Edited version of private advice

Authorisation Number: 1051911830922

Date of advice: 25 October 2021

Ruling

Subject: Employee share scheme - deferred taxing point

Issue 1 - Share Allotment A

Question 1

Is the earliest taxing point for Share Allotment A, a specified date, pursuant to subsection 83A-115(2) of the ITAA 1997?

Answer

Yes

Question 2

Is the ESS deferred taxing point for Share Allotment A, the dates you sold each parcel of shares pursuant to subsection 83A-115(3) of the ITAA 1997?

Answer

Yes

Question 3

Where you acquire the ESS interest at a discount, are you required to include this amount in your assessable income under section 83A-25 of the ITAA 1997?

Answer

Yes.

Issue 2 - Share Allotment B

Question 1

Is the earliest taxing point for Share Allotment B, a specified date, pursuant to subsection 83A-115(2) of the ITAA 1997?

Answer

Yes.

Question 2

Is the ESS deferred taxing point for Share Allotment B, the dates you sold the shares, pursuant to subsection 83A-115(3) of the ITAA 1997?

Answer

Yes

Question 3

Where you acquire the ESS interest at a discount, are you required to include this amount in your assessable income under section 83A-25 of the ITAA 1997?

Answer

Yes

Question 4

Is the parcel of shares from Share Allotment B that were not disposed of within 30 days of the ESS Deferred taxing point determined under subsection 83A-115(2), subject to capital gains tax under Division 104 of the ITAA 1997?

Answer

Yes

Issue 3 - Share Allotment C

Question 1

Is the ESS deferred taxing point for Share Allotment C, a specified date, pursuant to subsection 83A-115(2) of the ITAA 1997?

Answer

Yes

Question 2

Where you acquire the ESS interest at a discount, are you required to include this amount in your assessable income under section 83A-25 of the ITAA 1997?

Answer

Yes.

Question 3

Are the shares from Share Allotment C that were not disposed of within 30 days of the ESS Deferred taxing point determined under subsection 83A-115(2), subject to capital gains tax under Division 104 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 August 20XX

Relevant facts and circumstances

You are an Australian resident who worked for Company A which is based in the Country A.

Company A does not operate in Australia and it does not have an office in Australia.

You entered into two employment contracts with Company A that provided you with restricted and unrestricted shares.

You ceased employment with Company A after receipt of the shares.

You did not hold shares worth 10% or more in Company A.

Share Allotment A:

You received a number of unrestricted shares that vested on a specified date.

There was a blackout period that restricted you from selling your shares.

Your share broker did not process any certificates for a period of time due to concerns for employees during the COVID-19 pandemic.

The shares were deposited into your brokerage account on a specified date.

You sold all your shares within 30 days of the date you were no longer restricted from selling your shares.

Share Allotment B:

You received restricted shares that vested on various dates.

The shares were deposited into your brokerage account on a specified date.

The share certificates were all stamped with Rule 144 restrictions that the shares could not be sold or transferred until the restrictions were lifted.

A blackout period was imposed for a period of time that restricted you from selling your shares.

You sold a number of shares within 30 days of the date you were no longer restricted from selling your shares.

You sold a number of shares after 30 days from the time you were no longer restricted from selling your shares.

Share Allotment C:

You received a number of unrestricted shares that vested on a specified date.

You sold the shares 30 days after the date you were no longer restricted from selling your shares.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 83A

Income Tax Assessment Act 1997 Subdivision 130-D

Income Tax Assessment Act 1997 Section 100-45

Reasons for decision

Earliest Taxing Point (subsection 83A-115(2) of the ITAA 1997)

As per subsection 83A-115(2) of the ITAA 1997, the ESS deferred taxing point for the ESS interest is the earliest of the times mentioned in subsections 83A-115(4) to (6) of the ITAA 1997.

The earliest taxing point in accordance with subsections 83A-115(4) to (6) of the ITAA 1997 are summarised as follows:

When there is no real risk of forfeiture or losing the ESS interest (other than by disposing of it) and all genuine disposal restrictions have ended (subsection 83A-115(4) of the ITAA 1997),

When the employment in respect of which the share was acquired the interest ends (subsection 83A-115(5) of the ITAA 1997),

Fifteen years from the date you acquired the interest (subsection 83A-115(6) of the ITAA 1997.

ESS Deferred Taxing Point (subsection 83A-115(3) of the ITAA 1997)

As per subsection 83A-115(3) of the ITAA 1997, the ESS deferred taxing point changes when the time you dispose of the interest is within 30 days after the date determined under subsection 83A-115(2) of the ITAA 1997. The date of disposal of the shares then becomes the ESS deferred taxing point.

ESS Assessable Income (Subdivision 83A-B of the ITAA 1997)

The employee share scheme provisions are contained in Division 83A of the ITAA 1997. Under Australian taxation law, the discount on an ESS only becomes taxable when the deferred taxation point is reached.

The actual liability to tax on employee share scheme discounts is determined by Division 83A of the ITAA 1997 in connection with Division 6 of the ITAA 1997.

Australian resident taxpayers are subject to Australian income tax on all discounts they receive under employee share schemes regardless of whether they received it in relation to employment in Australia or outside Australia. However, this may be affected by Australia's double tax treaties and the temporary resident rules.

ESS and Capital Gains (Subdivision 130-D and division 83A of the ITAA 1997)

Subdivision 130-D of the ITAA 1997 operates to recognise that Division 83A contains the primary rules for taxing gains on ESS interests acquired under ESS and that capital gains and capital losses on such interests should usually be disregarded during the period in which Division 83A applies to them.

Section 130-80 of the ITAA 1997 operates to disregard any capital gain or capital loss to the extent it results from a CGT event (other than where the capital gain or loss results from CGT events E4, G1 or K8) if the CGT event happens in relation to an ESS interest you acquire under an ESS and if Subdivision 83A-C applies to the interest at the time of the acquisition is the time when the CGT event happens or the CGT event happens on or before the ESS deferred taxing point for the interest.

As Subdivision 83A-C applies to the acquisition of shares the effect of subsection 130-80 is to disregard the capital gain or capital loss from CGT events that happen from the time of acquisition up until the deferred taxing point.

Once a deferred taxing point arises in respect of the share section 83A-125 operates inter alia to reset the cost base of the unit at its market value unless the deferred taxing point occurs at the time the unit is disposed of.

Application to your situation

Issue 1 - Share Allotment A

Question 1

In your situation, you were issued with a number of unrestricted shares under a deferral scheme. When considering the first taxing point under subsections 83A-115(4) to (6) of the ITAA 1997, it is viewed the earliest time is the time the scheme no longer restricted you from disposing of the interest, pursuant to paragraph 83A-115(4)(b) of the ITAA 1997.

Therefore, the earliest taxing point for your ESS interests was on a specified date, when the shares had no disposal restrictions imposed.

Question 2

In your situation, your disposed of a number of shares within 30 days of the earliest taxing point. When considering the ESS deferred taxing point we look at subsection 83A-115(3) of the ITAA 1997 which states that the ESS deferred taxing point becomes the date of the disposal of the shares if disposed of within 30 days of the earliest taxing point.

Therefore, as you disposed of your shares within 30 days of the earliest taxing point, your ESS deferred taxing point is the date you disposed of your shares.

Question 3

In your situation you were an Australian resident for tax purposes at the deferred taxation point for Share Allotment A. Therefore, the entire amount of the ESS discount will be included in your taxable income.

Your taxable income will be calculated as the market value of the ESS interest less the cost base of the ESS interest as per subsection 83A-110(1) of the ITAA 1997.

Issue 2 - Share Allotment B

Question 1

In your situation you were issued with a number of unrestricted shares under a deferral scheme. When considering the first taxing point under subsections 83A-115(4) to (6) of the ITAA 1997, it is viewed the earliest time is the time the scheme no longer restricted you from disposing of the interest pursuant to paragraph 83A-115(4)(b) of the ITAA 1997.

Therefore, the earliest taxing point for your ESS interests was on a specified date when the shares had no disposal restrictions imposed.

Question 2

In your situation your disposed of some of your shares within 30 days of the earliest taxing point. When considering the ESS deferred taxing point we look at subsection 83A-115(3) of the ITAA 1997 which states that the ESS deferred taxing point becomes the date of the disposal of the shares if the shares are disposed of within 30 days of the earliest taxing point.

Therefore, as you disposed of these shares within 30 days of the earliest taxing point, your ESS deferred taxing point for these shares is the date that you disposed of your shares.

Question 3

In your situation you were an Australian resident for tax purposes at the deferred taxation point for Share Allotment B. Therefore, the entire amount of the ESS discount will be included in your taxable income, regardless of it you sold the shares or not.

Your taxable income will be calculated as the market value of the ESS interest less the cost base of the ESS interest as per subsection 83A-110(1) of the ITAA 1997.

Question 4

In your situation, you did not sell all of your shares within 30 days of the earliest taxing point, therefore the deferred taxing point occurred on a specified date, pursuant to subsection 83A-115(2) of the ITAA 1997.

The tax treatment of ESS interest held after the ESS deferred taxing points is outlined in section 83A-125 of the ITAA 1997. It states that these interests are taken to have been acquired immediately after the ESS deferred taxing point for the interest for its market value, which in your circumstances is a specified date.

Section 100-45 of the ITAA 1997 contains the formula for calculating the capital gain amount. Based on the information provided you made a capital gain when you disposed of the shares.

Issue 3 - Share Allotment C

Question 1

In your situation you were issued with a number of unrestricted shares under a deferral scheme. When considering the first taxing point under subsections 83A-115(4) to (6) of the ITAA 1997, it is viewed the earliest time is the time the shares vested and there were no restrictions on disposing of the shares pursuant to subsection 83A-115(4) of the ITAA 1997.

Therefore, the earliest taxing point for your ESS interests was on a specified date when the shares vested.

Question 2

In your situation you were an Australian resident for tax purposes at the deferred taxation point for share allotment C. Therefore, the entire amount of the ESS discount will be included in your taxable income, regardless of it you sold the shares or not.

Your taxable income will be calculated as the market value of the ESS interest less the cost base of the ESS interest as per subsection 83A-110(1) of the ITAA 1997.

Question 3

In your situation, you did not sell all of your shares within 30 days of the earliest taxing point, therefore the deferred taxing point occurred on a specified date, pursuant to subsection 83A-115(2) of the ITAA 1997.

Section 100-45 of the ITAA 1997 contains the formula for calculating the capital gain amount. Based on the information provided you made a capital gain when you disposed of the shares.