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Authorisation Number: 1011650751253

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Subject: Employee share schemes - cessation - discount

Will the discount received in relation to employee options be included in the income year in which cessation occurred under the former Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936) provisions?

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You were granted employee options under an employee share scheme by your employer after 20 September 1985. The options were for shares in an associate company of your employer.

You did not make an election in relation to the options.

The options were qualifying options.

The options were exercisable from the date of grant until 10 years after the date of grant.

You exercised the options a number of years after they were granted.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 26AAC

Income Tax Assessment Act 1936 Division 13A

Income Tax Assessment Act 1936 Section 139CB

Income Tax Assessment Act 1936 Section 139E

Income Tax Assessment Act 1997 Section Division 83A

Income Tax (Transitional Provisions) Act 1997 Subdivision 83 A-B

Income Tax (Transitional Provisions) Act 1997 Section 83A-10

Reasons for decision

Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) deals with the taxation of discounts on shares, rights and stapled securities acquired under employee share schemes. The Division was inserted by Act No 133 of 2009 and replaced the previous employee share scheme regimes in ITAA 1936 former Division 13A of the ITAA 1936 which applied to the acquisition of a share, or a right to acquire a share, under an employee share scheme during the period from 28 March 1995 to 30 June 2009, and the former section 26AAC of the ITAA 1936.

Detailed provisions in the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) extend the application of Division 83A of the ITAA 1997 to employee share scheme interests acquired before 1 July 2009, on which tax was deferred beyond 1 July 2009 under the previous regimes, but certain parts of the tax policy from the previous regimes are preserved by the ITTPA 1997.

Subdivision 83A-B of the ITTPA 1997 provides guidance on the application of the former employee share scheme provisions of Division 13A of the ITAA 1936. Section 83A-10 of the ITTPA 1997 provides that this section will apply when Division 13A of the ITAA 1936 applied to the shares or options prior to it being repealed. In those cases, to avoid doubt, section 83A-10 of the ITTPA 1997 outlines that the former Division 13A of the ITAA 1936 will continue to apply, in spite of its repeal, to the share or right.

Division 13A of the ITAA 1936 provides that cessation will occur in relation to qualifying options at the earliest of:

· disposal of the option, other than by exercising it

· cessation of employment in respect of which the option was acquired

· time when disposal restrictions or forfeiture conditions end, if option exercised

· time when option is exercised if no disposal restrictions or forfeiture conditions, or

· 10 years after the options was acquired.

In your case, you were granted options by your employer for shares in an associate company of your employer. You did not make an election in relation to the options. The options were exercisable from the date of grant until 10 years after the date of grant. You exercised the options a number of years after they were granted.

In accordance with the ITTPA 1997, as Division 13A of the ITAA 1936 applied to your options prior to the date it was repealed, it will continue to apply to your options. Therefore, the cessation time, and the time the discount is included in your assessable income will be determined under the provisions provided in Division 13A.

In this situation, you exercised the options, and as this event was the earliest of the events listed above for the time cessation occurs in relation to options under Division 13A of the ITAA 1936, it is viewed that cessation time occurred on the date you exercised the options. Therefore, the discount must be included in your assessable income in the income year in which you exercised the options.