to the long term award of cash settled restricted stock units.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 23AG,
Income Tax Assessment Act 1997 Subsection 6-5(2),
Income Tax Assessment Act 1997 Subsection 6-5(4),
Income Tax Assessment Act 1997 section 15-2,
Income Tax Assessment Act 1997 Section 83A-10 and
Income Tax Assessment Act 1997 Section 770-10
Reasons for decision
The assessable income of a resident of Australia includes ordinary income, derived directly and indirectly from all sources in or out of Australia.
Ordinary income means income 'according to ordinary concepts' and includes income from salary and wages.
Employee share scheme
It is considered that a taxpayer acquires shares under an employee share scheme if the shares are acquired in respect of, or in relation to employment of the taxpayer and the consideration paid, if any, is less than market value.
In this case, the RSU's were not for the acquisition of shares, but rather, when they vest the cash equivalent of shares is paid. Accordingly, it is considered that they are not acquired under an employee share scheme.
Ordinary income
The RSU's you received are from a bonus awarded as a result of your performance. The cash amount awarded to participants under the plan is a cash bonus received in the context of an employment relationship. Cash bonuses, being a form of salary and wages are ordinary income and assessable on receipt.
The amount you will receive for the RSUs is in relation to services performed as an employee. The amount will be included in your assessable income as ordinary income.
Furthermore, as it is considered that income is derived in the year in which it is paid, the payments received will be assessable in the respective periods in which you will receive the cash (As per the award the amounts will vest to you in three equal instalments payable over three years).
Subsection 23AG(1AA) of the ITAA 1936 may apply to exempt certain foreign earnings from tax if they were derived on or after 1 July 2009 and relate to foreign service performed on or after 1 July 2009. However in your case your foreign service is not directly attributable to any of the exemption conditions in the subsection.
Further information:
The amount received in relation to services performed in the foreign country.
Salary and wages or similar earnings derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in another country. If the employment is exercised in another country then the income may also be taxed in that country.
In your case, as you will be an Australian resident for tax purposes when you receive the cash settled RSU's you have received an amount that is in relation to your services performed in a foreign country, this amount will be assessable in Australia and may also be assessable in the foreign country. You are permitted any foreign tax paid as a credit against the Australian tax payable in respect of that income.
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