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Edited version of your written advice
Authorisation Number: 1051339589124
Date of advice: 6 March 2018
Ruling
Subject: Employee share schemes
Question
Will The Company have reporting obligations under paragraph 392-5(1)(b) of Schedule 1 of the Taxation Administration Act (TAA) due to a cessation of employment under Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) where an employee:
● is currently employed by The Company or a subsidiary of The Company (current employer);
● to whom The Company has provided ESS interests;
● ceases employment with the current employer; and
● as part of the arrangement whereby the employee ceases employment with the current employer, as soon as practicable thereafter commences employment with another entity that is either:
● a holding company of The Company; or
● a subsidiary of The Company,
● a subsidiary of a holding company of The Company (but not a holding company or subsidiary of The Company)
as those terms are defined in section 9 of the Corporations Act 2001 (Cth) (Corporations Act)?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
1. The Company is an Australian listed public company whose business does not include share trading. The Company is listed on the Australia Stock Exchange (ASX).
2. It has a number of subsidiaries within the meaning of the Corporations Act.
3. The Company is a subsidiary of Holding Company.
4. Holding Company has a number of subsidiaries, including The Company.
5. Holding Company may wish to re-deploy employees of The Company and its subsidiaries within the group of held companies. As a result, employees will cease employment with one entity to be re-employed with another entity within the group.
Assumptions
The Company employee share schemes
6. The Company ESS satisfies the definition of an employee share scheme in section 83A-10, being a scheme under which ESS interests in a company are provided to employees (or their associates) of The Company or subsidiaries of The Company, in relation to the employee’s employment.
7. The ESS interests qualify for tax deferral under Subdivision 83A-C and an ESS deferred taxing point has not previously arisen under Subdivision 83A-C.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 960-40
Income Tax Assessment Act 1997 Division 83A
Taxation Administration Act Section 392-5
Reasons for decision
Question
Summary
8. The Company will not have reporting obligations under paragraph 392-5(1)(b) of Schedule 1 of the TAA as there will be no cessation of employment for the purposes of Division 83A of the ITAA 1997 where an employee:
● is currently employed by The Company or a subsidiary of The Company (current employer);
● to whom The Company has provided ESS interests;
● ceases employment with the current employer; and
● as part of the arrangement whereby the employee ceases employment with the current employer, as soon as practicable thereafter commences employment with another entity that is either:
● a holding company of The Company; or
● a subsidiary of The Company,
● a subsidiary of a holding company of The Company (but not a holding company or subsidiary of The Company)
as those terms are defined in section 9 of the Corporations Act.
Detailed reasoning
9. Section 392-5(1) of the TAA relevantly states:
An entity (the provider) must give a statement to the Commissioner and to an individual for a * financial year if:
…
(b) all of the following subparagraphs apply:
(i) the provider has provided ESS interests to the individual (whether during the year or during an earlier year);
(ii) Subdivision 83A-C of the Income Tax Assessment Act 1997 (about employee share schemes) applies to the interests;
(iii) the * ESS deferred taxing point for the interests occurs during the year.
10. The first two conditions have been met as per the ‘Relevant facts and circumstances’. The third condition will be met where an ESS deferred taxing point occurs under section 83A-115 in relation to a share or section 83A-120 in relation to a right to acquire a beneficial interest in a share.
11. Relevantly, there will be an ESS deferred taxing point under Division 83A where the employment in respect of which the individual acquired the interest ends (paragraphs 83A-115(5) and 83A-120(5)).
Does a cessation of employment happen due to the change in the individual’s employment?
12. Section 83A-330 provides that, for the purposes of Division 83A, an individual is treated as ceasing employment when they are no longer employed by any of the following:
● their employer in that employment;
● a holding company of the employer;
● a subsidiary of the employer; or
● a subsidiary of a holding company of the employer.
13. 'Holding company' and 'subsidiary' have the same meaning as in the Corporations Act.
14. In this case, the individual will still be employed by a holding company or a subsidiary of the employer, or a subsidiary of the holding company of the employer they had when the ESS interests were granted to them. Their employment has not ended for employee share scheme purposes due to their re-deployment.
15. Consequently, the change in their employment will not be considered a cessation of employment in respect of their ESS interests, and will not give rise to an ESS deferred taxing point.
16. Thus, subparagraph 392-5(1)(b)(iii) of Schedule 1 of the TAA will not be met and The Company will not have reporting obligations under paragraph 392-5(1)(b) in relation to the above scenario.
17. Note: This decision does not consider whether the cessation time happened for another reason - for example, because the selling restrictions and forfeiture conditions cease to have effect.
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