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Edited version of your written advice
Authorisation Number: 1051463976739
Date of advice: 6 December 2018
Ruling
Subject: Employee Share Scheme
Question 1
Will the irretrievable cash contributions by Company B to Trustee B to fund the acquisition of, or subscription for, Company B shares by Trustee B be assessable income of Trust B under section 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
Question 2
Will a capital gain or capital loss that arises for Trustee B, at the time when the employees become absolutely entitled to the Company B shares (CGT event E5) or when Trustee B disposes of the shares to the employees (CGT event E7), be disregarded under section 130-90 of ITAA 1997 if the employees acquire the shares for the same or less than the cost base of the shares in the hands of Trustee B?
Answer
Yes
This ruling applies for the following period:
Income years ending 30 June 20XX to 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Company B is an Australian resident company. It operates an employee incentive plan (the Plan) as part of its remuneration strategy.
Under the Plan, Company B will grant employees who are participants of the Plan (the Participants) with rights (the Rights) to acquire shares in Company B.
Company B established Trust B to facilitate the acquisition, holding of and allocation of shares to the participants. Trustee B is the trustee to Trust B and Trust B is governed in accordance with the Trust Deed.
Company B executed plan rules to govern the Plan (the Plan Rules) and, under the Plan Rules and Trust Deed, the Plan operates as follows:
● Company B makes recurring irretrievable cash contributions to Trustee B to enable Trustee B to acquire Company B shares to satisfy the Rights,
● Company B has incurred costs in the on-going administration of Trust B,
● Company B offers the Rights to Participants,
● When the Rights vest to a Participant, shares are released by Trustee B and allocated to the Participants,
● Then the Company B shares are transferred to the Participants, and
● The Participants are entitled to dispose of their Company B shares (subject to complying with certain policies of Company B) according to their own wishes.
Relevant legislative provisions
Reasons for decision
All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.
Question 1
The irretrievable cash contributions made by Company B to Trustee B to fund the subscription for, or acquisition of, Company B shares by Trust B will not be assessable income of Trust B under section 6-5 or 6-10.
Question 2
All of the requirements in section 130-90 have been satisfied. Therefore, a capital gain or capital loss that arises for Trust B, at the time Trustee B allocates a Company B share to a Participant under the Plan Rules in satisfaction of a Right, will be disregarded.
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