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Ruling
Subject: Employee Share Scheme
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)?
No.
2. Will the loans 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.
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.
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.
5. To the extent that the net income of the trust estate does not include proceeds received on the disposal of investments as ordinary income of the trust estate:
(i) will the proceeds received by the trust estate from the sale of investments be taken into account in calculating its net capital gain under Division 102 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes.
(ii) will the sale of investments by the trust estate which had been allocated to share units of the employee constitute a CGT event of the trust estate under Division 104 of the ITAA 1997?
Yes.
(iii) will the proceeds received by the trust estate from the sale of investments allocated to share units of the employee be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?
Yes.
(iv) where the proceeds received by the trust estate from the sale of investments 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?
Yes.
6. Will the cancellation of the employee's share units constitute an acquisition of the cancelled share units by the trustee under section 109-5 of the ITAA 1997?
No.
7. Will the general anti-avoidance provisions under section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to the scheme described?
No.
8. Will the general anti-avoidance provisions under Part IVA of the ITAA 1936 apply to the scheme described?
No.
Relevant facts and circumstances
The employer intends to establish a plan for the purpose of providing a long term equity incentive structure to deliver equity based benefits to its employees.
Relevant legislative provisions
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 Section 99A (4)
Income Tax Assessment Act 1936 Section 99A (4A)
Income Tax Assessment Act 1936 Part IVA
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 Section 109-5
Income Tax Assessment Act 1997 Division 115
Fringe Benefits Tax Assessment Act 1986 Section 67
Reasons for decision
Questions
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)?
No
Contributions of monies by the employer to the trustee pursuant to the trust deed represent corpus of the trust. 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.
2. Will the loans 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
Loans made by the employer to the trustee pursuant to the trust deed 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.
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.
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).
5. To the extent that the net income of the trust estate does not include proceeds received on the disposal of investments as ordinary income of the trust estate:
i will the proceeds received by the trust estate from the sale of investments be taken into account in calculating its net capital gain under Division 102 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes
ii will the sale of investments by the trust estate which had been allocated to share units of employee constitute a CGT event of the trust estate under Division 104 of the ITAA 1997?
Yes
The sale of investments by the trust estate will represent a disposal of those investments and each disposal will give rise to CGT event A1 in section 104-10 of the ITAA 1997.
iii will the proceeds received by the trust estate from the sale of investments allocated to share units of employee be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?
Yes
iv where the proceeds received by the trust estate from the sale of investments 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?
Yes
The capital gain will be a discount capital gain under Division 115 of the ITAA 1997 as the capital gain made by the trust estate is as a result of a capital gain made from a CGT event A1 happening to the investments held by the trustee for at least 12 months.
6. Will the cancellation of the employee's share units constitute an acquisition of the cancelled share units by the trustee under section 109-5 of the ITAA 1997?
No.
There is no acquisition of share units in the trust by the trustee at the time of redemption of the share units as the share units are extinguished when redeemed (CGT Determination Number 40).
7. Will the general anti-avoidance provisions under section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to the scheme described?
No.
8. 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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