ATO Interpretative Decision
ATO ID 2005/187 (Withdrawn)
Fringe benefits tax
Employee share scheme: provision of financial assistance by a trustee to acquire shares - sole activities testFOI status: may be released
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This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Fringe Benefits Tax Assessment Act 1986 that doesn't apply after the 2008-2009 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2008-2009 income year. See ATO Interpretative Decision ATO ID 2010/108 which reflects the same view in respect of the replacement or rewritten provision, for decisions for income years after the 2008-2009 income year.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 6 May 2011
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply if, under an employee share scheme (ESS), the trustee of the ESS trust provides financial assistance to participating employees to enable them to purchase shares in the employer company?
Decision
No. The provision of financial assistance by the trustee to participating employees for the purposes of purchasing shares in the employer company, will breach the sole activities test contained within paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA.
Facts
A company has established a trust to administer an ESS.
The company will make contributions to the trust to enable the trustee to acquire shares in the company and to provide financial assistance to participating employees in the ESS.
The shares acquired by the trustee will be immediately allocated to participating employees in the ESS.
Financial assistance will be provided by the trustee to participating employees to facilitate the purchase of shares in the ESS.
Reasons for Decision
A benefit constituted by the acquisition by a trust of money or other property in relation to an employee share scheme, is generally excluded from the definition of 'fringe benefit' by the operation of paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA.
However that exclusion will only apply where:
... the sole activities of the trust are obtaining shares, or rights to acquire shares in a company (the employer), or a holding company (within the meaning of the Corporations Act 2001) of the employer, and providing those shares or rights to employees of the employer.
The test contained in paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA is clearly more restrictive or narrower than a dominant purpose or principal activities test. It requires the activities of the trust to be solely or exclusively concerned with the acquisition of shares or rights and the provision of those shares or rights to employees (or associates) of the employer.
The acquisition of shares by a trustee and the provision of those shares to employees will necessarily involve a number of clerical and administrative functions. To the extent that a trustee undertakes clerical and administrative functions that are an incidental part of obtaining and providing shares to employees, those activities will not be considered a breach of the sole activities test.
However, the provision of financial assistance by the trustee to employees, albeit to facilitate the acquisition of shares, is considered to be an additional activity of some substance, which is over and above the clerical and administrative functions which are incidental to the activities of obtaining shares and providing them to employees.
Accordingly, paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will not apply where the activities of the trustee under the ESS include the provision of financial assistance to participating employees to facilitate the acquisition of shares in the employer company.
Date of decision: 8 June 2005
Legislative References:
Fringe Benefits Tax Assessment Act 1986
subsection 136(1)
ATO ID 2002/960
ATO ID 2003/691
Keywords
Benefit
Employee share scheme & options
Fringe benefits
In respect of employment
Provision of financial assistance
Sole activities test
ISSN: 1445-2782
| Date: | Version: | |
| 8 June 2005 | Original statement | |
| You are here → | 6 May 2011 | Archived |