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Edited version of private ruling
Authorisation Number: 1011554154547
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Ruling
Subject: Employee Share Scheme - Trust aspects
Question 1
Will the irretrievable cash contributions made to the Trustee to fund the subscription for, or acquisition of, shares by the Trustee in accordance with the Plan Rules and the Trust Deed be assessable income of the Trust under sections 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Question 2
Will a capital gain or loss that arises under section 104-75 of the ITAA 1997 for the Trust, at the time when a share is allocated by the Trustee to a Trust Participant, pursuant to the Plan Rules in satisfaction of the Rights and/or Future Rights, be disregarded under section 130-90 of the ITAA 1997?
Answer
Yes.
Question 3
Will a capital gain or loss arise under section 100-20 of the ITAA 1997 for the Trust at the time when the Trustee transfers legal title to a share to the Trust Participant?
Answer
No.
Question 4
Will dividends received and distributed by the Trustee on shares which have been allocated to a Trust Participant be included in the calculation of the net income of the Trust under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes.
Question 5
Will dividends and other income received by the Trustee on Unallocated Shares be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936?
Answer
Yes.
Question 6
Will the net income of the Trust under section 95 of the ITAA 1936 be assessed to the Trustee under section 99A?
Answer
Yes. Only in respect of the net income to which no beneficiary is presently entitled to the income of the Trust estate.
Question 7
Will the Trustee be entitled to the benefit of franking credits under Subdivision 207-B of the ITAA 1997, attached to franked distributions on Unallocated Shares?
Answer
Yes. Provided the Trustee holds the Unallocated Shares for a continuous period of not less than 45 days during the period beginning the day after the Trustee acquires the Unallocated Shares and ending on the 45th day after the Unallocated Shares become ex-dividend.
This ruling applies for the following periods:
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
30 March 2009
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.
A company has established a Plan, including an independent trust structure to partly administer the Plan, to reward, retain and provide an incentive to certain Australian resident executives within a group of companies to grow shareholder value.
Relevant legislative provisions
Section 6-5 of the Income Tax Assessment Act 1997
Section 6-10 of the Income Tax Assessment Act 1997
Division 83A of the Income Tax Assessment Act 1997
Subsection 100-20(1) of the Income Tax Assessment Act 1997
Section 104-10 of the Income Tax Assessment Act 1997
Section 104-75 of the Income Tax Assessment Act 1997
Section 106-50 of the Income Tax Assessment Act 1997
Subsection 130-85(4) of the Income Tax Assessment Act 1997
Section 130-90 of the Income Tax Assessment Act 1997
Division 207 of the Income Tax Assessment Act 1997
Subsection 995-1(1) of the Income Tax Assessment Act 1997
Division 83A of the Income Tax (Transitional Provisions) Act 1997
Section 44 of the Income Tax Assessment Act 1936
Division 6 of Part III of the Income Tax Assessment Act 1936
Subsection 139B(3) of the Income Tax Assessment Act 1936
Former Division 1A of former Part IIIAA of the Income Tax Assessment Act 1936
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.
Question 1
Will the irretrievable cash contributions made to the Trustee to fund the subscription for or acquisition of shares by the Trustee be assessable income of the Trust?
Answer
No.
The irretrievable cash contributions to the trustee represent accretions to the corpus of the Trust. The contributions constitute capital receipts to the Trustee, and are not included in the assessable income of the Trust.
Question 2
Will a capital gain or loss that arises for the Trust at the time when a share is allocated by the Trustee to a Trust Participant pursuant to the Plan Rules in satisfaction of the Rights and/or Future Rights, be disregarded under section 130-90 of the ITAA 1997?
Answer
Yes.
All of the requirements in section 130-90 of the ITAA 1997 have been satisfied. Therefore a capital gain or capital loss that arises for the Trust at the time when a share is allocated by the Trustee to a Trust Participant pursuant to the Plan Rules in satisfaction of the Rights and/or Future Rights will be disregarded.
Question 3
Will a capital gain or loss arise for the Trust at the time when the Trustee transfers legal title to a share to the Trust Participant?
Answer
No.
At the time the Trustee transfers a share to a Trust Participant, the Trustee and Trust Participant are regarded as being the same entity. There is no change of ownership for capital gains tax (CGT) purposes, no CGT event will happen and therefore no capital gain or loss will arise.
Question 4
Will dividends received and distributed by the Trustee on shares which have been allocated to a Trust Participant be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936?
Answer
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.
Question 5
Will dividends and other income received by the Trustee on Unallocated Shares be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936?
Answer
Yes.
Dividends and other income received by the Trustee on Unallocated Shares will be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936.
Question 6
Will the net income of the Trust under section 95 of the ITAA 1936 be assessed to the Trustee under section 99A?
Answer
Yes. Only in respect of the net income to which no beneficiary is presently entitled to the income of the Trust estate.
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).
Question 7
Will the Trustee be entitled to the benefit of franking credits attached to franked distributions on Unallocated Shares?
Answer
Yes. Provided the Trustee holds the Unallocated Shares for a continuous period of not less than 45 days during the period beginning the day after the Trustee acquires the Unallocated Shares and ending on the 45th day after the Unallocated Shares become ex-dividend.
Provided the Trustee holds the Unallocated Shares for a continuous period of not less than 45 days during the period beginning the day after the Trustee acquires the Unallocated Shares and ending on the 45th day after the Unallocated Shares become ex-dividend then the Trustee will be a qualified person for the purposes of Division 1A of former Part IIIAA of the ITAA 1936 and be entitled to the benefit of franking credits attached to franked distributions on Unallocated Shares. The tax offsets available to the Trustee is limited to the amount of tax payable. Any excess franking tax offset is not refundable.