Edited version of private ruling

Authorisation Number: 1011667024912

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Ruling

Subject: Salary Sacrifice Share Plan

Question 1

Will the amount to be included in the Employee's assessable income under section 83A-110 of the Income Tax Assessment Act 1997 (ITAA 1997) for the income year in which the ESS deferred taxing point for his shares occurs equal the market value of those shares at the ESS deferred taxing point, reduced by the cost base of the shares?

Answer

Yes

Question 2

Where the ESS deferred taxing point for the Employee's shares occurs, will the taxable value be determined by reference to the market value of the shares, reduced by the cost base of the shares as determined by reference to Subdivision 110-A of the ITAA 1997?

Answer

Yes

Question 3

Will the payments of consideration by the Employee at the occurrence of the ESS deferred taxing point to preserve his shares in the Plan constitute the cost base of the shares as determined under Subdivision 110-A of the ITAA 1997?

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:

1 July 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.

The Employer intends to implement an employee share plan which is designed to assist in the retention and motivation of its employees by providing them with an opportunity to acquire beneficial ownership of shares and annually access the salary sacrifice deferred taxation concession available under section 83A-105 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 83A

Income Tax Assessment Act 1997 Subdivision 83A-C

Income Tax Assessment Act 1997 Section 83A-105

Income Tax Assessment Act 1997 Subparagraph 83A-105(4)(b)(i)

Income Tax Assessment Act 1997 Section 83A-110

Income Tax Assessment Act 1997 Section 83A-115

Income Tax Assessment Act 1997 Subdivision 110-A

Income Tax Assessment Act 1997 Section 112-20

Income Tax Assessment Act 1997 Subsection 130-80(4)

Income Tax Assessment Act 1997 Subdivision 960-S

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the employee.

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 amount to be included in the Employee's assessable income under section 83A-110 of the ITAA 1997 for the income year in which the ESS deferred taxing point for his shares occurs equal the market value of those shares at the ESS deferred taxing point, reduced by the cost base of the shares?

Yes.

Section 83A-110 of the ITAA 1997 includes in an employee's assessable income for the income year in which the ESS deferred taxing point occurs the market value of the ESS interest at the ESS deferred taxing point, less the cost base of the ESS interest.

Question 2

Where the ESS deferred taxing point for the Employee's shares occurs, will the taxable value be determined by reference to the market value of the shares, reduced by the cost base of the shares as determined by reference to Subdivision 110-A of the ITAA 1997?

Yes.

Section 83A-110 of the ITAA 1997 includes in an employee's assessable income for the income year in which the ESS deferred taxing point occurs the market value of the ESS interest at the ESS deferred taxing point, less the cost base of the ESS interest.

Subject to the application of the rules in Subdivision 960-S of the ITAA 1997, the ordinary meaning of market value will be used to determine the value of the Employee's shares at their ESS deferred taxing point (see paragraph 1.106 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

The cost base of the Employee's shares at their ESS deferred taxing point will be determined by reference to Subdivision 110-A of the ITAA 1997.

Question 3

Will the payments of consideration by the Employee at the occurrence of the ESS deferred taxing point to preserve his shares in the Plan constitute the cost base of the shares as determined under Subdivision 110-A of the ITAA 1997?

No.

The provision of 'consideration' by the Employee for shares in accordance with the Trust Deed in the event that he elect to preserve his shares in the Plan will not form part of the cost base of his shares when calculating the amount to be included in his assessable income under section 83A-110 of the ITAA 1997.

As:

· the market value substitution rule under section 112-20 of the ITAA 1997 is ignored for the purposes of calculating the cost base of an ESS interest and the amount to be included in assessable income under section 83A-110 of the ITAA 1997 (subsection 130-80(4) of the ITAA 1997);

· the value of the discount on the shares provided to the Employee under the Plan is the market value of the shares at the time of their acquisition (subparagraph 83A-105(4)(b)(i) of the ITAA 1997); and

· there is no other amount of money paid, incidental or other costs, or capital expenditure incurred under the Plan by the Employee,

the cost base of those shares, as calculated by reference to Subdivision 110-A of the ITAA 1997, will be nil.

The Employee's assessable income for the income year in which the ESS deferred taxing point occurs will therefore include the market value of the shares at the ESS deferred taxing point.