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Edited version of your written advice
Authorisation Number: 1012777601077
Ruling
Subject: Employee share scheme
Question 1
Will the discount received in relation to the Employee Share Scheme (ESS) interests granted on the X, X and X be included in your assessable income in the year ended 30 June 2014?
Answer
Yes
This ruling applies for the following period:
Income year ended 30 June 2014
The scheme commences on:
1 July 200X
Relevant facts and circumstances
You were issued ESS interests in the form of stock options by you previous employer X on the x, x and x.
You left the Employment of X in x.
You relocated your family overseas on the x to take employment with X.
You did not make a section 139E election.
Relevant legislative provisions
The Income Tax (Transitional Provisions) 1997 Act subsection 83A-5(2)
Income Tax Assessment Act 1997 section 83A-120
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 Income Tax Assessment Act 1936 (ITAA 1936) which dealt with the taxation of employee share schemes before 1 July 2009 and was repealed by the Tax Law Amendment (2009 Budget Measures No 2) Act 2009.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 ESS interests acquired 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 139CB of the ITAA 1936 for the ESS interests had yet to occur as of 1 July 2009.
Section 83A-120 provides the rules for determining when the ESS deferred taxing point occurs where you are the holder of beneficial interest in a right. This will be the earliest of the following times:
• when the employment in respect of which you acquired the rights ends as per subsection 83A-120(5)
• seven years after acquiring the rights as per subsection 83A-120(6)
• when the right has not been exercised, there is no real risk of forfeiting the right, and the scheme no longer genuinely restricts disposal of the right as per subsection 83A-120(4)
• when there is no real risk of forfeiting the right or underlying share, and the scheme no longer genuinely restricts exercise of the right or disposal of the resulting share as per subsection 83A-120(7).
In respect to your circumstances, the ESS deferred taxing point will be when you ceased employment in X prior to when you ceased being an Australian resident. Consequently the discount received on the ESS interests will be included in the income year ended 30 June 2014.
Even had the deferred taxation point occurred after you ceased being an Australian resident the discount received on ESS interests relates to Australian employment and is therefore Australian sourced income. As per subsection 6-5(3) of the ITAA 1997 foreign residents are taxed on their Australian sourced income.
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