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Edited version of your private ruling
Authorisation Number: 1012587021569
Ruling
Subject: Employee share scheme - Taxing point - Is deferral available?
Question:
Is the employee share scheme (ESS) discount included in your assessable income in the income year that the ESS interests were granted to you?
Answer:
Yes.
This ruling applies for the following period:
2012-13 income year
The scheme commences on:
1 July 2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You were appointed as an executive of company A on an interim basis and were re-appointed at the following Annual General Meeting (AGM) held in 2012.
At that AGM, the shareholders authorised the grant of ordinary shares to you as the incentive component of your remuneration package.
The shares were allocated to you shortly after the AGM at no cost. At that time, the market value of company A shares was $x.xx per share.
You did not incur any brokerage fees or other costs when these shares were granted to you. There were no forfeiture conditions attached to the grant of these shares to you.
You are an executive of company A and possess sensitive information. You are therefore restricted from trading in company A shares. The company A securities trading policy pre-dates the issue of the shares to you and is therefore applicable to the shares.
There are conditions related to company A that effectively make it impossible to dispose of the shares without a significant and detrimental impact on the company's share price and market confidence.
You do not intend to dispose of these shares while you are employed as an executive of company A.
You are currently not receiving any remuneration from company A but still perform your executive duties.
You do not have the ability to cast, or control the casting of more than 5% of the shares that might be cast at a general meeting of the company.
At least 75% of the permanent employees of company A are eligible to acquire ESS interests under employee share schemes.
Company A is an investment company of the type mentioned in subsection 83A-35(5) of the Income Tax Assessment Act 1997.
Certain documents were provided with the application for this ruling. They are to be read with and form part of the description of the scheme for the purpose of this ruling.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 83A.
Reasons for decision
Summary
The ESS discount is included in your assessable income in the income year that the ESS interests were granted to you.
Detailed reasoning
The employee share scheme provisions apply where shares in your employer are granted to you in relation to your employment. These shares are called 'ESS interests'.
Generally, any discount to the market value of the ESS interests provided under an employee share scheme is taxed upfront (that is, on acquisition). That means that the market value of the discount must be included in your assessable income for that income year.
Exceptions to this general principle are made for two forms of employee share scheme - schemes where the ESS interests are at real risk of forfeiture, and schemes where the ESS interests are acquired under certain salary sacrifice arrangements.
Neither of these exceptions exist in your case as:
· The shares are not at a real risk of forfeiture as they are not subject to any forfeiture conditions, and
· The value of the shares granted to you during the 2012-13 income year exceeds $5,000 and so they cannot be considered to be granted to you under a salary sacrifice arrangement for deferral purposes.
The existence of trading restrictions on shares does not place the shares at a real risk of forfeiture. Therefore, these restrictions are not sufficient to entitle the ESS discount to be assessable at the deferred taxing point.
The Commissioner does not have any discretion to treat ESS interests as meeting the deferral conditions.