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Ruling

Subject: Salary Sacrifice Share Plan

Question 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 ITAA 1936?

Answer

No

Question 2

Will the provision of Shares 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?

Answer

No

Question 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?

Answer

Yes

Question 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?

Answer

Yes

Question 5

To the extent that the net income of the trust estate does not include proceeds received on the disposal of Shares as ordinary income of the trust estate:

will the proceeds received by the trust estate from the sale of Shares be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

Answer

Yes

will the sale of Shares by the trust estate which had been allocated to the Employee constitute a CGT event of the trust estate under Division 104 of the ITAA 1997?

Answer

Yes

will the proceeds received by the trust estate from the sale of Shares allocated to the Employee be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

Answer

Yes

where the proceeds received by the trust estate from the sale of Shares 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?

Answer

Yes

Question 6

Will the general anti-avoidance provisions under Part IVA of the ITAA 1936 apply to the scheme described?

Answer

No

This ruling applies for the following periods:

Income Tax Year ended 30 June 2011

Income Tax Year ended 30 June 2012

Income Tax Year ended 30 June 2013

The scheme commences on:

29 July 2010

Relevant facts and circumstances

The Employer intends to implement an employee share plan which is designed to conform with Division 83A of the ITAA 1997 so as to provide its employees with an opportunity to receive up to $5,000 worth of shares each year which are exempt from income tax.

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 Subsection 99A(4).

Income Tax Assessment Act 1936 Subsection 99A(4A).

Income Tax Assessment Act 1936 Part IVA.

Income Tax Assessment Act 1997 Section 83A-105.

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 Division 115.

Income Tax Assessment Act 1997 Subsection 130-85(4).

Taxation Administration Act 1953 Paragraph 392-5(1)(a) of Schedule 1.

Taxation Administration Act 1953 Paragraph 392-5(1)(b) of Schedule 1.

Reasons for decision

Question 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 ITAA 1936?

No.

Contributions of monies by the Employer to the Trustee pursuant to the Trust Deed will be used in accordance with the Trust Deed for the sole purpose of and under the Plan which is an employee share scheme. 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 (see ATO Interpretative Decision 2002/965).

Question 2

Will the provision of Shares 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.

The provision of Shares to the Trustee on behalf of the Employee and other Participants does not constitute assessable income of the trust estate that is included in the calculation of the net income of the trust estate under section 95 of the ITAA 1936.

Question 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.

Question 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).

Question 5

To the extent that the net income of the trust estate does not include proceeds received on the disposal of Shares as ordinary income of the trust estate:

will the proceeds received by the trust estate from the sale of Shares be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

Yes.

After the Participants are taxed under the ESS rules, the Trust (as associate) will be considered absolutely entitled to the relevant ESS interests it acquired under the Plan on behalf of the Participants in relation to their employment. At the taxing point, when the Shares move into the CGT system, any further capital gain or loss incurred in relation to the Shares will be borne by the Trust (as an associate of the Participants).

The proceeds received by the Trustee from the sale of Shares held under the Plan on behalf of Participants will therefore be considered in calculating the net capital gain made by the trust estate under Division 102 of the ITAA 1997.

will the sale of Shares by the trust estate which had been allocated to the Employee constitute a CGT event of the trust estate under Division 104 of the ITAA 1997?

Yes.

The sale of Shares allocated to the Employee by the Trustee will represent a disposal of those Shares and each disposal will give rise to CGT event A1 in section 104-10 of the ITAA 1997.

will the proceeds received by the trust estate from the sale of Shares allocated to the Employee be taken into account in calculating its net capital gain under Division 102 of the ITAA 1997?

Yes.

After the Employee is taxed under the ESS rules, the Trust (as associate) will be considered absolutely entitled to the relevant ESS interests it acquired under the Plan on behalf of the Employee in relation to her employment. At the taxing point, when the Shares move into the CGT system, any further capital gain or loss incurred in relation to the Shares will be borne by the Trust (as an associate of the Employee).

The proceeds received by the Trustee from the sale of Shares held under the Plan on behalf of the Employee will therefore be considered in calculating the net capital gain made by the trust estate under Division 102 of the ITAA 1997.

where the proceeds received by the trust estate from the sale of Shares 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.

For the purposes of determining the 12 month rule, the Shares will first be held by the Trustee after the Employee is taxed under the ESS rules and the Trust (as associate) becomes absolutely entitled to the relevant ESS interests it acquired under the Plan on behalf of the Employee in relation to her employment.

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 Shares held by the Trustee for at least 12 months.

Question 6

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.