Issue
Will a Restricted Share Unit (RSU) granted to an employee under an employee share scheme constitute a right acquired under an employee share scheme for the purposes of Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. An RSU granted to an employee under an employee share scheme will constitute a right acquired under an employee share scheme for the purposes of Division 13A of Part III of the ITAA 1936.
Facts
Pursuant to an employee share scheme established for the benefit of employees, an employee enters into an RSU agreement with the employer.
An RSU gives the holder the right to receive a share in the employer company at a specified time in the future.
Under the terms of the RSU agreement: • the employee is granted a specified number of RSUs; • if the employer company pays a dividend the employee is granted a further number of RSUs; and • no consideration is paid by the employee to acquire the RSUs.
Reasons for Decision
The expression 'right' is not defined, but as 'right' and 'right to acquire a share' are used interchangeably throughout Division 13A of Part III of the ITAA 1936, a 'right' is taken to mean a 'right to acquire a share'.
Where an employee is granted a right to receive a share they are considered to have been granted the right to acquire that share.
Where the right is granted in respect of, or for or in relation directly or indirectly to their employment and the right is acquired for less that its market value, the right will be a right acquired under an employee share scheme for the purposes of Division 13A of Part III of the ITAA 1936.
Thus where an employee is granted an RSU they will acquire a right under an employee share scheme for the purposes of Division 13A of Part III of the ITAA 1936.
Where the employer company pays a dividend and further RSUs are granted to the employee, the additional RSUs will be acquired under an employee share scheme at the time of grant.