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Edited version of private ruling
Authorisation Number: 1011723245740
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Ruling
Subject: Employee Benefit Arrangement
1. Will Bonus Share Units issued to the employee out of the corpus of the trust and in relation to his holding of Share Units, constitute assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No
2. To the extent that the issue of the Bonus Share Units does not constitute assessable income under section 6-5 or section 15-2 of the ITAA 1997 for the employee:
(a) will the provisions of subsection 130-20(3) of the ITAA 1997 apply to deem the Bonus Share Units to have been acquired when the Share Units were acquired and will the cost base be apportioned over both the Share Units and the Bonus Share Units?
No
(b) will the redemption of the Bonus Share Units constitute a CGT event as set out in section 104-5 of the ITAA 1997?
No
(c) will the proceeds received by the employee upon the redemption of the Bonus Share Units be taken into account in calculating his net capital gain under Division 102 of the ITAA 1997?
No
(d) will the CGT discount provisions in Division 115 of the ITAA 1997 apply to the capital gain made by the employee in respect of that redemption of the Bonus Share Units where the Bonus Share Units were acquired at least 12 months before the CGT event?
No
3. If Bonus Share Units are issued to the employee, and in relation to his holding of Share Units, at a time that coincides with the cessation of the employee's employment, will the value of the Bonus Share Units be an employment termination payment under section 82-130 of Part 2-40 of the ITAA 1997?
No
4. Will the proceeds received by the employee upon redemption of the Bonus Share Units issued and in relation to his holdings of Share Units constitute assessable income under section 6-5 of the ITAA 1997?
Yes
5. Will the proceeds received by the employee upon redemption of the Bonus Share Units issued and in relation to his holdings of Share Units constitute assessable income under section 15-2 of the ITAA 1997?
Yes, to the extent that the proceeds received by the employee upon redemption of the Bonus Share Units do not constitute assessable income under section 6-5 of the ITAA 1997.
This ruling applies for the following periods:
1 July 2010 to 30 June 2011
1 July 2011 to 30 June 2012
1 July 2012 to 30 June 2013
The scheme that is the subject of the ruling:
The employer intends to establish a plan for the purpose of providing a long term equity incentive structure to deliver equity based benefits to key employees of the employer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 15-2
Income Tax Assessment Act 1997 Sub-section 130-20(3)
Income Tax Assessment Act 1997 Section 104-5
Income Tax Assessment Act 1997 Division 102
Income Tax Assessment Act 1997 Division 115
Income Tax Assessment Act 1997 Part 2-40 Section 82-130
Reasons for Decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
1. Will Bonus Share Units issued to the employee out of the corpus of the trust and in relation to his holding of Share Units, constitute assessable income under section 6-5 of the ITAA 1997?
No
The issue of the Bonus Share Units creates an entitlement or right to money by way of a bonus. As a mere entitlement or right to receive salary or wages or bonus income, the receipt of Bonus Share Units isn't a derivation of that income for the purposes of section 6-5 of the ITAA 1997.
2. To the extent that the issue of the Bonus Share Units does not constitute assessable income under section 6-5 or section 15-2 of the ITAA 1997 for the employee:
(a) will the provisions of subsection 130-20(3) of the ITAA 1997 apply to deem the Bonus Share Units to have been acquired when the Share Units were acquired and will the cost base be apportioned over both the Share Units and the Bonus Share Units?
No
A Bonus Share Unit is not a unit to which Division 130 of the ITAA 1997 applies because a unit in a unit trust must give the unit holder an equitable interest in the assets of the trust (see Charles v Federal Commissioner of Taxation (1954) 90 CLR 598).
The Bonus Share Units entitle the employee, as unit holder, to a cash payment only and do not confer any equitable interest in the Trust.
(b) will the redemption of the Bonus Share Units constitute a CGT event as set out in section 104-5 of the ITAA 1997?
No
The payment of the Redemption Distribution to the employee upon redemption of the Bonus Share Units is considered to be made to the employee as a reward for services provided by the employee to the employer.
It is therefore a derivation of salary or wages or bonus income, and ordinary income for the purposes of section 6-5 of the ITAA 1997.
(c) will the proceeds received by the employee upon the redemption of the Bonus Share Units be taken into account in calculating his net capital gain under Division 102 of the ITAA 1997?
No
The redemption of the Bonus Share Units does not constitute a CGT event for the purposes of Division 104 of the ITAA 1997.
(d) will the CGT discount provisions in Division 115 of the ITAA 1997 apply to the capital gain made by the employee in respect of that redemption of the Bonus Share Units where the Bonus Share Units were acquired at least 12 months before the CGT event?
No
The redemption of the Bonus Share Units does not give rise to a capital gain under Division 102 of the ITAA 1997.
3. If Bonus Share Units are issued to the employee, and in relation to his holding of Share Units, at a time that coincides with the cessation of the employee's employment, will the value of the Bonus Share Units be an employment termination payment under section 82-130 of Part 2-40 of the ITAA 1997?
No
The issue of the Bonus Share Units merely creates an entitlement or right to money by way of a bonus. It therefore does not constitute an employment termination payment to the employee when issued at a time that coincides with the cessation of his employment.
4. Will the proceeds received by the employee upon redemption of the Bonus Share Units issued and in relation to his holdings of Share Units constitute assessable income under section 6-5 of the ITAA 1997?
Yes
The payment of the Redemption Distribution to the employee upon redemption of the Bonus Share Units is considered to be made to the employee as a reward for services provided by the employee to the employer.
It is therefore a derivation of salary or wages or bonus income, and ordinary income for the purposes of section 6-5 of the ITAA 1997.
An amount must be withheld from the payment of the Redemption Distribution by the Trustee in accordance with section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA).
5. Will the proceeds received by the employee upon redemption of the Bonus Share Units issued and in relation to his holdings of Share Units constitute assessable income under section 15-2 of the ITAA 1997?
Yes, to the extent that the proceeds received by the employee upon redemption of the Bonus Share Units do not constitute assessable income under section 6-5 of the ITAA 1997.
The payment of the Redemption Distribution to the employee upon redemption of the Bonus Share Units is considered to be made to the employee in respect of employment or services rendered by the employee to the employer.
It therefore constitutes compensation, benefits or bonuses for the purposes of section 15-2 of the ITAA 1997.
An amount must be withheld from the payment of the Redemption Distribution by the Trustee in accordance with section 12-35 of Schedule 1 to the TAA.
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