ATO Interpretative Decision

ATO ID 2003/691 (Withdrawn)

Fringe Benefits Tax

Employee share scheme: company demerger - allotment of shares to trustee - sole activities test
FOI status: may be released

This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Fringe Benefits Tax Assessment Act 1986 that doesn't apply after the 2008-2009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.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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, pursuant to a demerger, the trustee of an employee share trust is allotted shares in the demerged entity and transfers those shares to participating employees?

Decision

Yes. The allotment of shares to the trustee of an employee share trust and the subsequent transfer of those shares, does not breach the sole activities test contained within paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA.

Facts

A head entity has established an employee share trust under which a trustee holds shares in the head entity on behalf of participating employees. The sole activities of the trust, prior to the demerger, were obtaining shares in the head entity and providing those shares to 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, who will distribute the new shares to the participating employees immediately after they are allotted.

Reasons for Decision

Benefits constituted by the acquisition by a trust of money or other property in relation to an employee share trust, are 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 Law) of the employer, and providing those shares or rights to employees of the employer.

The activities of a trustee administering an employee share trust will invariably involve a range of activities including clerical and administrative functions that are incidental or essential to the operation of the trust. Further, the terms of paragraph (hb) clearly envisage a trustee being able to receive money or other property as an essential prerequisite to obtaining shares in the employer.

The actions of the trustee in receiving and immediately distributing shares under the demerger are considered incidental to the trustee's function of administering the employee share trust.

Thus, the application of paragraph (hb) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA is not affected by the allotment of the demerged entity shares to the trustee of the employee share trust and the subsequent distribution of those shares to participating employees.

Date of decision: 26 June 2003

Year of income: Year ended 30 June 2003

Legislative References:
Fringe Benefits Tax Assessment Act 1986
subsection 136(1)

Related ATO Interpretative Decisions
ATO ID 2003/416
ATO ID 2003/418

Keywords
Benefit
Company restructuring
Employee share schemes & options
Fringe benefits
In respect of employment

Business Line: Business and Personal Taxes Centre of Expertise

Date of publication: 8 August 2003

ISSN: 1445-2782

history

	Date:	Version:
	26 June 2003	Original statement
You are here	6 May 2011	Archived

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