Private ruling: Employee share schemes - shares - amendment
Published: June 2012
Ruling period: Year ended 30 June 2011.
Date scheme commenced: 1 July 2009.

Ruling: Q1: Did the deferred taxing point occur when you were made redundant? | A1: Yes. | Q2: If the employee share scheme (ESS) shares do not vest can you request an amendment to remove the discount? | A2: Yes.

Relevant facts and circumstances: You acquired unvested shares under a tax deferred ESS. You were made redundant.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 83 A-115, and | Income Tax Assessment Act 1997 Section 83A-310. Question 1: | Deferred taxing point | The ESS unvested shares that you acquired are legislated under division 83A of the Income Tax Assessment Act 1997 (ITAA 1997). Subdivision 83A-C of the ITAA 1997 contains rules for when the discount received on the acquisition of unvested shares through a deferred tax ESS is included in a taxpayer's assessable income and how the discount is determined. Essentially, subdivision 83A-C of the ITAA 1997 provides that your assessable income for the income year in which the ESS deferred taxing point for the ESS interest occurs includes the market value of the interest at the ESS deferred taxing point, reduced by the cost base of the interest. Under the ESS rules, the deferred taxing point is determined in accordance with the provisions of section 83A-115 of the ITAA. | Subsection 83A-115 (2) states that the ESS deferred taxing point for your shares is the earliest of the times mentioned in subsections 83A-115 (4) to (6). | However, the ESS deferred taxing point for your shares is instead the time you dispose of the interest, if that time occurs within 30 days after the time worked out under subsection 83A-115 (2). | Subsection 83A-115 (4) states that the first possible taxing point is the earliest time when: (a) there is no real risk that, under the conditions of the ESS you will forfeit or lose your shares (other than by disposing of it); and (b) if, at the time you acquired the interest, the ESS genuinely restricted you immediately disposing of the shares - the scheme no longer so restricts you. | Subsection 83A-115 (5) states that the 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends. | Subsection 83A-115 (6) states that the 3rd possible taxing point is the end of the seven year period starting when you acquired the interest. | The earliest of these deferred taxing points that apply to your shares is the time when your employment in respect of which you acquired the unvested shares ended. Therefore, the discount you received on the unvested shares you acquired must be included in your assessable income at the time you were made redundant. | Question 2: | Amendment request | Section 83A-310 of the ITAA 1997 provides for a refund of tax paid in relation to ESS interests in certain circumstances where those interests are forfeited after the employee has been taxed on the discount. Under such circumstances, the forfeited ESS interest is treated as never having been acquired, and the taxpayer can claim a refund of income tax by requesting that the Commissioner amend their income tax assessment to remove income previously included in their assessable income. There is no time limit on amending an assessment to exclude an amount from a taxpayer's assessable income for a share interest which is forfeited. | Section 83A-310 of the ITAA 1997 states that division 83A of the ITAA 1997 is taken never to have applied in relation to an ESS interest acquired by an individual under an ESS if: | · disregarding this section, an amount is included in the individuals assessable income under this division in relation to the interest; and | · either: | · the individual forfeits the interest; or | · in the case of an ESS interest that it is a beneficial interest in a right - the individual forfeits or loses the interest without having disposed of the interest or exercised the right; and | · the forfeiture or loss is not the result of: | · a choice made by the individual other than a choice made by that individual to cease particular employment; or | · a condition of the scheme that has the direct effect of protecting (wholly or partly) the individual against a fall in the market value of the interest. | Your ESS unvested shares will be lost or forfeited for the purposes of Section 83A-310 if those shares do not vest and will be treated as never having been acquired. If your ESS unvested shares do not vest you can claim a tax refund by requesting that the Commissioner amend your income tax assessment to remove the discount you have included in your assessable income.


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