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Edited version of private ruling
Authorisation Number: 1011646931123
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Subject: Employee share scheme - non-qualifying shares - subsidiary company - discount
Did you acquire the shares under an employee share scheme?
Yes.
This ruling applies for the following period
Year ended 30 June 2008
The scheme commenced on
1 July 2007
Relevant facts and circumstances
You were granted a number of employee shares by your employer.
The shares were in a subsidiary company of your employer.
You did not give any consideration to acquire the employee shares.
The shares are non-qualifying shares.
Your employer owns more than 50% of the voting rights in the subsidiary company.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 139B(1)
Income Tax Assessment Act 1936 Subsection 139B(2)
Income Tax Assessment Act 1936 Subsection 139B(3)
Income Tax Assessment Act 1936 Subsection 139C
Income Tax Assessment Act 1936 Section 139CD
Income Tax Assessment Act 1936 Section 139GC
Income Tax Assessment Act 1936 Section 139GCA
Reasons for decision
Employee share scheme
Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936) contains employee share scheme (ESS) provisions which apply to the acquisition of a share, or a right to acquire a share, under an employee share scheme during the period.
In terms of section 139C of the ITAA 1936 an taxpayer acquires a share under an employee share scheme if they were acquired:
· in respect of, or in relation directly or indirectly to, any employment of the taxpayer or an associate of the taxpayer, and
· the consideration for the acquisition is less than the market value of the shares or rights at the time of acquisition.
In your case, you were granted a number of employee shares by your employer in a subsidiary company.
While the granted shares were in a subsidiary of your employer, they were granted in relation to your employment. Therefore, it is viewed that the shares were acquired under an employee share scheme.
Qualifying and non-qualifying shares
Whether a share in a company is a qualifying share will determine when the discount is to be included in the taxpayer's assessable income.
Section 139CD of the ITAA 1936 outlines the conditions that must be satisfied for a share in a company to be viewed as a qualifying share.
If an employee acquires a share that is not a qualifying share, the discount given in relation to the share is included in the employee's assessable income in the year in which the share is acquired.
In this case, you have advised that the shares are not qualifying shares. Therefore, the discount given in relation to the shares must be included in your assessable income in the year in which the shares were acquired.