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Edited version of private advice
Authorisation Number: 1012648262635
Ruling
Subject: Income - employee share schemes
Question 1
Are you required to include in your assessable income in the 2011-12 income year the discount on shares issued to an associate under an employee share scheme prior to 1 July 2009, where the shares were issued in relation to your employment?
Answer
No
Question 2
If the answer to Question 1 is 'No', is the discount on the shares issued to the associate assessable to you in the 2007-08 income year (the year they were acquired)?
Answer
Yes.
This ruling applies for the following periods
Year ending 30 June 2008
Year ending 30 June 2012
The scheme commences on
1 July 2007
Relevant facts and circumstances
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• Your private ruling application and accompanying documentation.
During 20XX, you were an employee of Company A and you were offered an option to acquire a number of shares in Company A provided that the company met a performance target.
The terms of this option are outlined in the documentation provided.
Company A's performance target was met, and in accordance with the terms of the incentive option plan, you exercised your option to acquire the shares in Company A during the year ended 30 June 20YY. You arranged for these shares to be acquired by an associate as your nominee and your associate became the registered holder of these shares.
The shares were held in accordance with the agreed terms.
Your associate was not an employee of Company A.
The option to participate in the plan was only offered to selected employees (and not 75% of the permanent employees).
During the 2011-12 income year, your associate accepted a share buyback offer from Company A.
Throughout the entire period, the shares were held by your associate.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 13A
Income Tax Assessment Act 1936 subsection 139C(1)
Income Tax Assessment Act 1936 subsection 139B(2)
Income Tax Assessment Act 1936 subsection 139CD(3)
Income Tax Assessment Act 1936 subsection 139D(2)
Reasons for decision
Former Division 13A of the ITAA 1936 provided for the taxation treatment of rights acquired under employee share schemes.
The employee share scheme (ESS) rules contained in Division 13A that applied to shares or rights acquired before 1 July 2009 have been repealed effective from 14 December 2009. A new Division 83A in the Income Tax Assessment Act 1997 contains employee share scheme rules that apply to shares or rights acquired on or after 1 July 2009.
The new rules in Division 83A will apply to some shares or rights that were acquired before 1 July 2009 under transitional rules. These shares and rights are known as transitioned interests. However, the previous rules in Division 13A will continue to apply (despite its repeal) to shares or rights that do not transition to the new rules.
The old rules in former Division 13A of the ITAA 1936 continue to apply to rights or shares that are not qualifying rights under the old rules.
The acquirer acquires rights or shares under an employee share scheme if they were acquired in respect of, or in relation directly or indirectly to any employment of an associate of the acquirer under former subsection 139C(1) of the ITAA 1936.
It is because you are an associate of the acquirer (your spouse), that the rights or shares were able to be acquired by the acquirer under an employee share scheme.
These rights or shares are not qualifying rights or shares under former subsection 139CD(3) of the ITAA 1936 because your spouse is not an employee of Company A.
But for section 139D of the ITAA 1936, the discount would be included in the assessable income of the acquirer in the income year that Company A issued the rights or shares to the acquirer under former subsection 139B(2) of the ITAA 1936.
If an associate acquires ESS interests which are provided in relation to your employment or services, the ESS rules require you (rather than your spouse) to include the discount in your assessable income under former subsection 139D(2) of the ITAA 1936.
Example - rights allocated to associate As part of his remuneration package, Derek negotiates for his spouse, Sally, to acquire 700 rights from his employer, D2D Finance Company, on 21 September 2007. The rights provided to Sally are in relation to Derek's employment. As a result, even though Sally acquires the rights from an employee share scheme, Derek will need to include the discount related to these rights in his assessable income for the 2008 income year. |