Edited version of private advice

Authorisation Number: 1051868322159

Date of advice: 28 July 2021

Ruling

Subject: Division 392 of the Taxation Administration Act 1953

Question 1

Is the Australian Subsidiary required to provide statements under Division 392 of the Taxation Administration Act 1953?

Answer

No.

Question 2

If no to the above, is the Overseas Head Company required to provide statements under Division 392 of the Taxation Administration Act 1953?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commences on:

The scheme has commenced.

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.

Overview

•                 The Australian Subsidiary conducts a X Wholesaling business.

•                 The Australian Subsidiary is an Australian resident for tax purposes.

•                 The Australian Subsidiary was incorporated on or about XX XX 20XX and is a privately-owned company.

•                 The Overseas Head Company owns 100% of the ordinary shares in the Australian Subsidiary and is a resident of the Overseas country.

•                 The Overseas Head Company was incorporated on or about XX XX 20XX.

•                 The Overseas Head Company's annual turnover is less than $50 Million.

•                 The Australian Subsidiary, the Overseas Head Company and its corporate group have never been listed on a stock exchange.

The Scheme

•                 The Australian Subsidiary intends to implement an ESS.

•                 Employees of the Australian Subsidiary may be offered Options to acquire ordinary shares in Overseas Head Company as part of their employment in the Australian Subsidiary (the ESS interest or Options).

•                 There is a nominal price to acquire the Options and the exercise price will be equal to or greater than the market value of an ordinary share in the Overseas Head Company when the employee acquires the ESS interest. The Options vest after various years of service.

•                 Immediately after acquiring the Options, each employee will not hold a beneficial interest in more than 10% of the shares in the Overseas Head Company or Australian Subsidiary and will not be in a position to cast or control the casting of more than 10% of the maximum number of votes that may be cast at a general meeting.

•                 The ESS interests will be held for a minimum holding period of three years (commencing the date the ESS interests were acquired) or until employment ceases.

•                 Employees may be eligible for start-up concession rules in section 83A-33.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 83A-B.

Taxation Administration Act 1953 Schedule 1 subsection 392-5(1).

Reasons for decision

Question 1

Is the Australian Subsidiary required to provide statements under Division 392 of the Taxation Administration Act 1953?

Summary

No, the Australian Subsidiary will not be required to provide statements under Division 392 of the Taxation Administration Act 1953 (TAA) since it is not a provider providing the ESS interest.

Detailed Reasoning

Meaning of ESS interest and Employee Share Schemes

An ESS interest in a company includes a beneficial interest in a right to acquire a beneficial interest in a share in the company (subsection 83A-10(1)(b)). 'The company' in this instance is the Overseas Head Company. The Australian Subsidiary is the employer. Options will be issued, which are an ESS interest in the Overseas Head Company, as they represent a beneficial interest in a right to acquire a beneficial interest in a share in the Overseas Head Company.

An ESS is a scheme under which an ESS interest in a company are provided to employees of the company or its subsidiaries in relation to their employment (subsection 83A-10(2)).

Division 392 Statements

Paragraph 392-5 of Schedule 1 to the TAA 1953 provides that an entity must give a statement to the Commissioner and to an individual for a financial year if:

(a) both of the following subparagraphs apply:

(i) the provider provides *ESS interests to the individual during the year;

(ii) Subdivision 83A-B or 83A-C of the Income Tax Assessment Act 1997 (about employee share schemes) applies to the interests; or

Provider of an ESS interest

The Australian subsidiary is not providing the ESS interest (being the beneficial interest in a right to a beneficial interest in a share in the Overseas Head Company) but rather, it is the Overseas Head Company which is providing that ESS interest to the employee taxpayer.

Since the Australian Subsidiary is not a 'provider' providing an ESS interest under 392-5(1)(a)(i) of the TAA, it is not required to provide statements under Division 392 of the TAA.

Question 2

If no to the above, is the Overseas Head Company required to provide statements under Division 392 of the Taxation Administration Act 1953?

Summary

Yes, Overseas Head Company is required to provide statements under Division 392 of the TAA, because it is the provider providing an ESS interest, and subdivision 83A-B applies to those interests.

Detailed reasoning

As outlined above, an entity is required to give a statement to the Commissioner under Division 392 where it is a provider providing an ESS interest to an individual, and Subdivision 83A-B applies to that interest (subsection 392-5(1)).

Provider of an ESS interest

The Overseas Head Company is the 'provider' of the ESS interest (which is a beneficial interest in a right to a beneficial interest in a share in the Overseas Head Company), since it is the entity issuing the option to employees of the Australian Subsidiary. It therefore meets paragraph 392-5(1)(a)(i) outlined in Question 2 above.

Subdivision 83A-B applies to the interests

For Subdivision 83A-B of the ITAA 1997 to apply to an ESS interest (from the perspective of an employee taxpayer), section 83A-20 states that:

(1) This Subdivision applies to an *ESS interest if you acquire the interest under an *employee share scheme at a discount.

(2) However, this Subdivision does not apply if the *ESS interest is a beneficial interest in a *share that you acquire as a result of exercising a right, if you acquired a beneficial interest in the right under an *employee share scheme.

In this case, the Overseas Head company is issuing a beneficial interest in a right to shares, under an ESS, since it is a scheme under which an ESS interest in a company are provided to employees of the company or its subsidiaries in relation to their employment (subsection 83A-10(2)). This ESS interest, being the beneficial interest in a right to a beneficial interest in a share in the Overseas Head Company, is provided at a discount (there is a nominal price to acquire the Options), therefore meeting the requirements of subsection 83A-20(1), such that subdivision 83A-B applies to the interests and subsection 392-5(1)(a)(ii) is met.

For completeness, we note that as a result of subdivision 83A-B applying, each individual employee taxpayer must then include the discount given in relation to that interest in their assessable income, in the income year the ESS interest is acquired (subsection 83A-25(1).

However, the amount included in their assessable income may be reduced where the ESS start-up concession applies.

Conclusion

Since both subsection 392-5(1)(i) and (ii) of the TAA are met, the Overseas Head Company must give the Commissioner a statement under Division 392 of the TAA, which provides the information outlined at subsection 392-5(3) of the TAA.