Private ruling: ESS - Temporary residents - FITO
Published: May 2013
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the whole amount as shown at label G to be included in your assessable income for the relevant income year? | A1: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were granted two sets of options to buy common stock in the Group at some time prior to 1 July 2009 under an Employee Share Scheme (ESS). Your options vested and were exercised on two separate dates at some time after 1 July 2009. You were granted two parcels of restricted shares in the Group at some time prior to 1 July 2009 under an ESS. Your restricted shares vested and were released to you on two separate dates at some time after 1 July 2009. Your options and restricted shares were granted to you under the Group's ESS Plan (your ESS agreement). According to your ESS agreement you forfeit your ESS interests on termination of your employment with the group. You did not pay any consideration for your options or restricted shares. You did not make any elections for either your options or your restricted shares. You arrived in Australia during the 200X income year and continued employment with the Group in Australia on a temporary visa until you returned to Country A during the relevant income year. You lodged Country A tax returns for calendar year 200X and 200Y declaring Country A and Australian income including income from the sale of your issued shares.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 139B(2A) | Income Tax Assessment Act 1936 Subsection 139C(1) | Income Tax Assessment Act 1936 Subsection 139CA(2) | Income Tax Assessment Act 1936 Subsection 139CB(1) | Income Tax Assessment Act 1997 Subsection 83A-110(1) | 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 Issue 1 | Your options and restricted shares (ESS interests) 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 acquisition your ESS interests will be acquired when you become a temporary Australian resident. | As you were a temporary resident and your ESS agreement states that your ESS interests may be forfeited if your employment is terminated, the portion of the discount that relates to work in Australia is assessable under the ESS rules. | Your ESS interests are transitioned interests given that: | · they are qualifying interests under the old rules, and | · you have not elected to be taxed upfront under the rules, and | · a cessation time has not happened to the rights 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 interests 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 options is the time you when the options were exercised. The ESS deferred taxing point for your restricted shares is when disposal restrictions ceased. 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 ESS interests that were granted under an ESS reduced by their cost base. | Your ESS interests are only partly assessable at the deferred taxing point. As you were a temporary Australian resident for part of the period between date of grant and vesting date (vesting period), the discount assessable in Australia would be attributed based on the number of days you were a temporary Australian resident over the vesting period. | Therefore, only a portion of the total discount on your ESS interests acquired pre 1 July 2009 and 'cessation time' occurred during the financial year needs to be included in your assessable income for the relevant income year. | 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 for the tax paid in Country A by a temporary Australian resident.


Question: Can you claim a foreign income tax offset (FITO) in respect of the taxes paid in Country A?