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Ruling
Subject: Disposal of employee share scheme shares
Question 1:
Will any taxable discounts become assessable in the 2011-12 income year in relation to the shares granted to you in the year ended 30 June 2009?
Answer:
No.
This ruling applies for the following periods:
Year ended 30 June 2012
The scheme commences on:
9 July 2008
Relevant facts and circumstances
You are an employee of Company A.
You were issued a number tranches of shares under the Company A Long Term Incentive scheme.
These were ordinary shares under the terms of the Company A deferred employee share plan. These shares were held in trust for you under the terms of the Company A deferred employee share plan.
There were no performance vesting or other conditions attached to these invitations for shares other than that you must remain in employment with Company A Group up until the vesting date for each tranche of shares to vest.
Shares to the value of your nominated amount were acquired by the plan trustee. The plan trustee, as the registered shareholder of these shares will hold the shares in trust on your behalf.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 13A of Part III
Income Tax Assessment Act 1997 Division 83A
Income Tax (Transitional Provisions) Act 1997 Division 83A
Income Tax Assessment Act 1936 section 139CA
Income Tax Assessment Act 1997 section 83A-115
Income Tax (Transitional Provisions) Act 1997 subsection 83A-5(4)
Income Tax (Transitional Provisions) Act 1997 paragraph 83A-5(4)(b)
Reasons for decision
Summary
No taxable discounts will become assessable in the 2011-12 income year in relation to your shares in Company A granted to you.
Detailed reasoning
Your shares in Company A meet the requirements set out in subsection 83A-5(4) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) these are established in paragraph 83A-5(2)(a) of the act and are -
(i) at the pre-Division 83A time, subsection 139B(3) of the Income Tax Assessment Act 1936 (ITAA 1936) applied in relation to the interest;
(ii) the interest was acquired (within the meaning of former Division 13A) before 1 July 2009; and
(iii) the cessation time mentioned in subsection 139B(3) of the ITAA 1936, as in force at the pre-Division 83A time, for the interest did not occur before 1 July 2009.
As a result of meeting these requirements your shares in Company A are deemed to come under Section 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997).
Where Division 83A-C of the ITAA applies to an employee share scheme (ESS) interest, an amount will be included in the assessable income of a participant under subsection 83A-110(1) in respect of their interest in the income year in which the ESS deferred taxing point occurs.
The ESS deferred taxing point for shares or rights is worked out under section 83A-115 of the ITAA 1997 or section 83A-120 of the ITAA 1997. However because subdivision 83A-C of the ITAA 1997 applies to shares or rights acquired before 1 July 2009 by virtue of subsection 83A-5(2) of the IT(TP)A 1997, subsection 83A-5(4) of the IT(TP)A 1997 applies.
Subparagraph 83A-5(4)(b)(i) of the IT(TP)A 1997 provides that the ESS deferred taxing point for a share or right acquired before 1 July 2009 will be the cessation time mentioned in former subsection 139B(3) of the ITAA 1936, subject to subsection 83A-120(3) of the ITAA 1997.
Subsection 139B(3) of the ITAA 1936 refers to cessation times regarding shares and these are established in Subsections 139CA and B of the ITAA 1936 which defines the cessation time for shares with restrictions as being the earliest of the following:
(a) the time when the taxpayer disposes of the share;
(b) subject to subsection (4) the later of:
(i) the time when any restriction preventing the taxpayer from disposing of the share ceases to have effect; and
(ii) the time when any condition that could result in the taxpayer forfeiting ownership of the shares ceases to have effect;
(c) the time when the employment in respect of which the share was acquired ceases;
(d) the end of the 10 year period starting when the taxpayer acquired the share.
In your case, the shares have not been disposed of, any restrictions or conditions preventing you from disposing of the shares or forfeiting the shares are still in effect. As the shares are held in trust by the plan trustee and you have not sought or been granted permission for their disposal, restrictions and conditions are still in place that prevent you from disposing of or forfeiting the shares. Your employment in respect of which the shares were acquired has not ceased and it has not been 10 years sine you acquired the shares.
As none of the conditions listed above have been met, cessation time for your shares held in Company A has not occurred, therefore the taxing point has not been triggered.
The taxation of the discount for the shares received prior to 1 July 2009 differs from those received after that date, due to the legislative changes that were introduced. Division 83A of the ITAA 1997 defines the ESS deferred taxing point as being the earliest time when:
· There is no real risk, under the conditions of the employee share scheme, you will forfeit or lose the ESS interest (other than disposing of it); and
· If at the time you acquired the interest, the scheme genuinely restricted you immediately disposing of the interest - the scheme no longer restricts you.
Under the previous legislation (Division 13A of the ITAA 1936) employee share schemes were able to continue to defer the cessation time by notionally continuing the selling restrictions. Division 83A of the ITAA 1997 which applies to those interests acquired after 1 July 2009 requires there to be genuine selling restrictions for the deferral to continue.
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