Private ruling: Employee share schemes - dividend receipts - assessable income
Published: May 2012
Ruling period: Income year ending 30 June 2009; | Income year ending 30 June 2010; | Income year ending 30 June 2011; and | Income year ending 30 June 2012
Date scheme commenced: 1 July 2006

Ruling: Q3: Answer: Yes.

Relevant facts and circumstances: You were an employee of an organisation located overseas, Organisation A, for a number of years before coming to Australia after 20 September 1985. You commenced employment in Australia after a number of months. You were made redundant from your position after a period of time. You recently received written advice from overseas about shares you had been granted under an employee share investment plan (SIP) by Organisation A, which were granted to you during the period 2003 - 2005 in relation to your overseas employment. You had not been aware that you had this shareholding until you received the written advice. Upon investigation, you discovered that the share registry had incorrect address details and you had not received the relevant holding statements, dividends and other communications in relation to the shares. After providing your correct details, you received a single payment in relation to dividends issued in relation to your shares. The payment was in foreign currency. The shares have now been transferred from the trust into your sole name. You provided copies of a number of documents, which should be read in conjunction with, and form part of this private ruling.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 139B | Income Tax Assessment Act 1936 Section 139CA | Income Tax Assessment Act 1936 Section 139E | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1936 Section 44 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Section 960-50 | International Tax Agreements Act 1953 Schedule 1, Article 14

Reasons for decision: Detailed Reasoning - Employee shares: Shares are acquired under an employee share scheme when they are acquired in respect of employment and the consideration paid or given for their acquisition is less than the market value of the shares at the time of the acquisition. When an employee acquires qualifying shares, the employee can make an election as to when they include the discount given on the shares in their assessable income. When an election is not made, the discount is included in the employee's assessable income when the cessation date occurs. However, the discount may not be included in the employee's assessable income to the extent that it relates to a period when they were a non resident or the discount is in respect of their engagement in foreign service. If the share is not disposed of in an arm's length transaction at, or within 30 days of, the cessation time, then the discount is calculated as: · The market value of the share when cessation time occurs, less · Any consideration paid to acquire the share. In order to avoid the double taxation of an amount of income that has already been taxed in a foreign country, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and Income Tax Assessment Act 1997 (ITAA 1997) so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions). Schedule 1 to the Agreements Act contains the double tax agreement between Australia and Country B (the Country B Agreement). The Country B Agreement operates to avoid the double taxation of income received by Australian and Country B residents. An Article of the Country B Agreement deals with income from employment. A paragraph of the Article provides that salary and wages income of an Australian resident will be taxable only in Australia unless the employment is exercised in Country B. If the employment is exercised in Country B then the income is deemed to have a source in and may be taxed in Country B. Application to your situation In your case, you were employment overseas for a number of years before resuming residency in Australia. You were granted a number of shares under an ESS prior to, and after you resumed your Australian residency. These shares are viewed as qualifying employee shares. You did not make the election to include the discount from the qualifying shares. Therefore, the cessation time for the shares occurred on XX September 2007, as that was the earliest cessation event to occur in relation to your shares. The discount you received in relation to the shares will be calculated as the market value of the shares on XX September 2007. The discount amount should have been included in your 2007-08 assessment. As the amendment period for that income year has passed, you cannot amend your 2007-08 assessment to include the discount. Note: As the employee share scheme provisions apply to your shares, the cost base of your shares for capital gains tax purposes will be the market value of the shares on XX September 2007. | Detailed Reasoning - Dividends: The assessability of ordinary income is affected by the residence-status of the person who derives it. The assessable income of an Australian resident will include the ordinary income derived directly or indirectly from all sources, whether in or out of Australia. Dividends are considered ordinary income and are assessable in the income year in which the dividend is issued. Application to your situation Your shares were held in trust when you became an Australian resident. You were issued a number of dividends after you became an Australian resident. Therefore, you are assessable in relation to your dividends in the income years in which the dividends were issued. However, as the time to amend assessments is two years from the date the notice of assessment is issued for the relevant income year, your 2006-07 and 2007-08 assessments cannot be amended to include the dividends you were issued during those income years. Any dividends issued during the 2008-09, 2009-10, 2010-11 and 2011-12 income years will have to be converted to Australian dollars, if not issued in Australian dollars, and included in your assessments in the income years in which the dividends were issued. .

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Employee share schemes - dividend receipts - assessable income: Question 1 : Will the transfer of the shares into your name give rise to any taxation implications in relation to your 2011-12 income tax return? | Question 2 : Will the dividends originally posted to you when you were an Australian resident be assessable in the income years in which they were issued? | Question 3 : Will the first element of your share's cost base be the market value of the shares on the date you were made redundant?