Issue
Is a director of a listed company who was remunerated only by way of the issue of options entitled to the deferral concession under former Division 13A of Part III (Division 13A) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Where a director's only remuneration was in the form of options issued by the company, the director is not entitled to the deferral concession under Division 13A of the ITAA 1936.
Facts
An Australian listed public company issued options to acquire shares in the company to a director of the company as a reward and incentive for their services.
The options were issued prior to 1 July 2009 and were rights acquired under an employee share scheme within the meaning of former section 139C of the ITAA 1936.
The director did not pay anything for the options.
The options entitled the director, on payment of an exercise price, to acquire a corresponding number of shares in the company.
Neither the director nor any associated entity received, or was entitled to receive, any other remuneration for the director's services.
The director was at all relevant times an Australian resident within the meaning of subsection 6(1) of the ITAA 1936.
Neither former section 26AAC of the ITAA 1936, nor Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) applies in relation to the receipt of the options.
Reasons for Decision
Division 13A of the ITAA 1936 provides for the taxation treatment of shares and rights acquired prior to 1 July 2009 under employee share schemes.
Taxpayers were eligible to have the assessment in relation to the discount from rights deferred until a later year of income provided the rights were qualifying rights within the meaning of the former section 139CD of the ITAA 1936.
One of the conditions in former section 139CD of the ITAA 1936 for rights to be qualifying is that the company is the employer of the taxpayer or a holding company of the employer of the taxpayer.
'Employer' is defined by former subsection 139GA(3) of the ITAA 1936 to be a person who pays, or is liable to pay, work and income support related withholding payments and benefits.
A company is taken to have paid work and income support related withholding payments and benefits if one or more of the following circumstances apply: • the company must withhold an amount from a payment it makes to the individual as a director of the company; • the director is assessable on personal services income under section 86-15 of the ITAA 1997 for their services to the company; or • the company is required to pay an amount to the Commissioner under Division 14 of Schedule 1 to the Taxation Administration Act 1953 (TAA) because it provides certain non-cash benefits to the director.
A company that provided remuneration to a director solely in the form of options under an employee share scheme was not required to withhold from any payment to the director.
The company did not make a payment in relation to personal services income assessed to the director under section 86-15 of the ITAA 1997.
While options are a non-cash benefit, former paragraph 14-5(3)(d) of Schedule 1 to the TAA (as applicable at the time the director received the options) excluded benefits constituted by shares and rights acquired under an employee share scheme.
The sole remuneration in the form of options was therefore not a work and income support related withholding payment or benefit. The company was not the employer of the director as defined by former section 139GA of the ITAA 1936.
Accordingly, the rights acquired by the director were not qualifying rights and the discount in relation to the rights is not eligible for the deferral concession under Division 13A of the ITAA 1936. The discount is assessed in the year the rights were acquired.