ATO Interpretative Decision
ATO ID 2007/194
Fringe Benefits Tax
Employee share scheme: definition of 'fringe benefit'- benefit provided to employees 'generally'FOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Where the employer issues shares to the trustee of a discretionary trust in respect of 'employees generally' under an employee share scheme, has a 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) been provided by the employer?
Decision
No. A fringe benefit as defined in subsection 136(1) of the FBTAA has not been provided by the employer because no particular employee has been identified who will benefit under the trust.
Facts
In an effort to attract and retain staff, an employer formulates an employee share scheme which will be offered to 'employees generally'; that is, both current and future employees but not specific employees.
The employer settles a discretionary trust and issues shares which are gifted to the trustee with the potential class of beneficiaries being limited to employees of the employer who had met certain specifications with regard to length of service or seniority.
The trustee would exercise its discretion to issue shares to particular employees at a later time having regard to matters such as their employment position and their years of service.
The shares provided to the trustee constitute a benefit in the form of 'property' as defined in subsection 136(1) of the FBTAA.
Reasons for Decision
The definition of a fringe benefit contained within subsection 136(1) of the FBTAA requires, amongst other things, that in order for a benefit to be a fringe benefit that the benefit be provided to 'the employee or an associate of the employee' and that the benefit be provided 'in respect of the employment of the employee'.
In determining whether a 'fringe benefit' has been provided in these circumstances the Full Federal Court decision in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236; 65 ATR 369 is authority for the requirement that a particular employee must be identified.
Edmonds J provided reasons for decision, with which Stone and Allsop JJ agreed in separate judgements. His Honour said that it was necessary, as Kiefel J had held in Essenbourne, Pty Ltd v. Federal Commissioner of Taxation [2002] FCA 1577; 2002 ATC 5201; 51 ATR 629 to identify a particular employee in respect of whose employment a benefit is provided (paragraph 35).
An analogy was drawn that in terms of an associate of a natural person, it would not be possible to conclude that a person is a relative without knowing the identity of the relevant employee. On that basis, this was strongly suggestive of the reference to 'the employee' being a reference to a particular employee (paragraph 36).
His Honour, at paragraph 37, found that whilst a benefit provided to a trustee of a trust estate can be a fringe benefit, for this to occur
......the identity of each employee who will take a share of the benefit is known with sufficient particularity, at the time the benefit is provided to enable it to be said that the benefit is provided in respect of the employment of each of those employees.
His Honour further found that the shares provided to the trustee were not provided in respect of the employment of any particular employee, nor all of the employees capable of benefiting who would in fact receive a benefit - only some employees may later benefit and their identity is not known (paragraph 38).
His Honour, at paragraph 39, said, that his conclusion was consistent with his view that there was no discernible legislative policy
to accelerate and bring to charge..... a benefit which the employee may never get as against a policy of deferring taxes on the benefit unless and until it comes home to the employee....
As no particular employee can be identified in the circumstances of this case who will benefit under the trust, it is not possible to find that the benefit has been provided to an associate of an employee nor can it be said that the benefit has been provided in respect of the employment of an employee.
Accordingly, a fringe benefit as defined in subsection 136(1) of the FBTAA has not been provided by the employer because no particular employee has been identified who will benefit under the trust.
Date of decision: 4 September 2007Year of income: 31 March 2008
Legislative References:
Fringe Benefits Tax Assessment Act 1986
subsection 136(1)
Case References:
Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd
[2007] FCAFC 16
2007 ATC 4236
65 ATR 369
[2002] FCA 1577
2002 ATC 5201
51 ATR 629
Keywords
Fringe benefits tax
Fringe benefits
In respect of employment
Date reviewed: 13 February 2018
ISSN: 1445-2782