Edited version of private ruling

Authorisation Number: 1011608976940

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Ruling

Subject: Exempt Share Plan

Question 1

Will the buy-back of shares debited to the Employer share capital account constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will the provision of shares at a discount to market value of up to $1,000 per annum constitute the provision of ESS interests under an employee share scheme pursuant to section 83A-10 of the ITAA 1997?

Answer

Yes

Question 3

Will the provision of shares to the Employee at a discount to market value of up to $1,000 per annum to which section 83A-35 applies constitute an income tax deduction to the Employer under section 83A-205 of the ITAA 1997?

Answer

Yes

Question 4

Will the acquisition of shares by the Employee at a discount to market value of up to $1,000 per annum, which have been allocated by the Employer, constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 5

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

Answer

No

Question 6

Will the general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the scheme described?

Answer

No

Question 7

Will the statement issued pursuant to paragraph 392-5(1)(a) in Schedule 1 to the Taxation Administration Act 1953 (TAA) be in the form approved by the Commissioner pursuant to subsection 392-5(2) in Schedule 1 to the TAA?

Answer

Yes

Question 8

Will the payments by the Employer to its nominee to facilitate the purchase of shares by the nominee constitute an income tax deduction under section 8-1 of the ITAA 1997?

Answer

No

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:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Employer intends to implement an employee share plan which is designed to conform with Division 83A of the ITAA 1997 so as to provide its employees with an opportunity to receive up to $1,000 worth of shares each year which are exempt from income tax.

Assumption

For the purposes of Division 1A of Part IIIAA of the ITAA 1936, the Employee will be a 'qualified person' in relation to any franked dividend he will be taken to have been paid by the Employer in accordance with section 159GZZZP of the ITAA 1936.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 67

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Paragraph 136(1)(h)

Income Tax Assessment Act 1936 Paragraph 159GZZZN(a)

Income Tax Assessment Act 1936 Section 159GZZZP

Income Tax Assessment Act 1936 Division 1A of Part IIIAA

Income Tax Assessment Act 1936 Part IVA

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subdivision 83A-B

Income Tax Assessment Act 1997 Section 83A-10

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

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

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

Income Tax Assessment Act 1997 Section 83A-35

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 Section 83A-205

Income Tax Assessment Act 1997 Subsection 83A-205(3)

Taxation Administration Act 1953 Section 392-5 of Schedule 1

Taxation Administration Act 1953 Paragraph 392-5(1)(a) of Schedule 1

Taxation Administration Act 1953 Subsection 392-5(2) of Schedule 1.

Taxation Administration Act 1953 Subsection 392-5(3) of Schedule 1.

Taxation Administration Act 1953 Subsection 392-5(5) of Schedule 1.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the EMPLOYER.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Will the buy-back of shares debited to the Employer share capital account constitute an income tax deduction under section 8-1 of the ITAA 1997?

No.

If a company buys-back a share then the buy-back, and any subsequent cancellation of the share, is disregarded for the purposes of determining for the purposes of the Income Tax Assessment Act whether an amount is allowable as a deduction to the company (paragraph 159GZZZN(a)).

The buy-back of shares by the Employer under the plan will therefore not constitute an income tax deduction under section 8-1 of the ITAA 1997.

Question 2

Will the provision of shares at a discount to market value of up to $1,000 per annum constitute the provision of ESS interests under an employee share scheme pursuant to section 83A-10 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.

Participants under the plan are employees of the Employer or a subsidiary of the Employer and are provided with a beneficial interest in shares in the Employer (that is, an ESS interest) in relation to their employment.

The shares provided under the plan therefore constitute ESS interests under an employee share scheme within section 83A-10 of the ITAA 1997.

Question 3

Will the provision of shares to the Employee at a discount to market value of up to $1,000 per annum to which section 83A-35 of the ITAA 1997 applies constitute an income tax deduction to the Employer under section 83A-205 of the ITAA 1997?

Yes.

Pursuant to section 83A-205 of the ITAA 1997, an employer can deduct an amount for ESS interests they provide to either their employees or the employees of its subsidiaries under an employee share scheme if section 83A-35 of the ITAA 1997 applies to reduce the amount included in those employees' assessable income under subsection 83A-25(1) of the ITAA 1997.

The ESS interests to be acquired by the Employee are ones in which subsections (3) to (9) of section 83A-35 of the ITAA 1997 apply, and the amount to be included in the Employee's assessable income under subsection 83A-25(1) of the ITAA 1997, which under the plan cannot exceed more than $1,000, will be reduced by that amount pursuant to section 83A-35.

The provision of shares to the Employee under the plan will therefore constitute a deduction for the Employer under section 83A-205 of the ITAA 1997.

The amount of the deduction allowable to the Employer under section 83A-205 of the ITAA 1997 is equal to the discount received by the Employee on the shares that he will not have to include in his assessable income as a consequence of the operation of section 83A-35 (that is, up to a maximum of $1,000 per annum) (subsection 83A-205(3)).

Question 4

Will the acquisition of shares by the Employee at a discount to market value of up to $1,000 per annum, which have been allocated by the Employer, constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

No.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA and pursuant to paragraph (h) of that definition does not include a benefit constituted by the acquisition of an ESS interest under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies.

The plan constitutes an employee share scheme within subsection 83A-10(2) of the ITAA 1997 to which Subdivision 83A-B applies.

The benefit, represented by the acquisition of the beneficial interest in the shares provided to the Employee by the Employer under the plan at a discount to market value of up to $1,000 per annum is therefore excluded as a benefit as defined under fringe benefit in paragraph 136(1)(h) of the FBTAA.

Question 5

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 Employer.

Question 6

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

No.

Provided that the payments by the Employer to its nominee do not result in a tax benefit as defined in section 177C of the ITAA 1936 and 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 Employer.

Question 7

Will the statement issued pursuant to paragraph 392-5(1)(a) in Schedule 1 to the TAA be in the form approved by the Commissioner pursuant to subsection 392-5(2) in Schedule 1 to the TAA?

Yes.

Where an entity (the provider) provides ESS interests to an individual during the year and Subdivision 83A-B of the ITAA 1997 applies to the interests, then pursuant to paragraph 392-5(1)(a) and subsection 392-5(5) in Schedule 1 to the TAA the provider must give a statement in the approved form to both that individual and the Commissioner no later than 14 July and 14 August respectively after the end of the relevant year.

As the Employer operates the plan which offers the Employee and other employees of the Employer and subsidiaries of the Employer ESS interests in itself, the Employer is considered to be the 'provider' of the ESS interests who is required to report for the purposes of section 392-5 of Schedule 1 to the TAA.

The draft Annual Employee Share Allocation Statement provided as part of the ruling application and which is to be issued to the participants and the Commissioner by the Employer contains all the relevant information which, according to subsection 392-5(3) in Schedule 1 to the TAA may be required for it to be in the approved form.

Question 8

Will the payments by the Employer to its nominee to facilitate the purchase of shares by the nominee constitute an income tax deduction under section 8-1 of the ITAA 1997?

No.

Payments by the Employer to its nominee to enable the nominee to buy-back shares from the Employee and other participants either upon the cessation of their employment with the Employer and its subsidiaries or the exercise of a discretion to withdraw their shares from the plan.

Such payments do not have the necessary connection with respect to the provision of benefits to the Employer's employees and are therefore not considered to be made as part of the ordinary employee remuneration costs of the Employer.

Additionally or alternatively, any such payment is capital in nature to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. The purpose of the expenditure is for the nominee to obtain an asset (i.e. the shares) on behalf of the Employer and for those shares to be reallocated in the future to employees.

The payments by the Employer to its nominee to facilitate the purchase of shares will therefore not constitute an income tax deduction under section 8-1 of the ITAA 1997.

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