Edited version of private ruling

Authorisation Number: 1011501628070

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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 as assessable income of the employee under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will the contributions of monies by the employer to the trustee pursuant to the Trust Deed be included as assessable income of the employee under section 15-2 of the ITAA 1997?

Answer

No

Question 3

Will the plan constitute an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997?

Answer

Yes

Question 4

Will the shares to be acquired by the employee under the plan constitute ESS interests as referred to in section 83A-20 of the ITAA 1997?

Answer

Yes

Question 5

Will the shares to be acquired under the plan meet the requirements of section 83A-35 of the ITAA 1997 and enable the employee to access the $1,000 exemption concession in subsection 83A-35(2) of the ITAA 1997?

Answer

Yes

Question 6

Will the conditions prohibiting the disposal of shares under the Trust Deed be sufficient for the purposes of meeting the exemption conditions of subsection 83A-35(8) of the ITAA 1997?

Answer

Yes

Question 7

Will the requirements relating to the sale of small or minimum numbers of shares constitute conditions that breach subsection 83A-35(7) of the ITAA 1997?

Answer

This question is not applicable to the scheme upon which this ruling is based.

Question 8

Will the discount on the shares be equal to their market value at the time of their acquisition by the employee?

Answer

Yes

Question 9

Will the cost base of the shares for the purpose of Part 3.1 of the ITAA 1997 be their market value at the time of their acquisition by the employee?

Answer

Yes

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

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

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 15-2.

Income Tax Assessment Act 1997 Division 83A.

Income Tax Assessment Act 1997 Subdivision 83A-B.

Income Tax Assessment Act 1997 Subsection 83A-10(1).

Income Tax Assessment Act 1997 Subsection 83A-10(2).

Income Tax Assessment Act 1997 Section 83A-20.

Income Tax Assessment Act 1997 Subsection 83A-20(1).

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

Income Tax Assessment Act 1997 Section 83A-30.

Income Tax Assessment Act 1997 Section 83A-35.

Income Tax Assessment Act 1997 Subsection 83A-35(2).

Income Tax Assessment Act 1997 Paragraph 83A-35(2)(b).

Income Tax Assessment Act 1997 Subsection 83A-35(3).

Income Tax Assessment Act 1997 Subsection 83A-35(4).

Income Tax Assessment Act 1997 Subsection 83A-35(5).

Income Tax Assessment Act 1997 Subsection 83A-35(6).

Income Tax Assessment Act 1997 Subsection 83A-35(7).

Income Tax Assessment Act 1997 Subsection 83A-35(8).

Income Tax Assessment Act 1997 Subsection 83A-35(9).

Income Tax Assessment Act 1997 Subdivision 83A-C.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Question 1

Will the contributions of monies by the employer to the trustee pursuant to the Trust Deed be included as assessable income of the employee under section 6-5 of the ITAA 1997?

No.

The employee will not derive assessable income in respect of contributions of monies by the employer to the trustee pursuant to the Trust Deed under section 6-5 of the ITAA 1997 as the amounts contributed to the trustee are not actually received by the employee or taken to have been received by her.

Question 2

Will the contributions of monies by the employer to the trustee pursuant to the Trust Deed be included as assessable income of the employee under section 15-2 of the ITAA 1997?

No.

The contributions of monies by the employer to the trustee pursuant to the Trust Deed do not constitute statutory income of the employee under section 15-2 of the ITAA 1997 as the contributions do not constitute allowances, gratuities, compensation, benefits, bonuses or premiums provided to the employee or applied or dealt with in any way on the employee's behalf or as the employee directs.

Question 3

Will the plan constitute an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997?

Yes.

An employee share scheme is defined in subsection 83A-10(2) of the ITAA 1997 to include a scheme under which ESS interests in a company are provided to employees of that company or a subsidiary of that company, in relation to the employees' employment.

An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 as a beneficial interest in a share in the company, or a right to acquire a beneficial interest in a share in the company.

The definition of an ESS interest under subsection 83A-10(1) of the ITAA 1997 includes interests which provide economic benefit, regardless of whether they are legally held by the recipient of the economic benefit, or whether they are held in a trust relationship for them (paragraph 1.276 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

Participants under the plan are employees of the employer and are provided with a beneficial interest in shares in the ultimate holding company of the employer (i.e. an ESS interest) legally held by the trustee on their behalf and in relation to their employment with the employer.

The plan therefore constitutes an employee share scheme within subsection 83A-10(2) of the ITAA 1997.

Question 4

Will the shares to be acquired by the employee under the plan constitute ESS interests as referred to in section 83A-20 of the ITAA 1997?

Yes.

Subsection 83A-20(1) of the ITAA 1997 provides that, unless Subdivision 83A-C applies, Subdivision 83A-B applies to ESS interests acquired under an employee share scheme at a discount.

Where consideration for an ESS interest is provided on a pre-tax basis (such as under an effective salary sacrifice arrangement), the employee is treated for the purposes of Division 83A of the ITAA 1997 as having acquired the ESS interest at a discount.

Despite the trustee having to pay full market value consideration for the shares of the employer's ultimate holding company on the London Stock Exchange, as those shares are acquired under the plan on behalf of the employee in lieu of her pre-taxed remuneration, they will be treated as having been acquired at a discount for the purposes of Subdivision 83A-B of the ITAA 1997.

Subdivision 83A-C of the ITAA 1997 will not apply to ESS interests acquired under the plan.

Question 5

Will the shares to be acquired under the plan meet the requirements of section 83A-35 of the ITAA 1997 and enable the employee to access the $1,000 exemption concession in subsection 83A-35(2) of the ITAA 1997?

Yes.

Pursuant to subsection 83A-25(1) of the ITAA 1997, the discount given in relation to an ESS interest must be included as assessable income in the income year in which the interest was acquired.

Section 83A-35 of the ITAA 1997 reduces the amount included in your assessable income under subsection 83A-25(1) by that amount, but up to a maximum of $1,000, where your adjusted taxable income for the income year does not exceed $180,000 (as required under subsection 83A-35(2)) and the ESS interest is one in which subsections (3) to (9) of section 83A-35 apply.

The employee will not derive adjusted taxable income of more than $180,000 per annum in the income years ending 30 June 2011, 2012 and 2013, thereby satisfying paragraph 83A-35(2)(b) of the ITAA 1997.

At the time the employee will acquire the ESS interest under the plan, all the ESS interests available for acquisition under the plan will relate to ordinary shares in the ultimate holding company of her current employer, thereby satisfying subsections 83A-35(3) and 83A-35(4) of the ITAA 1997.

The predominant business of the employer and its associated companies is not the acquisition, sale or holding of shares, securities or other investments, thereby satisfying subsection 83A-35(5) of the ITAA 1997.

At the time the employee will acquire the ESS interests under the plan, the plan and the contributions made by the employer to acquire the ESS interests under the plan will be operated on a non-discriminatory basis in relation to at least 75% of Australian resident permanent employees of the employer who have completed at least 3 years service with the employer, thereby satisfying subsection 83A-35(6) of the ITAA 1997.

At the time the employee will acquire the ESS interests under the plan, there is no real risk under the plan that the employee will forfeit or lose those ESS interests other than by disposal, thereby satisfying subsection 83A-35(7) of the ITAA 1997.

The plan will be operated so as not to permit disposal of the ESS interests acquired by the employee and all other participants under the plan before the earlier of 3 years after its acquisition and cessation of their employment with the employer, thereby satisfying subsection 83A-35(8) of the ITAA 1997.

Immediately after the employee will acquire the ESS interests, she will not hold a beneficial interest in more than 5% of the shares in the ultimate holding company of the employer or be in a position to cast or control the casting of more than 5% of the maximum number of votes that may be cast at a general meeting of that company, thereby satisfying subsection 83A-35(9) of the ITAA 1997.

As the employee will not derive adjusted taxable income of more than $180,000 per annum in the income years ending 30 June 2011, 2012 and 2013, and the ESS interests to be acquired by her are ones in which subsections (3) to (9) of section 83A-35 of the ITAA 1997 apply, the amount included in the employee's assessable income under subsection 83A-25(1) of the ITAA 1997 in those income years, which under the plan cannot exceed more than $1,000, will be reduced by that amount pursuant to section 83A-35.

Question 6

Will the conditions prohibiting the disposal of shares under the Trust Deed be sufficient for the purposes of meeting the exemption conditions of subsection 83A-35(8) of the ITAA 1997?

Yes.

Subsection 83A-35(8) of the ITAA 1997 applies to ESS interests acquired under an employee share scheme if those and all other ESS interests acquired under the scheme are not permitted to be disposed of before the earlier of the end of the period of 3 years after the ESS interests are acquired and when the holder of the ESS interests cease their employment with their employer.

Under the Trust Deed governing the plan, participants allocated shares under the plan will not be permitted to dispose of their shares before the earlier of three years after the date of acquisition of those shares and cessation of their employment with the employer.

Subsection 83A-35(8) of the ITAA 1997 will therefore apply to the shares acquired under the plan.

Question 7

Will the requirements relating to the sale of small or minimum numbers of shares constitute conditions that breach subsection 83A-35(7) of the ITAA 1997?

This question is not applicable to the scheme upon which this ruling is based.

There aren't any requirements relating to the sale of small or minimum numbers of shares under the plan.

Question 8

Will the discount on the shares be equal to their market value at the time of their acquisition by the employee?

Yes.

The value of the discount given in relation to an ESS interest that is included as assessable income under subsection 83A-25(1) of the ITAA 1997 is the market value of the discount.

As the shares will be treated as having been acquired under the plan by the employee for no consideration, the market value of the discount on the shares provided to the employee under the plan will equal the market value of the shares at the time of their acquisition.

Question 9

Will the cost base of the shares for the purpose of Part 3.1 of the ITAA 1997 be their market value at the time of their acquisition by the employee?

Yes.

The employee share scheme rules consider ESS interests to be acquired for their market value when initially acquired, or reacquired for their market value immediately after the point they are taxed (deferred taxing point) under Division 83A of the ITAA 1997.

ESS interests, and shares or rights of which the interests form part, in respect of which Subdivision 83A-B of the ITAA 1997 applies are therefore taken to have been acquired for their market value from the point at which the ESS interests are initially acquired (section 83A-30 of the ITAA 1997) (see paragraph 1.211 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

The first element of the cost base of the shares acquired by the employee will therefore be the market value of those shares at the time of their acquisition.

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