On Thursday 14.10.2021, the ATO released Draft TD 2021/D5 Income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? It addresses the operation of the deferred taxing point rules for rights obtained under an employee share scheme (“ESS”).

Under Div 83A of ITAA 1997, amounts relating to discounted ESS interests (ie shares or rights to shares) can be deferred to a later point of time rather than being included in the income year in which the ESS interest was obtained (the “ESS deferred taxing point”).

One ESS deferred taxing point occurs if, at the time ESS interest was acquired by an employee (or “holder”), the scheme “genuinely restricted you immediately disposing of the interest”. In those circumstances, the ESS deferred taxing point arises when the holder is no longer so restricted. The holder therefore needs to establish whether he or she was “genuinely restricted” by the scheme and the time when the restrictions no longer applied. This is also referred to as the restrictions being “lifted”.

The Draft considers the terms “genuinely”, “immediately” and “disposing” in the statutory context, ie general guiding principles. This means that there is no definitive ATO statements as to what constitutes a genuine restriction and lifting, as it is very much an “it depends” situation (ie dependent on particular facts and circumstance) – this is supported by the fact that over half the Draft is taken up with examples.

Proposed date of effect and comments

When the final Determination is issued, it is proposed to apply both before and after its date of issue. However, the Determination will not apply to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination.

Comments are due by 12 November 2021.

[Tax Month – October 2021Previous Tax Month; 17.10.21; LTN 198, 14/10/21]