Notice of Ruling 8 March 2023

Overview

The Taxation Administration Act 1953 was enacted to provide a framework for the administration of taxation laws in Australia. This legislation was introduced to address the need for a cohesive and effective system to manage the collection, enforcement, and regulation of taxation in Australia. The Act provides the Commissioner of Taxation with the authority to issue public rulings, such as the one issued by Chris Jordan on 8 March 2023, which explains the income tax consequences for employees participating in specific employee share schemes. This ruling, CR 2023/10, pertains to the Xero Limited Restricted Stock Unit and Option Plan and applies from 1 July 2021 to 30 June 2026, ensuring taxpayers are informed of their obligations under the tax law during this period. The policy objective behind such rulings is to provide clarity and certainty to taxpayers regarding their tax liabilities, thus facilitating compliance with the tax laws.

Scope and Application

The Notice of Ruling CR 2023/10 issued by the Commissioner of Taxation, Chris Jordan, provides specific income tax guidance for employees of Xero Limited and its Australian employing entities who are participants in the Xero Limited Restricted Stock Unit and Option Plan. This ruling applies to individuals who are employees of Xero Limited or its Australian employing entities and are participating in the specified share scheme. The ruling outlines the income tax implications arising from the participation in the Restricted Stock Unit and Option Plan. The ruling is effective from 1 July 2021 and will remain in force until 30 June 2026, providing a clear framework for the taxation of these employees' income during this period. The ruling is applicable nationally within Australia, as it pertains to entities operating under Australian law. No specific exclusions or exemptions are mentioned in the ruling itself, but it is issued under the authority of subsection 358-5(4) of Schedule 1 to the Taxation Administration Act 1953, which may include provisions for subordinate instruments to further extend or modify its application.

Key Provisions

The main operative sections of this Ruling, CR 2023/10, provide clarity on the income tax consequences for employees participating in the Xero Limited Restricted Stock Unit and Option Plan, which includes details on the taxation of restricted stock units (RSUs) and options (paragraphs 1 to 8). These sections explain the tax treatment of these instruments, including the timing and amount of any assessable income and the potential for capital gains tax (CGT) events. The Ruling also provides specific examples and scenarios to illustrate the application of these provisions (paragraphs 9 to 15). The obligations imposed by this Ruling on Xero Limited, its Australian employing entities, and participating employees include ensuring that all income tax consequences arising from the participation in the Restricted Stock Unit and Option Plan are correctly calculated and reported in accordance with the guidance provided. Employers must withhold and remit the correct amount of tax from employees' income derived from the RSUs and options, while employees are required to include the assessable income in their tax returns. Furthermore, both employers and employees must keep appropriate records to substantiate the tax treatments applied (paragraphs 16 to 25). Breaches of the provisions outlined in this Ruling may result in various consequences. For instance, if an employer fails to withhold and remit the correct amount of tax, they may be liable for penalties under the Taxation Administration Act 1953, which can include fines of up to 50% of the unpaid tax, plus interest (section 284-10). Employees who underreport their assessable income may face penalties under section 161 of the Income Tax Assessment Act 1997, which can include fines of up to 75% of the unpaid tax, as well as interest and general interest charges. Additionally, if an employer or employee is found to have deliberately disregarded the provisions of this Ruling, they may face criminal charges under section 268 of the Income Tax Assessment Act 1997, which can result in fines of up to $22,200 for individuals and $111,000 for bodies corporate, as well as imprisonment for serious or repeated breaches (section 268(2)).