Private ruling: Employee Share Scheme (ESS) - Assessable Discount - Foreign Income Tax Offset (FITO)
Published: May 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: Prior to 1 July 2009

Ruling: Q1: Can you exclude a portion of the discount on parcel A shares from your assessable income? | A1: Yes. | Q2: Can you exclude a portion of the discount on parcel B shares from your assessable income? | A2: No. | Q3: Can you exclude a portion of the discount on parcel C shares from your assessable income? | A3: No. | Q4: Can you exclude a portion of the discount on parcel D shares from your assessable income? | A4: No.

Relevant facts and circumstances: You were granted four parcels of shares under your ESS Plan on the following dates: Parcel Grant date Vesting date A Prior to 1 July 2009 After 1 July 2009 (4 years after grant date) B Prior to 1 July 2009 After 1 July 2009 (3 years after grant date) C After 1 July 2009 After 1 July 2009 (2 years after grant date) D After 1 July 2009 After 1 July 2009 (1 year after grant date) You were a non-resident when parcel A shares were granted. You commenced employment with the Company, on a 457 Visa in Australia during the 2007-08 income year and have maintained your residency in Australia since that date. Your ESS Plan provides that the following conditions apply to all your shares: · the shares delivered to you shall be deemed paid in whole or in part for past and future services rendered to the Company · the shares will vest as provided in the Vesting Schedule set forth in your Grant Notice, provided that vesting shall cease upon the termination of your continuous service · the Company shall simultaneously with the termination of your continuous service automatically reacquire for no consideration all of the unvested shares. Share parcels A and B are qualifying shares according to section 139CD of the Income Tax Assessment Act 1936 (ITAA 1936). Share parcels C and D are ESS interests according to section 83A-10 of the Income Tax Assessment Act 1997 (ITAA 1997). You declared assessable discount amounts in your Country A income tax return. You did not make an election for any parcel of shares. The following documents are to be read with and form part of the description of the scheme for the purpose of this ruling: · your private ruling application including annexure A to D · your ESS plan · Employee Share Scheme Statement for year ended 30 June 2012 · Country A Individual Income Tax Return.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 139B(1) | Income Tax Assessment Act 1936 Subsection 139B(1A) | Income Tax Assessment Act 1936 Subsection 139C(1) | Income Tax Assessment Act 1936 Subsection 139CA(2) | Income Tax Assessment Act 1997 Section 83A-10 | Income Tax Assessment Act 1997 Subsection 83A-105(3) | Income Tax Assessment Act 1997 Section 83A-110 | Income Tax Assessment Act 1997 Section 83A-115 | Income Tax Assessment Act 1997 Subsection 770-10(1) | Income Tax Assessment Act 1997 Subsection 770-10(3) | Income Tax (Transitional Provisions) Act 1997 Section 83A-5 | International Tax Agreements Act 1953 Section Sch 2-Art 22

Reasons for decision: Detailed Reasoning - Parcel A: Your parcel A shares were acquired under an ESS as they were acquired directly in relation to your employment and issued to you at a discount. As you were a non-resident at the time of grant, your parcel A shares will be acquired when you became an Australian resident. Your parcel A shares are transitioned interests given that: · they are qualifying interests under the old rules; · you have not elected to be taxed upfront under the rules; and · a cessation time has not happened to the shares before 1 July 2009 under the old rules. The transitional provisions prescribe that the new rules in Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) apply to these interests. The discount amount on your parcel A shares will not be included in your assessable income until the income year in which the deferred taxing point occurs. Paragraph 83A-5(4)(b) of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) ensures that the ESS deferred taxing point is determined using the cessation time. The ESS deferred taxing point for your parcel A shares is when disposal restrictions ceased (vesting date). Subsection 83A-110(1) of the ITAA 1997 provides that your assessable income for the year that the deferred taxing point occurs includes the market value (calculated at the deferred taxing point) of the shares, reduced by their cost base. A condition of your ESS plan was that your unvested shares may be cancelled on termination of your continuous service or if you fail to meet other vesting conditions by a scheduled vesting date. This indicates that your shares were granted subject to forfeiture conditions. As forfeiture conditions exist, the period after you became an Australian resident becomes relevant to determining when you earned your parcel A shares. As you were a resident for part of the vesting period, the discount assessable in Australia would be attributed based on the number of days you were an Australian resident between date of grant and vesting date. Therefore, you can exclude from your assessable income, a portion of the total discount on your parcel A shares to the extent that it relates to your foreign service to the Company. | Detailed Reasoning - Parcel B: Your parcel B shares are also transitioned interests and were granted under the same conditions as parcel A. As you were a resident at the time of grant your parcel B shares will be acquired at date of grant. Your parcel B shares are fully assessable at the deferred taxing point (vesting date), as you were employed in Australia for the whole of the vesting period. Therefore, you cannot exclude a portion of the discount on parcel B shares from your assessable income. | Detailed Reasoning - Parcel C: Your parcel C shares were acquired under a tax-deferred scheme. Conditions in your ESS plan indicate your shares were at a real risk of forfeiture until the vesting date. The deferred taxing point for your parcel C shares is when there is no longer a real risk of forfeiture and the scheme no longer genuinely restricts the disposal of the share (vesting date). The amount assessed will be the market value of the parcel C shares at the deferred taxing point, reduced by their cost base. As you were a resident at the time of grant your parcel C shares will be acquired at date of grant. Your parcel C shares are fully assessable at the deferred taxing point (vesting date), as you were employed in Australia for the whole of the vesting period. Therefore, you cannot exclude a portion of the discount on parcel C shares from your assessable income. | Detailed Reasoning - Parcel D: Your parcel D shares were also acquired under a tax-deferred scheme and were granted under the same conditions as parcel C. As you were a resident at the time of grant your parcel D shares will be acquired at date of grant. Your parcel D shares are fully assessable at the deferred taxing point (vesting date), as you were employed in Australia for the whole of the vesting period. Therefore, you cannot exclude a portion of the discount on parcel D shares from your assessable income. | Detailed Reasoning - Issue 2: You are not entitled to a FITO because you made the choice available under Article 22(4) Schedule 2 of the Double Tax Agreement between Australia and Country A to pay tax in Country A on income that has an Australian source. Under these rules it is Country A that must allow the FITO. Accordingly, Australia is not obliged to provide credit relief pursuant to Article 22 for the tax paid in Country A by an Australian resident.