Private ruling: Employee share scheme interests
Published: October 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are stock options considered employee share scheme (ESS) interests? | A1: Yes | Q2: Were stock options received considered part of an employee share scheme? | A2: Yes | Q3: Should the discount received on options, where part of the vesting period occurred while you were an Australian resident, be apportioned and included in your assessable income in the 2012-13 financial year? | A3: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Subsection 83A-10(1) | Income Tax Assessment Act 1997 Subsection 83A-10(2) | Income Tax Assessment Act 1997 Subsection 83A-20(1) | Income Tax Assessment Act 1997 Subsection 83A-25(1) | Income Tax Assessment Act 1997 Subsection 83A-25(2)

Reasons for decision: Summary: Section 83A-10 of the Income Tax Assessment Act 1997 (ITAA) discusses the meaning of ESS interest and employee share schemes. Subsection 83A-10 of the ITAA 1997 states an ESS interest, in a company is beneficial interest in: a) A share in the company; or b) A Right to acquire a beneficial interest in a share in the company. In this case you received options from your employer. These options are considered a beneficial interest in a right to acquire a beneficial interest in the company, your employer therefore the options are considered an ESS interest. Subsection 83A-10(2) of the ITAA 1997 states an employee share scheme is a scheme under which ESS interests in a company are provided to employees, or associates of employees, (including past or prospective employees) of: a) the company; or b) subsidiaries of the company. In relation to the employee's employment. In this case, as an employee of the company, you received an ESS interest in the company, therefore it is considered that you were provided with ESS interests in an employee share scheme. Division 83A of the ITAA 1997 deals with the taxation of discounts on shares, rights and stapled securities acquired under employee share schemes and only applies in full to ESS interests acquired on or after 1 July 2009. Subsection 83A-20(1) of the ITAA 1997 states Subdivision 83A-B applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. In this case Division 83A applies to you as you acquired rights at a discount under an employee share scheme after 1 July 2009. Subsection 83A-25(1) of the ITAA 1997 states your assessable income for the income year in which you acquire the ESS interest includes the discount given in relation to the interest. Subsection 83A-25(2) of the ITAA 1997 states you should treat an amount included in your assessable income under subsection (1) as being from a source other than an Australian source to the extent that it relates to your employment outside Australia. Whether the discount is ultimately included in your assessable income under subsection 83A-25(1) of the ITAA 1997 is determined by the core residency and source rules relating to statutory income in section 6-10 of the ITAA 1997. Section 6-10 of the ITAA 1997 provides that if you are a foreign resident (non-resident) your assessable income in Australian includes the statutory income you derive: • from all sources within Australia, and • from sources outside Australia if a provision of the tax law includes that statutory income in you assessable income. A discount obtained on the acquisition of shares through participation in an employee share scheme (ESS) is an example of statutory income. As a general rule, a discount you obtain on shares you acquire through an ESS is included in your assessable income at some point in time. Usually this will either be the income year in which you acquire shares under an ESS, or at a later time depending on the circumstances applicable to particular cases (which can include when you become an Australian employee for the first time). The ESS rules contain provisions that allow you to disregard and not include in your assessable income a discount you received on shares acquired through an ESS during a period when you were a non-resident of Australia for taxation purposes and the discount relates to shares acquired through employment outside Australia. In this case you were a non-resident until a date in 2013 when you became an Australian resident. You were awarded various options whilst working for the company in the overseas country. You acquired a total of XX options from the company. During the period in which you were awarded the options you were a non-resident of Australia for tax purposes. The total vesting period for a majority of the options occurred wholly while you were a non-resident therefore the discounts on these options are not assessable in Australia. However, the vesting period for a small number of options occurred partly after you became an Australian resident. As you became an Australian resident on a date in 2013 the vesting period for these options occurred partly whilst you were an Australian resident. The earning of these options should be apportioned over the period from the granting of the option to the exercise date for the period you were an Australian resident. The discount received on these options is assessable income for the proportion of the vesting period in which you were an Australian resident. The vesting period for some of the options occurred partly while you were a non-resident and partly while you were a resident.

Relevant facts: You were employed in an overseas country by a company. Prior to 2013 you were a resident of that country. | Whilst working for the company in the overseas country you received options. | The options were awarded to you on various dates. | The vesting dates for the options were between various dates. | On a date in 2013 you became an Australian resident. | If you ceased employment with the company whilst you were employed overseas you had a certain period of time to sell or exercise the options.