ATO Interpretative Decision
ATO ID 2003/690
Fringe Benefits Tax
Employee share scheme: company demerger - allotment of shares to trusteeFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does the allotment of shares in a demerged entity, to the trustee of an employee share trust, in respect of shares held on behalf of employees in the head entity of the demerged group, constitute a 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
No. The allotment of the shares in the demerged entity is not in respect of employment and thus does not constitute a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.
Facts
A head entity has established an employee share scheme under which a trustee holds shares in the head entity on behalf of participating employees.
Under a demerger, the head entity allots shares in the demerged entity to existing shareholders in the head entity. Those shareholders include the trustee of the employee share trust.
The trustee of the employee share trust is an associate of the participating employees.
Reasons for Decision
For a benefit to be a 'fringe benefit' in accordance with the definition in subsection 136(1) of the FBTAA, it must be provided to an employee or the associate of the employee in respect of the employment of the employee.
Whilst the expression 'in respect of' has no fixed meaning, the full Federal Court in J & G Knowles v FC of T (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22; examined its meaning in relation to Fringe Benefits Tax (FBT) and noted that:
... what must be established is whether there is a sufficient or material, rather than a causal connection or relationship between the benefit and the employment...
The Court also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'.
Whilst participating employees' interests, via the trust, in shares held by the trustee, are acquired pursuant to an employee share scheme - and therefore in respect of their employment - shares in the demerged entity are allotted to all shareholders on the basis of their ownership of shares in the head entity at the time of the demerger.
Thus, as the allotment of shares to the trustee is considered to be a product or incident of the shareholder relationship rather than the employment relationship, it does not constitute a 'fringe benefit'.
Date of decision: 26 June 2003Year of income: Year ended 30 June 2003
Legislative References:
Fringe Benefits Tax Assessment Act 1986
subsection 136(1).
Case References:
J & G Knowles v FC of T
(2000) 96 FCR 402
2000 ATC 4151
(2000) 44 ATR 22
ATO ID 2003/417
ATO ID 2003/418
Keywords
Benefit
Company restructuring
Employee share schemes & options
Fringe benefits
In respect of employment
Date reviewed: 23 March 2026
ISSN: 1445-2782