Private ruling: Employee Share Scheme - temporary resident
Published: September 2017
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Question and answer | 1. Is the discount on the shares acquired under an employee share scheme assessable in Australia? | Yes. | 2. Can you disregard any capital gain or loss made when the shares are sold? | Yes.

Relevant facts and circumstances: You are a temporary resident of Australia. You are an Australian resident for tax purposes. You arrived in Australia DDMMYYYY on a X visa. You are employed by a foreign company and work in the Australian division. During your employment in Australia you were granted shares in the foreign company under an employee share scheme. The shares were vested in Australia at various times. Tax was paid based on the deferred taxing point. After the shares vest, you have the option, in accordance with the company's trading window for employees, to sell the shares. You plan to sell some or all of the shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 Division 83A-C | Income Tax Assessment Act 1997 Subdivision 855-B

Reasons for decision: Summary: Employee share scheme (ESS) interests are considered to be 'earned' over the vesting period. Therefore, the amount of the gain calculated on the vesting of the employee share scheme interests will be fully assessable if the whole vesting period relates to Australian sourced income. You acquired employee share scheme options under a tax deferred employee share scheme in relation to your Australian employment. Subsection 83A-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that your assessable income for the year that the deferred taxing point occurs includes the market value of the ESS interest (calculated at the deferred taxing point) reduced by the cost base of the interest. The cost base of the ESS interests includes any consideration paid or given for the ESS interests, and any other incidental costs incurred in relation to the ESS interests before the deferred taxing point occurs. Subsection 83A-110(2) of the ITAA 1997 attributes a source to a gain that is (or would be) assessable income under subsection 83A-110(1) of the ITAA 1997. Whether the gain is ultimately included in the taxpayer's assessable income is then determined by the core residence and source rules relating to statutory income. The assessability of statutory income is affected by the residency status of the person who derives it. The assessable income of an Australian resident will include statutory income from all sources, whether in or out of Australia. On the other hand, for a foreign resident, the assessable income includes statutory income from all Australian sources. Temporary residents are subject to tax on discounts they receive under an ESS in relation to employment in Australia. In your case, you were a temporary resident when you were issued the shares under the ESS. Therefore, you are assessable on the ESS discount arising in relation to the shares because they are solely attributable to your Australian employment. | Detailed Reasoning - Temporary residents and Capital Gains Tax: In accordance with the policy of minimising Australian taxation of a temporary resident's foreign source investment income, several provisions in Subdivision 768-R effectively restricts the operation of the Australian CGT rules to a temporary resident's assets which are taxable Australian property. In short, the purpose of these rules is to treat temporary residents as if they are foreign residents for the purposes of the CGT rules. A capital gain or loss made by a temporary resident is disregarded if the individual would not make a capital gain or loss from a CGT event, or the capital gain or loss would have been disregarded under Division 855 if they were a foreign resident when, or immediately before, the CGT event happens. This means that, for Australian tax purposes, a temporary resident will generally need to account for a capital gain or loss only in relation to a CGT asset which is 'taxable Australian property'. Taxable Australian property includes assets that are Australian real property and assets used running a business. In your case, you are a temporary resident who acquired shares under an ESS and you intend to sell those shares. Consequently, as the shares are not taxable Australian property you may disregard any capital gain or loss on the sale of the shares.