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Ruling

Subject: Subject: Salary Sacrifice Share Plan

Question

1. Will the contributions of monies by the Employer to the Trustee pursuant to the Trust Deed in respect of arm's length employees of the Employer constitute an income tax deduction under section 8-1 of the ITAA 1997?

Answer: Yes

2. Will the contributions of monies made by the Employer to the Trustee pursuant to the Trust Deed for the benefit of a general class of employees constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No

3. Will the acquisition of Shares by the Trustee constitute a 'fringe benefit' provided by the Trustee to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No

4. Where the Shares are acquired by the Trustee for their market value, will that acquisition constitute a 'fringe benefit' provided by the Trustee to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

5. Will the acquisition of Shares by the Employee at a discount to market value of up to $5,000 per annum under the Plan, which have been allocated by the Trustee, constitute a 'fringe benefit' provided by the Trustee to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No

6. Will the operating costs associated with the administration of the Plan incurred by the Employer be deductible under section 8-1 of the ITAA 1997?

Answer: Yes

7. Will the meeting of operating costs associated with the administration of the Plan by the Employer constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No

8. Will the payment of Administration Fees by the Employer to the Administrator under the Plan Administration Agreement for the provision of Administration Services to the Trustee be deductible under section 8-1 of the ITAA 1997?

Answer: Yes

9. Will the payment of Administration Fees by the Employer to the Administrator under the Plan Administration Agreement for the provision of Administration Services to the Trustee constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No

10. Will the general anti-avoidance provisions under section 67 of the FBTAA apply to the scheme described?

Answer: No

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

Answer: No

12. Will the statement issued pursuant to paragraph 392-5(1)(a) in Schedule 1 to the TAA be in the form approved by the Commissioner pursuant to subsection 392-5(2) in Schedule 1 to the TAA?

Answer: Yes

13. Will the statement issued pursuant to paragraph 392-5(1)(b) in Schedule 1 to the TAA be in the form approved by the Commissioner pursuant to subsection 392-5(2) in Schedule 1 to the TAA?

Answer: Yes

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

FBT Year ended 31 March 2011

FBT Year ended 31 March 2012

FBT Year ended 31 March 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

Fringe Benefits Tax Assessment Act 1986 Section 67.

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Fringe Benefits Tax Assessment Act 1986 Paragraph 136(1)(h).

Income Tax Assessment Act 1936 Part IVA.

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Subdivision 83A-B.

Income Tax Assessment Act 1997 Subsection 83A-10(2).

Income Tax Assessment Act 1997 Subdivision 83A-C.

Income Tax Assessment Act 1997 Section 83A-105.

Income Tax Assessment Act 1997 Section 83A-210.

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

Taxation Administration Act 1953 Section 392-5 of Schedule 1.

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

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

Taxation Administration Act 1953 Subsection 392-5(2) of Schedule 1.

Taxation Administration Act 1953 Subsection 392-5(3) of Schedule 1.

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

Other references

ATO view documents

ATO Interpretative Decision 2002/1074

ATO Interpretative Decision 2007/194

Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16

Reasons for decision

Question 1

Will the contributions of monies by the Employer to the Trustee pursuant to the Trust Deed in respect of arm's length employees of the Employer constitute an income tax deduction under section 8-1 of the ITAA 1997?

Answer: Yes.

ATO Interpretative Decision 2002/1074 and paragraphs 1.72, 1.342 and 1.343 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 recognise the general deductibility of the indirect provision of securities to employees under an employee share scheme, when an employer provides money to a trust for the purposes of providing its employees with securities in itself.

The purpose of the Plan is to provide a benefit to the Participants by allowing them to obtain Shares in the Employer at a discount. The discounted Shares are part of the overall remuneration of the Participants. The contributions by the Employer to the Trustee pursuant to the Trust Deed in respect of arm's length employees of the Employer are therefore part of the overall remuneration costs of the Employer, incurred in gaining or producing assessable income and deductible under section 8-1 of the ITAA 1997.

Pursuant to section 83A-210 of the ITAA 1997, any deduction entitlement for amounts provided by an employer to fund its employee's direct or indirect acquisition of ESS interests under an employee share scheme is deferred until the employees have acquired those interests.

Question 2

Will the contributions of monies made by the Employer to the Trustee pursuant to the Trust Deed for the benefit of a general class of employees constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

The definition of a fringe benefit contained in subsection 136(1) of the FBTAA requires, amongst other things, that in order for a benefit to be a fringe benefit that the benefit be provided to 'the employee or an associate of the employee' and that the benefit be provided 'in respect of the employment of the employee'.

The Full Federal Court in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16 held that, for the purposes of determining whether there was a 'fringe benefit', it was necessary to identify, at the time a benefit was provided, a particular employee in respect of whose employment the benefit was provided.

Therefore, the contributions of monies made by the Employer to the Trustee for the benefit of a general class of employees is not a fringe benefit provided by the Employer to the Employee in respect of their employment at the time the contributions are provided to the Trustee (see ATO Interpretative Decision 2007/194).

Question 3

Will the acquisition of Shares by the Trustee constitute a 'fringe benefit' provided by the Trustee to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA and pursuant to paragraph (h) of that definition does not include a benefit constituted by the acquisition of an ESS interest under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies.

The Plan constitutes an employee share scheme within subsection 83A-10(2) of the ITAA 1997 to which Subdivision 83A-C applies.

The benefit, represented by the acquisition of the beneficial interest in the Shares provided to the Employee by the Trustee under the Plan is therefore excluded as a benefit as defined under fringe benefit in paragraph 136(1)(h) of the FBTAA.

Question 4

Where the Shares are acquired by the Trustee for their market value, will that acquisition constitute a 'fringe benefit' provided by the Trustee to The Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA and pursuant to paragraph (h) of that definition does not include a benefit constituted by the acquisition of an ESS interest under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies.

The Plan constitutes an employee share scheme within subsection 83A-10(2) of the ITAA 1997 to which Subdivision 83A-C applies.

The benefit, represented by the acquisition of the beneficial interest in the Shares provided to the Employee by the Trustee under the Plan is therefore excluded as a benefit as defined under fringe benefit in paragraph 136(1)(h) of the FBTAA.

Question 5

Will the acquisition of Shares by the Employee at a discount to market value of up to $5,000 per annum under the Plan, which have been allocated by the Trustee, constitute a 'fringe benefit' provided by the Trustee to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA and pursuant to paragraph (h) of that definition does not include a benefit constituted by the acquisition of an ESS interest under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies.

The Plan constitutes an employee share scheme within subsection 83A-10(2) of the ITAA 1997 to which Subdivision 83A-C applies.

The benefit, represented by the acquisition of the beneficial interest in the Shares provided to the Employee by the Trustee under the Plan at a discount to market value of up to $5,000 per annum is therefore excluded as a benefit as defined under fringe benefit in paragraph 136(1)(h) of the FBTAA.

Question 6

Will the operating costs associated with the administration of the Plan incurred by the Employer be deductible under section 8-1 of the ITAA 1997?

Answer: Yes.

The Employer incurs costs operating the Plan. These costs include accounting fees, bank charges, interest fees, preparation and lodgement of tax returns, rental of office space and office furniture, machinery and computer leases, etc., necessarily incurred in running the Plan.

The operating costs associated with the administration of the Plan are part of the ordinary employee remuneration costs of the Employer. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred (see ATO Interpretative Decision 2002/961).

Question 7

Will the meeting of operating costs associated with the administration of the Plan by the Employer constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

There is no 'benefit' that arises to the Employee upon the Employer meeting the operating costs associated with administering the Plan.

Question 8

Will the payment of Administration Fees by the Employer to the Administrator under the Plan Administration Agreement for the provision of Administration Services to the Trustee be deductible under section 8-1 of the ITAA 1997?

Answer: Yes.

Pursuant to the Plan Administration Agreement, the Administrator has agreed to provide certain Administration Services to the Trustee and the Employer has agreed to pay Administration Fees for these Administration Services.

The Administration Fees payable by the Employer under the Plan Administration Agreement for the provision of Administration Services are part of the ordinary employee remuneration costs of the Employer. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred.

Will the payment of Administration Fees by the Employer to the Administrator under the Plan Administration Agreement for the provision of Administration Services to the Trustee constitute a 'fringe benefit' provided by the Employer to the Employee as defined in subsection 136(1) of the FBTAA?

Answer: No.

There is no 'benefit' that arises to the Employee upon the Employer paying the Administration Fees to the Administrator under the Plan Administration Agreement.

Question 10

Will the general anti-avoidance provisions under section 67 of the FBTAA apply to the scheme described?

Answer: No.

Provided that the scheme as implemented is materially identical to the scheme described in this ruling it is considered that section 67 of the FBTAA would not apply in respect of the Employer.

Question 11

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

Answer: 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 Employer.

Question 12

Will the statement issued pursuant to paragraph 392-5(1)(a) in Schedule 1 to the TAA be in the form approved by the Commissioner pursuant to subsection 392-5(2) in Schedule 1 to the TAA?

Answer: Yes.

Where an entity (the provider) provides ESS interests to an individual during the year and Subdivision 83A-C of the ITAA 1997 applies to the interests, then pursuant to paragraph 392-5(1)(a) and subsection 392-5(5) in Schedule 1 to the TAA the provider must give a statement in the approved form to both that individual and the Commissioner no later than 14 July and 14 August respectively after the end of the relevant year.

As the Employer operates the Plan which offers the Employee and its other employees ESS interests in the Employer, the Employer is considered to be the 'provider' of the ESS interests who is required to report for the purposes of section 392-5 of Schedule 1 to the TAA. The Trustee is not the provider (see paragraph 1.285 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

As the provider, the Employer may use an agent to fulfil the reporting requirements on its behalf (see paragraph 1.286 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

The draft Annual Employee Share Statement provided as part of the ruling applications and which is to be issued to the Participants and the Commissioner by the Administrator on behalf of the Employer contains all the relevant information which, according to subsection 392-5(3) in Schedule 1 to the TAA may be required for it to be in the approved form.

Question 13

Will the statement issued pursuant to paragraph 392-5(1)(b) in Schedule 1 to the TAA be in the form approved by the Commissioner pursuant to subsection 392-5(2) in Schedule 1 to the TAA?

Answer: Yes.

Where an entity (the provider) has provided ESS interests to an individual during the current or an earlier year, Subdivision 83A-C of the ITAA 1997 applies to the interests, and the ESS deferred taxing point for the interests occurs during the year, then pursuant to paragraph 392-5(1)(b) and subsection 392-5(5) in Schedule 1 to the TAA the provider must give a statement in the approved form to both that individual and the Commissioner no later than 14 July and 14 August respectively after the end of the relevant year.

As the Employer operates the Plan which offers the Employee and its other employees ESS interests in the Employer, the Employer is considered to be the 'provider' of the ESS interests who is required to report for the purposes of section 392-5 of Schedule 1 to the TAA. The Trustee is not the provider (see paragraph 1.285 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

As the provider, the Employer may use an agent to fulfil the reporting requirements on its behalf (see paragraph 1.286 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

The draft Annual Employee Share Statement provided as part of the ruling applications and which is to be issued to the Participants and the Commissioner by the Administrator on behalf of the Employer contains all the relevant information which, according to subsection 392-5(3) in Schedule 1 to the TAA may be required for it to be in the approved form.