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Edited version of your written advice
Authorisation Number: 1051269358431
Date of advice: 12 September 2017
Ruling
Subject: Employee Share Plan
Question 1
Will Company A be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for its irretrievable cash contributions made to the trustee of A Trust (Trustee)?
Answer
Yes.
Question 2
Will Company A be entitled to deduct an amount under section 8-1 of the ITAA 1997 for the costs incurred in relation to the ongoing administration of A Trust?
Answer
Yes.
Question 3
Under section 83A-210 of the ITAA 1997, is the deduction for Company A in respect of the irretrievable contributions to the Trustee allowed in the year of income when the contribution is made to the Trustee to acquire shares, provided it is in respect of Rights (as defined below) that were granted to employees in the same or an earlier income year?
Answer
Yes.
Question 4
Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by Company A in respect of the:
(a) irretrievable cash contributions made by Company A to the Trustee; or
(b) costs incurred by Company A in relation to the ongoing administration of A Trust?
Answer
No.
Question 5
Is the provision of Rights and/or Shares under those Rights by Company A to employees under the Plan a ‘fringe benefit’ within the meaning of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Answer
No.
Question 6
Will the contribution of funds by Company A to the Trustee in order to:
(a) Acquire shares in Company A; and/or
(b) Fund the ongoing administration of the Trust
be a ‘fringe benefit’ within the meaning of that term in subsection 136(1) of the FBTAA?
Answer
No.
This ruling applies for questions 1 to 4 for the following periods:
11 May 2017 to 30 June 2021
This ruling applies for questions 5 and 6 for the following periods:
11 May 2017 to 31 March 2021
Relevant facts and circumstances
1. Company A is an Australian resident company. It operates an employee share plan (the Plan) as part of its remuneration strategy. The Plan is currently operating according to a number of governance documents.
2. Under the Plan, eligible employees (Participants) are granted rights (the ‘Rights’) to acquire Company A shares subject to certain conditions are met.
3. The Plan operates as follows:
● Company A established A Trust to facilitate the acquisition, holding of, and allocation of shares to Participants.
● Company A makes irretrievable cash contributions to the Trustee to enable the Trustee to acquire Company A shares to satisfy the Rights. The contributions will be determined in accordance with certain protocols.
● The Rights are offered by Company A to the Participants subject to certain requirements are met. When the Rights are vested to a Participant, shares are released by the Trustee and allocated to the Participant in accordance with the relevant Plan rules.
● Once Rights vest and shares are transferred to the Participants, the Participants are entitled to dispose of their shares (subject to complying with the Company A’s policy) according to their own wishes.
4. Company A is not a beneficiary of A Trust. It does not have any legal or beneficial entitlement to any of the Shares forming part of the trust fund at any time, and it cannot acquire such an interest.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Income Tax Assessment Act 1936 Part IVA
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 83A-10
Income Tax Assessment Act 1997 section 83A-210
Income Tax Assessment Act 1997 subsection 130-85(4)
Reasons for decision
Questions 1 and 2
Company A’s irretrievable cash contributions to the Trustee and the costs it incur in relation to the ongoing administration of A Trust are expenses related to enhancing the profitability of Company A. They are not outgoings of capital or of a capital nature. Therefore, Company A is entitled to deduct them under section 8-1 of the ITAA 1997.
Question 3
Where the contributions are made in respect of Rights previously granted to Participants, the requirements of section 83A-210 of the ITAA 1997 will not satisfied. Therefore, Company A will be able to deduct the irretrievable cash contributions to the Trustee under section 8-1 of the ITAA 1997 in the income year when the contributions are made.
Question 4
Having regard to the relevant circumstances of the present case, it cannot be concluded that the scheme was entered into for the dominant purpose of enabling Company A to obtain a tax benefit. Therefore, the Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or in full, any deduction claimed by Company A in respect of the:
(a) irretrievable cash contributions made by Company A to the Trustee; or
(b) costs incurred by Company A in relation to the ongoing administration of A Trust.
Question 5
The provision of Rights and/or Shares under those Rights by Company A to Participants under the Plan will not be treated as a ‘fringe benefit’ because it does not fall within the meaning of the term under subsection 136(1) of the FBTAA.
Question 6
The contribution of funds by Company A to the Trustee in order to:
(a) acquire shares in Company A; and/or
(b) fund the ongoing administration of the Trust
will not be treated as ‘fringe benefit’ because it does not fall within the meaning of the term under subsection 136(1) of the FBTAA.
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