1011501134926 | Legal database

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Authorisation Number: 1011501134926

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Ruling

Subject: Exempt Share Plan

Question 1

Will the contributions of monies by the employer to the trustee pursuant to the Trust Deed be included in the calculation of the net income of the trust estate under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Question 2

Will the provision of shares to the trustee pursuant to the Trust Deed be included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936?

Answer

Question 3

Will dividends and other income received by the trustee be included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936?

Answer

Yes

Question 4

Will any part of the net income of the trust estate to which no beneficiary is presently entitled be assessed to the trustee pursuant to section 99A of the ITAA 1936?

Answer

Yes

Question 5

To the extent that the net income of the trust estate does not include proceeds received on the disposal of shares as ordinary income of the trust estate:

will the proceeds received by the trust estate from the sale of shares be taken into account in calculating its net capital gain under Division 102 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

will the sale of shares by the trust estate which had been allocated to the employee constitute a CGT event of the trust estate under Division 104 of the ITAA 1997?

Answer

will the proceeds received by the trust estate from the sale of shares allocated to the employee be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

Answer

where the proceeds received by the trust estate from the sale of shares held by the trustee for at least 12 months are taken into account in calculating a capital gain of the trust estate under Division 102 of the ITAA 1997, will the capital gain be a discount capital gain under Division 115 of the ITAA 1997?

Answer

Not applicable

Question 6

Will the general anti-avoidance provisions under section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to the scheme described?

Answer

Question 7

Will the general anti-avoidance provisions under Part IVA of the ITAA 1936 apply to the scheme described?

Answer

This ruling applies for the following periods:

Income Tax Year ended 30 June 2011

Income Tax Year ended 30 June 2012

Income Tax Year ended 30 June 2013

FBT Year ended 31 March 2011

FBT Year ended 31 March 2012

FBT Year ended 31 March 2013

The scheme commences on:

29 March 2010

Relevant facts and circumstances

The employer intends to implement an employee share plan which is designed to assist in the retention and motivation of its employees by providing them with an opportunity to acquire beneficial ownership of shares and annually access the taxation concession exemption under section 83A-35 of the ITAA 1997.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 67.

Income Tax Assessment Act 1936 Section 44.

Income Tax Assessment Act 1936 Section 95.

Income Tax Assessment Act 1936 Section 97.

Income Tax Assessment Act 1936 Section 99A.

Income Tax Assessment Act 1936 Subsection 99A(4).

Income Tax Assessment Act 1936 Subsection 99A(4A).

Income Tax Assessment Act 1936 Part IVA.

Income Tax Assessment Act 1997 Division 83A.

Income Tax Assessment Act 1997 Subsection 83A-25(1).

Income Tax Assessment Act 1997 Division 102.

Income Tax Assessment Act 1997 Division 104.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Division 115.

Income Tax Assessment Act 1997 Subsection 130-85(1).

Income Tax Assessment Act 1997 Subsection 130-85(2).

Income Tax Assessment Act 1997 Subsection 130-85(4).

Reasons for decision

Question 1

Will the contributions of monies by the employer to the trustee pursuant to the Trust Deed be included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936?

No.

Contributions of monies by the employer to the trustee pursuant to the Trust Deed will be used in accordance with the Trust Deed for the sole purpose of and under the plan which is an employee share scheme. The contributions constitute capital receipts to the trustee, and are not included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936 (see ATO Interpretative Decision 2002/965).

Question 2

Will the provision of shares to the trustee pursuant to the Trust Deed be included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936?

No.

The employee share scheme rules under Division 83A of the ITAA 1997, including subsection 83A-25(1) which includes the discount given in relation to an ESS interest as assessable income in the income year in which the interest was acquired, tax employees with a beneficial interest in shares in an employee share trust as though they are the legal owners of those shares. The employee share scheme rules essentially ignore the employee share trust for tax purposes.

The provision of shares to the trustee on behalf of the employee and other participants cannot therefore constitute assessable income of the trust estate that is included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936.

Question 3

Will dividends and other income received by the trustee be included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936?

Yes.

Net income is defined by section 95 of the ITAA 1936 and means the total assessable income of the trust estate calculated under the ITAA 1936 as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions.

Section 44 of the ITAA 1936 includes in the assessable income of a shareholder in a company dividends that are paid to the shareholder by the company out of profits derived by it from any source.

If dividends and other income are received by the trustee, those amounts are included in the trustee's calculation of its net income for a year of income under section 95 of the ITAA 1936.

Question 4

Will any part of the net income of the trust estate to which no beneficiary is presently entitled be assessed to the trustee pursuant to section 99A of the ITAA 1936?

Yes.

Where there is no part of the net income of a resident trust estate that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97 of the ITAA 1936, the trustee shall be assessed and is liable to pay tax on the net income of the trust estate (subsection 99A(4) of the ITAA 1936).

Where there is a part of the net income of a resident trust estate that is not included in the assessable income of a beneficiary of the trust estate in pursuance of section 97 of the ITAA 1936, the trustee shall be assessed and is liable to pay tax on that part of the net income of the trust estate (subsection 99A(4A) of the ITAA 1936).

Question 5

To the extent that the net income of the trust estate does not include proceeds received on the disposal of shares as ordinary income of the trust estate:

will the proceeds received by the trust estate from the sale of shares be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

No.

The trust established for the purposes of the plan is an employee share trust pursuant to subsection 130-85(4) of the ITAA 1997.

The employee shares scheme rules treat an employee who acquires an ESS interest through an employee share trust to be absolutely entitled to the share or right to which the ESS interest relates from the time that they acquire the ESS interest, if the employee share scheme rules apply to the interest (subsections 130-85(1) and (2) of the ITAA 1997).

If a beneficiary of a trust is absolutely entitled to an asset of the trust, the beneficiary (not the trustee) is taxed in relation to any gain or loss relating to the interest.

The proceeds received by the trustee from the sale of shares held under the plan on behalf of participants who are absolutely entitled to the shares will therefore not be considered in calculating the net capital gain made by the trust estate under Division 102 of the ITAA 1997.

will the sale of shares by the trust estate which had been allocated to the employee constitute a CGT event of the trust estate under Division 104 of the ITAA 1997?

No.

The sale of shares allocated to the employee by the trustee will represent a disposal of those shares and each disposal will give rise to CGT event A1 in section 104-10 of the ITAA 1997.

However, under the employee share scheme rules which treat an employee who acquires an ESS interest through an employee share trust to be absolutely entitled to the share or right to which the ESS interest relates from the time that they acquire the ESS interest, the disposal for the purposes of CGT event A1 is made by the employee and not the trustee.

will the proceeds received by the trust estate from the sale of shares allocated to the employee be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

No.

The trust established for the purposes of the plan is an employee share trust pursuant to subsection 130-85(4) of the ITAA 1997.

If a beneficiary of a trust is absolutely entitled to an asset of the trust, the beneficiary (not the trustee) is taxed in relation to any gain or loss relating to the interest.

The proceeds received by the trustee from the sale of shares held under the plan on behalf of the employee who is absolutely entitled to the shares will therefore not be considered in calculating the net capital gain made by the trust estate under Division 102 of the ITAA 1997.

Not applicable.

The proceeds received by the trustee from the sale of shares held on behalf of participants under the plan will not be taken into account in calculating a capital gain of the trust estate under Division 102 of the ITAA 1997.

Question 6

Will the general anti-avoidance provisions under section 67 of the FBTAA apply to the scheme described?

No.

Provided that the scheme as implemented is materially identical to the scheme described in this ruling it is considered that section 67 of the FBTAA would not apply in respect of the trustee.

Question 7

Will the general anti-avoidance provisions under Part IVA of the ITAA 1936 apply to the scheme described?

No.

Provided that the scheme as implemented is materially identical to the scheme described in this ruling it is considered that Part IVA of the ITAA 1936 would not apply in respect of the trustee.

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