Edited version of your private ruling

Authorisation Number: 1011994301424

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Subject: employee share scheme - shares acquired before 1 July 2009 - deferred discount - cessation time

Question: Can you defer the discount arising in relation to your shares acquired before 1 July 2009 when a cessation time occurred during the 2010-11 income year?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

While you were an employee of Company A, you participated in an employee share scheme offered by Company A.

You were granted a number of Company A over a number of years before 1 July 2009.

You did not pay any consideration for the shares.

You did not make a section 139E election in relation to the shares.

You disposed of your Company A shares during the 2010-11 income year.

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

Participating in an Employee Share Scheme (ESS)

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 ESS. The Division was inserted by Act No 133 of 2009 and replaced the previous ESS regimes including the former Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936) which applied to the acquisition of a share under an ESS during the period from 28 March 1995 to 30 June 2009, and the former section 26AAC of the ITAA 1936.

The new ESS rules apply to all ESS interests acquired from 1 July 2009.

ESS benefits acquired before 1 July 2009

As outlined above, the new ESS rules apply to all ESS interests acquired from 1 July 2009. The new law also contains transitional arrangements that will apply to some ESS interests that were acquired before 1 July 2009. These ESS interests are known as transitioned interests.

Provisions contained in the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) extend the application of Div 83A of the ITAA 1997 to ESS 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 ESS 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 1936will continue to apply, in spite of its repeal, to the share or right.

Transitioned ESS interests will have a deferred taxing point that is determined by reference to the cessation time worked out using the previous law.

Under Division 13A of the ITAA 1936, taxpayer's could make a section 139E election to be taxed up front, or to defer their taxing point until cessation time occurred.

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

· when the shares are disposed of;

· the later of when the disposal restrictions cease and the forfeiture conditions expire in relation to the shares;

· when the employee's employment ceased with the employer; or

· 10 years from the date of acquisition of the shares.

Application to your case

You participated in an ESS and were granted a number of shares in Company A over a number of years before 1 July 2009.

In accordance with the ITTPA 1997, as Division 13A of the ITAA 1936 applied to your shares prior to the date it was repealed, it will continue to apply to your shares.

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 of the ITAA 1936.

You did not make an election in relation to these shares, and the inclusion of the discount amounts in relation to those shares was deferred from being included in your income tax returns in the income years in which the shares were granted until the income year in which cessation time occurred.

Cessation time occurred during the 2010-11 income year in relation to your Company A shares.

The inclusion of the discount in relation to your ESS shares was deferred when you did not make a section 139E election in the income years in which the shares were granted, resulting in the requirement that the discount be included in the income year in which cessation time occurred in relation to your shares.

There is no legislation in the ESS provisions which enables taxpayer's additional time to defer the inclusion of the discount amount in their income tax returns. Therefore, the discount amount in relation to these shares must be included in your 2010-11 income tax return as cessation time occurred in relation to your Company A shares during that income year.