Notice of Rulings 8 April 2022
The Acting Commissioner of Taxation, Jeremy Hirschhorn, gives notice by notifiable instrument under subsection 358‑5(4) of Schedule 1 to the Taxation Administration Act 1953 of the following public rulings, copies of which can be obtained from ato.gov.au/law
NOTICE OF RULINGS |
Ruling number | Subject | Brief description |
TD 2022/4 | Income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? | This Ruling sets out the principles for working out whether an employee share scheme’s disposal restrictions were ‘genuine disposal restrictions’ and, if they were, when you are no longer genuinely restricted for the purposes of determining the ESS deferred taxation point. This Ruling applies both before and after its date of issue. |
TD 2022/8 | Income tax: deductibility of expenses incurred in establishing and administering an employee share scheme | This Ruling sets out when the establishment and administration expenses of an employee share scheme are deductible or not. This Ruling applies both before and after its date of issue. |
Overview
The Taxation Administration Act 1953, enacted by the Australian Parliament, provides a comprehensive framework for the administration of taxation laws in Australia. One of the mechanisms through which the Australian Taxation Office (ATO) communicates its interpretation of tax laws to taxpayers and industry participants is the issuance of public rulings. These rulings are published to ensure taxpayers understand how certain tax provisions apply to their circumstances, thereby promoting certainty and compliance. The problem or gap this legislative framework addresses includes the need for clear, authoritative guidance on complex tax issues, ensuring taxpayers can confidently navigate their tax obligations. The policy objective is to foster a transparent and compliant tax system by providing clear and consistent interpretations of the law.
The notifiable instrument F2022N00095, issued on 8 April 2022, gives notice of two public rulings under the authority of the Taxation Administration Act 1953. The first ruling, TD 2022/4, addresses the circumstances under which an employee share scheme’s disposal restrictions are considered genuine, and the point at which a taxpayer is no longer genuinely restricted. The second ruling, TD 2022/8, clarifies the deductibility of expenses related to establishing and administering an employee share scheme. Both rulings are designed to apply both before and after their date of issue, ensuring that taxpayers have access to consistent and authoritative guidance in determining their tax liabilities.
Scope and Application
The notifiable instrument F2022N00095, issued on 8 April 2022 by the Acting Commissioner of Taxation Jeremy Hirschhorn, concerns public rulings under subsection 358-5(4) of Schedule 1 to the Taxation Administration Act 1953. These rulings, which are accessible on the ATO website, pertain to the application of income tax laws in specific contexts, thereby impacting entities and individuals who engage in activities governed by these provisions. The rulings apply to the deductibility of expenses related to employee share schemes and the determination of genuine disposal restrictions on interests provided under such schemes, with the guidance provided being applicable both before and after the date of issue. This indicates that the rulings are intended to offer clarity and direction for ongoing and future transactions, thereby ensuring that taxpayers are aware of their obligations and entitlements under the relevant tax laws. As Commonwealth legislation, the rulings extend across Australia, affecting all entities and individuals subject to Australian income tax law, unless specific exclusions or exemptions apply.
Key Provisions
The primary sections of the notifiable instrument F2022N00095 provide two significant public rulings concerning employee share schemes (ESS). The first ruling, TD 2022/4 (paragraph 1), addresses the criteria for determining when disposal restrictions in an ESS are considered 'genuine disposal restrictions' and when an employee is no longer genuinely restricted from disposing of their interest. This ruling assists in calculating the ESS deferred taxation point. The second ruling, TD 2022/8 (paragraph 2), outlines the conditions under which expenses related to the establishment and administration of an ESS are deductible. Both rulings are effective from the date of their issue and apply retroactively, meaning they govern situations both before and after their publication.
The obligations and requirements imposed by these rulings are primarily directed towards employers and employees involved in ESS. Employers must ensure that the restrictions on the disposal of shares or interests in their ESS meet the criteria for 'genuine disposal restrictions' as outlined in TD 2022/4. This includes verifying that the restrictions are not merely nominal and genuinely prevent immediate disposal. Employers must also keep accurate records of expenses related to the establishment and administration of the ESS to determine their deductibility, in line with the guidance provided in TD 2022/8. Employees, on the other hand, need to be aware of the restrictions placed on their disposal of interests and understand when they are no longer subject to these restrictions for tax purposes.
Breaches of the obligations and requirements set out in these rulings can lead to various consequences. For instance, if an employer incorrectly classifies disposal restrictions or fails to substantiate the genuineness of these restrictions, they may face adjustments to their tax liabilities. Similarly, if expenses are claimed that do not meet the criteria for deductibility as outlined in TD 2022/8, the employer may be required to repay these amounts with interest. While the notifiable instrument does not explicitly state maximum penalties, breaches of tax laws can generally result in penalties under the Taxation Administration Act 1953, including fines and interest on unpaid taxes. Additionally, persistent or deliberate non-compliance could lead to criminal charges and imprisonment, depending on the severity and intent of the breach.