Private ruling: foreign employee share scheme
Published: March 2015
Ruling period: Financial year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and Answer | Do you include any amount of gain on foreign ESS interests you acquired as a foreign resident prior to 1 July 2009 in your assessable income? | No

Relevant facts and circumstances: You received shares under an employee share scheme (ESS) as part of your sign on about 10 years ago. Some years later you relocated to Australia. Your employment arrangement in Australia was separate to your previous employment overseas and therefore has no connection to the ESS offering from overseas. You sold shares and paid tax to a foreign tax authorities on the sale of your shares. You became a resident of Australia for tax purposes when you relocated here. There was no forfeiture condition on your employment share plan on your overseas issued shares at the time that you commenced employment in Australia.

Relevant legislative provisions: Section 6-5 of the Income Tax Assessment Act 1997 | Section 6-10 of the Income Tax Assessment Act 1997 | Section 83A-110 of the Income Tax Assessment Act 1997 | Subsection 83A-5(4) of the Income Tax (Transitional Provisions) Act 1997

Reasons for decision: Detailed Reasoning - Foreign employment: Australian resident taxpayers are subject to Australian income tax on all discounts they receive under employee share schemes (ESS) regardless of whether they received it in relation to employment in Australia or outside Australia. Foreign resident taxpayers are only subject to Australian income tax on discounts they receive under employee share schemes to the extent that the discount relates to their employment in Australia. You have indicated at the time you received your ESS interest you were a foreign resident. You retained your ESS interest upon becoming an Australian resident. You have indicated to us that you were a foreign resident taxpayer whom became an Australian resident. There are transitional provisions in place for cross-border employee shares or rights which will apply to your circumstances. The taxing of ESS gains changed with effect from 1 July 2009. You acquired your ESS interest prior to 1 July 2009 and disposed of them after 1 July 2009. Consistent with the current law, employees will not pay tax on shares and rights that have been transitioned into the new rules to the extent that the shares or rights relate to the employee's employment outside Australia. (ITTPA) | Detailed Reasoning - Treatment of individuals who become Australian employees (inbound individuals): Section 83A-5(4)(a) of the ITTPA modifies the normal operation of section 83A-110 of the ITAA 1997 for ESS interests acquired before 1 July 2009, on which tax was deferred beyond 1 July 2009 under the previous regimes. It states that no amount is included in assessable income under section 83A-110(1) of the ITAA 1997 to the extent that the amount relates to the taxpayer's employment outside Australia. The period of employment after becoming an Australian employee is only relevant if there are forfeiture conditions on the ESS interest when you became an Australian employee. If your ESS interest could be forfeited when your employment started in Australia; a portion of your discount would be assessable in Australia. You acquired the shares outside of Australia prior to you becoming an Australian resident. The shares were acquired prior to 1 July 2009 when the new ESS rules came into effect. There were no forfeiture conditions on your ESS interest, so apportionment of the ESS gains is not required. Therefore, as the ESS interest relates to employment outside Australia prior to the new ESS rules, you do not include any amount of gain in your Australian assessable income.