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Edited version of your written advice
Authorisation Number: 1012726743020
Ruling
Subject: Employee share scheme
Question 1
Will the discount received in relation to the Employee Share Scheme (ESS) interests issued on the x be included in your assessable income in the year ended 30 June 2012?
Answer
Yes
This ruling applies for the following periods:
Income year ended 30 June 2012
Income year ended 30 June 2013
The scheme commences on
1 July 2011
Relevant facts and circumstances
You were granted ESS interests in the form of x shares in your employer on x.
You did not make an election under section 139E of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of those ESS interests.
The restriction end date for the shares was x. As per the documentation provided by your employer the restriction end date is the date the shares become free from restriction and available for withdrawal form the plan.
As per the documentation you included an amount of $x in your income in year X.
Your employee than issued an ESS tax summary in a later year which had an amount in respect of those shares for inclusion in assessable income.
As a result the discount in respect of those ESS interests has been included in two years of your income tax returns.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 139B
Income Tax Assessment Act 1936 section 139CA
Income Tax Assessment Act 1936 section 139E
Income Tax Assessment Act 1997 section 83A-115
Income Tax (Transitional Provisions) Act 1997 subsection 83A-5 (2)
Reasons for decision
From the 1 July 2009, the taxation of employee share scheme interests is set out in Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997). Division 83A of the ITAA 1997 replaced Division 13A of the ITAA 1936 which dealt with the taxation of employee share schemes before the 1 July 2009 and was repealed by the Tax Law Amendment (2009 Budget Measures No 2) Act 2009.
The Income Tax (Transitional Provisions) 1997 Act provides which regime will be relevant for determining the taxation treatment of an ESS interests acquire prior to 1 July 2009. Subsection 83A-5(2) provides:
Furthermore, Subdivision 83A-C of the Income Tax Assessment Act 1997 (and the rest of Division 83A of that Act, to the extent that it relates to that Subdivision) also applies in relation to an ESS interest if:
(a) all of the following subparagraphs apply:
(i) at the pre-Division 83A time, subsection 139B(3) of the Income Tax Assessment Act 1936 applied in relation to the interest;
(ii) the interest was acquired (within the meaning of former Division 13A) before 1 July 2009;
(iii) the cessation time mentioned in subsection 139B(3) of the Income Tax Assessment Act 1936, as in force at the pre-Division 83A time, for the interest did not occur before 1 July 2009; or
In your situation the point of taxation will be determined by Division 83A-C of the ITAA 1997 due to the following:
• you were granted the relevant ESS interests prior to 1 July 2009
• you did not make an election under 139E of the ITAA 1936 in relation to those ESS interests
• the cessation time under section 139CA of the ITAA 1936 for the ESS interests had yet to occur as of the 1 July 2009 as:
• you had not disposed of the shares
• the restriction lock on the shares was still in place
• you had not ceased employment with the company.
Section 83A-115 of the ITAA 1997 provides the rules for determining when the ESS deferred taxing point occurs where you are the holder of a beneficial interest in a share. This will be the earliest of the following times:
• when there is no real risk of forfeiting the share, and the scheme no longer genuinely restricts the disposal of the share as per subsection 83A-115(4) of the ITAA 1997
• when the employment in respect of which you acquired the shares ends as per subsection 83A-115(5) of the ITAA 1997
• seven years after acquiring the share as per subsection 83A-115(6) of the ITAA 1997
In respect to your circumstances, the ESS deferred taxing point will be earliest of the following:
• the time when the trading lock ended on the shares being the x
• the time when you ceased employment with your employer on x
• seven years from the date you were granted the shares, which will be on the x.
Therefore the ESS deferred taxing point of your shares will be the when the trading lock ended on x. Consequently the discount received on the ESS interests will be included in the income year ended 30 June 2xxx.
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