Edited version of private ruling

Authorisation Number: 1011791492162

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Ruling

Subject: Employee share scheme - transitional provisions - cessation time - employee discount

Question: Is the discount amount in relation to employee shares issued before 1 July 2009, with the cessation time occurring in the 2009-10 income year, included in your 2009-10 assessment?

Answer: Yes.

This ruling applies for the following period:

Income year ending 30 June 2010

The scheme commences on:

1 July 2006

Relevant facts and circumstances

You migrated to Australia, at which point you became a resident of Australia.

You commenced employment with Company A.

You were granted a number of shares in Company B while you were employed by Company A..

The shares were only offered to certain employees and were not offered to the public. The shares had a three year vesting period.

You departed Australia, and you became a resident of an overseas country.

You commenced employment with Company C.

Your shares in Company B vested at which point you disposed of some of them.

Your lodged your return in the country you are a resident, and have paid tax on your shares.

Your tax agent has stated that Company A issued you an employee benefit schedule which provided that a discount amount should be included at Item 12 Label G in your income tax return in the income year in which the shares were disposed of.

Amounts recorded at Item 12 Label G are discount amounts received in relation to employee share scheme interests which were acquired pre 1 July 2009, with the cessation time in relation to those shares occurring during the 2009-10 income year.

We deduce from the fact that you were issued an employee benefit schedule which outlined that you were required to include a discount amount at Item 12 Label G in your income tax return in the income year in which cessation occurred that you did not make an election under section 139E of the Income Tax Assessment Act 1936 (ITAA 1936) when you were granted the Company B shares.

Your tax agent lodged your income tax return for the income year in which cessation occurred, with your status as a non-resident. The discount amount as provided in Company A's employee benefit schedule was recorded at Item 12 Label G.

Relevant legislative provisions

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 (ESS). This Division replaced the previous ESS provisions outlined in Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936) and the former subsection 26AAC of the ITAA 1936. The provisions of Division 83A and the amended tax policy contained therein, apply in full to ESS interests acquired on or after 1 July 2009.

Depending on the date of the original grant, the ESS interests may be taxed under the Division 83A policy, or the transitional rules that preserve the operation of the previous regimes.

The Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) extend the application of Div 83A 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 will continue to apply, in spite of its repeal, to the share or right.

Under Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936), an employee acquires shares under an employee share scheme if the shares were acquired in respect of, or in relation directly or indirectly to, any employment of the employment of the employee and the consideration to the acquisition is less than the market value of the shares at the time you acquired them.

An election under section 139E of Division 13A of the ITAA 1936 can be made by an employee in respect of the qualifying shares. The effect of making an election is that the discount given in respect of the qualifying shares is included in the employee's assessable income in the year of acquisition.

If an election is not made, the discount is included in the employee's assessable income when cessation time occurs.

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

· disposal time of the share

· the later time of when disposal restrictions end and the time when the relevant forfeiture conditions end

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

· 10 years from the date of acquisition.

Application to your case

In your case, you were granted a number of shares in Company B while you were an employed by Company A. These shares were granted as a result of your employment with Company A and are viewed as having been granted under an ESS offered by Company A.

Your tax agent has stated that that you were issued an employee benefit schedule by Company A which outlined that you were required to include a discount amount at Item 12 Label G in your income tax return. Amounts recorded at Item 12 Label G are discount amounts for ESS interests that were acquired pre 1 July 2009, with the cessation time for those interests occurring during the 2009-10 income year.

We deduce from this information that you did not make an election under section 139E of the ITAA 1936 when you were originally granted the shares for the discount to be included in your income tax return in the income year in which the shares were granted. Therefore, the discount amount must be included in your income tax return in the income year in which cessation time occurred.