Edited version of private ruling

Authorisation Number: 1011715363720

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Salary Sacrifice Share Plan

Question 1

Will the contributions of monies by the Employer to the Trustee pursuant to the Trust Deeds be included as assessable income of the Employee under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Will the contributions of monies by the Employer to the Trustee pursuant to the Trust Deeds be included as assessable income of the Employee under section 15-2 of the ITAA 1997?

Answer

No.

Question 3

Will the Plan constitute an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997?

Answer

Yes.

Question 4

Will the shares acquired by the Employee be subject to the provisions of Division 83A of the ITAA 1997?

Answer

Yes.

Question 5

Will the shares to be acquired by the Employee under the Tax Exempt Share Plan constitute ESS interests as referred to in section 83A-20 of the ITAA 1997?

Answer

Yes.

Question 6

Will the shares to be acquired by the Employee under the Tax Deferred Share Plan constitute ESS interests as referred to in section 83A-105 of the ITAA 1997?

Answer

Yes.

Question 7

Will the shares to be acquired under the Tax Exempt Share Plan meet the requirements of section 83A-35 of the ITAA 1997 and enable the Employee to access the $1,000 exemption concession in subsection 83A-35(2) of the ITAA 1997?

Answer

Yes.

Question 8

Will the shares to be acquired under the Tax Deferred Share Plan meet the requirements of section 83A-105 of the ITAA 1997 and enable the Employee to access the $5,000 salary sacrifice tax deferral concession in section 83A-105 and section 83A-115 of the ITAA 1997?

Answer

Yes.

Question 9

Will the conditions prohibiting the disposal of shares contained in the Tax Exempt Share Plan Trust Deed be sufficient for the purposes of meeting the exemption conditions of subsection 83A-35(8) of the ITAA 1997?

Answer

Yes.

Question 10

Will the conditions prohibiting the disposal of shares contained in the Tax Deferred Share Plan Trust Deed be sufficient for the purposes of meeting the salary sacrifice tax deferral conditions of section 83A-115 of the ITAA 1997?

Answer

Yes.

Question 11

Will the discount on the shares acquired under the Tax Deferred Share Plan be equal to their market value at the time of their acquisition by the Employee?

Answer

Yes.

Question 12

Will the requirements relating to the sale of small or minimum numbers of shares constitute conditions that breach subsection 83A-35(7) of the ITAA 1997?

Answer

No.

Question 13

Will the discount on the shares acquired under the Tax Exempt Share Plan be equal to their market value at the time of their acquisition by the Employee?

Answer

Yes.

Question 14

Will the cost base of the shares acquired under the Tax Exempt Share Plan for the purpose of Part 3.1 of the ITAA 1997 be their market value at the time of their acquisition by the Employee?

Answer

Yes.

Question 15

Where the ESS deferred taxing point occurs under the Tax Deferred Share Plan, will the cost base of the Employee's shares for the purpose of Part 3.1 of the ITAA 1997 be determined by reference to Subdivision 110-A of the ITAA 1997?

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

The scheme commences on:

26 July 2010

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 two employee share plans 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 taxation concessions available under sections 83A-35 and 83A-105 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 15-2.

Income Tax Assessment Act 1997 Division 83A.

Income Tax Assessment Act 1997 Subdivision 83A-B.

Income Tax Assessment Act 1997 Subsection 83A-10(1).

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

Income Tax Assessment Act 1997 Section 83A-20.

Income Tax Assessment Act 1997 Subsection 83A-20(1).

Income Tax Assessment Act 1997 Subsection 83A-25(1).

Income Tax Assessment Act 1997 Section 83A-30.

Income Tax Assessment Act 1997 Section 83A-35.

Income Tax Assessment Act 1997 Subsection 83A-35(2).

Income Tax Assessment Act 1997 Paragraph 83A-35(2)(b).

Income Tax Assessment Act 1997 Subsection 83A-35(3).

Income Tax Assessment Act 1997 Subsection 83A-35(4).

Income Tax Assessment Act 1997 Subsection 83A-35(5).

Income Tax Assessment Act 1997 Subsection 83A-35(6).

Income Tax Assessment Act 1997 Subsection 83A-35(7).

Income Tax Assessment Act 1997 Subsection 83A-35(8).

Income Tax Assessment Act 1997 Subsection 83A-35(9).

Income Tax Assessment Act 1997 Subdivision 83A-C.

Income Tax Assessment Act 1997 Section 83A-105.

Income Tax Assessment Act 1997 Subsection 83A-105(2).

Income Tax Assessment Act 1997 Subsection 83A-105(3).

Income Tax Assessment Act 1997 Subsection 83A-105(4).

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 Subsection 83A-115(3).

Income Tax Assessment Act 1997 Subdivision 110-A.

Income Tax Assessment Act 1997 Section 960-415.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 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 of the ITAA 1936 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 of the ITAA 1936 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 of the ITAA 1936, 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 contributions of monies by the Employer to the Trustee pursuant to the Trust Deeds be included as assessable income of the Employee under section 6-5 of the ITAA 1997?

No.

The Employee will not derive assessable income in respect of contributions of monies by the Employer to the Trustee pursuant to the Trust Deeds under section 6-5 of the ITAA 1997 as the amounts contributed to the Trustee are not actually received by the Employee or taken to have been received by him.

Question 2

Will the contributions of monies by the Employer to the Trustee pursuant to the Trust Deeds be included as assessable income of the Employee under section 15-2 of the ITAA 1997?

No.

The contributions of monies by the Employer to the Trustee pursuant to the Trust Deeds do not constitute statutory income of the Employee under section 15-2 of the ITAA 1997 as the contributions do not constitute allowances, gratuities, compensation, benefits, bonuses or premiums provided to the Employee or applied or dealt with in any way on the Employee's behalf or as the Employee directs.

Question 3

Will the Plan constitute an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997?

Yes.

An employee share scheme is defined in subsection 83A-10(2) of the ITAA 1997 to include a scheme under which ESS interests in a company are provided to employees of that company or a subsidiary of that company, in relation to the employees' employment.

An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 as a beneficial interest in a share in the company, or a right to acquire a beneficial interest in a share in the company.

The definition of an ESS interest under subsection 83A-10(1) of the ITAA 1997 includes interests which provide economic benefit, regardless of whether they are legally held by the recipient of the economic benefit, or whether they are held in a trust relationship for them (paragraph 1.276 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

Participants under the Plan are employees of the Employer and are provided with a beneficial interest in shares in the Employer (that is, an ESS interest) legally held by the Trustee on their behalf and in relation to their employment with the Employer.

The Plan therefore constitutes an employee share scheme within subsection 83A-10(2) of the ITAA 1997.

Question 4

Will the shares acquired by the Employee be subject to the provisions of Division 83A of the ITAA 1997?

Yes.

The shares to be acquired by the Employee under the Plan will be ESS interests in a company for the purposes of subsection 83A-10(1) of the ITAA 1997 acquired under an employee share scheme for the purposes of subsection 83A-10(2) of the ITAA 1997 at a discount.

The shares to be acquired by the Employee will therefore be subject to Division 83A of the ITAA 1997.

Question 5

Will the shares to be acquired by the Employee under the Tax Exempt Share Plan constitute ESS interests as referred to in section 83A-20 of the ITAA 1997?

Yes.

Subsection 83A-20(1) of the ITAA 1997 provides that, unless Subdivision 83A-C applies, Subdivision 83A-B applies to ESS interests acquired under an employee share scheme at a discount.

Where consideration for an ESS interest is provided on a pre-tax basis (such as under an effective salary sacrifice arrangement), the employee is treated for the purposes of Division 83A of the ITAA 1997 as having acquired the ESS interest at a discount.

Despite the Trustee having to pay full market value consideration for the shares of the Employer, as those shares are acquired under the Tax Exempt Share Plan on behalf of the Employee in lieu of his pre-taxed remuneration, they will be treated as having been acquired at a discount for the purposes of Subdivision 83A-B of the ITAA 1997.

Subdivision 83A-C of the ITAA 1997 will not apply to ESS interests acquired under the Tax Exempt Share Plan.

Question 6

Will the shares to be acquired by the Employee under the Tax Deferred Share Plan constitute ESS interests as referred to in section 83A-105 of the ITAA 1997?

Yes.

Pursuant to section 83A-105 of the ITAA 1997, Subdivision 83A-C of the ITAA 1997 applies to an ESS interest that is a beneficial interest in a share in a company if:

a) Subdivision 83A-B of the ITAA 1997 would, apart from section 83A-105 of the ITAA 1997, apply to the interest; and

b) subsections 83A-35(3),(4),(5) and (9) of the ITAA 1997 apply to the interest; and

c) subsection 83A-105(2) of the ITAA 1997 applies to the interest, and subsection 83A-105(3) or (4) of the ITAA 1997 applies to the interest.

Subdivision 83A-B of the ITAA 1997 would, but for the application of Subdivision 83A-C of the ITAA 1997, apply to ESS interests acquired under an employee share scheme at a discount (subsection 83A-20(1) of the ITAA 1997).

Where consideration for an ESS interest is provided on a pre-tax basis (such as under an effective salary sacrifice arrangement), the employee is treated for the purposes of Division 83A of the ITAA 1997 as having acquired the ESS interest at a discount.

Despite the Trustee having to pay full market value consideration for the shares of the Employer, as those shares are acquired under the Tax Deferred Share Plan on behalf of the Employee in lieu of his pre-taxed remuneration, they will be treated as having been acquired at a discount (that is, for no consideration) for the purposes of Subdivision 83A-B of the ITAA 1997.

At the time the Employee will acquire the ESS interest under the Tax Deferred Share Plan, all the ESS interests available for acquisition under that Plan will relate to ordinary shares in the Employer which is his current employer, thereby satisfying subsections 83A-35(3) and 83A-35(4) of the ITAA 1997.

The predominant business of the Employer is not the acquisition, sale or holding of shares, securities or other investments, thereby satisfying subsection 83A-35(5) of the ITAA 1997.

Immediately after the Employee will acquire the ESS interests, he will not hold a beneficial interest in more than 5% of the shares in the Employer or be in a position to cast or control the casting of more than 5% of the maximum number of votes that may be cast at a general meeting of the Employer, thereby satisfying subsection 83A-35(9) of the ITAA 1997.

At the time the Employee will acquire the ESS interests under the Tax Deferred Share Plan, at least 75% of Australian resident permanent employees of the Employer who have completed at least 3 years service with the Employer will be entitled to acquire ESS interests under that Plan, thereby satisfying subsection 83A-105(2) of the ITAA 1997.

Subsection 83A-105(4) of the ITAA 1997 is also satisfied as the ESS interest to be acquired by the Employee under the Tax Deferred Share Plan at a discount:

(a) will be provided under agreement in lieu of a reduction in his remuneration that would not have happened apart from the agreement; and

(b) at the time those ESS interests are acquired:

(i) the discount will equal the market value of the ESS interests; and

(ii) all of the ESS interests available for acquisition under the Tax Deferred Share Plan are beneficial interests in shares; and

(iii) the Trust Deed governing the Tax Deferred Share Plan expressly states that Subdivision 83A-C of the ITAA 1997 applies to that Plan; and

(c) the total market value of the ESS interests in the Employer that the Employee will acquire during the year under the Tax Deferred Share Plan and any other employee shares scheme(s) to which Subdivision 83A-C and subsection 83A105(4) of the ITAA 1997 apply does not exceed $5,000.

As the Employee will acquire ESS interests under the Tax Deferred Share Plan:

a) that are beneficial interests in shares in a company at a discount;

b) in which subsections (3), (4), (5) and (9) of section 83A-35 of the ITAA 1997 apply; and

c) in which subsections 83A-105(2) and (4) of the ITAA 1997 apply,

they will constitute ESS interests referred to in section 83A-105 of the ITAA 1997.

Question 7

Will the shares to be acquired under the Tax Exempt Share Plan meet the requirements of section 83A-35 of the ITAA 1997 and enable the Employee to access the $1,000 exemption concession in subsection 83A-35(2) of the ITAA 1997?

Yes.

Pursuant to subsection 83A-25(1) of the ITAA 1997, the discount given in relation to an ESS interest must be included as assessable income in the income year in which the interest was acquired.

Section 83A-35 of the ITAA 1997 reduces the amount included in your assessable income under subsection 83A-25(1) by that amount, but up to a maximum of $1,000, where your adjusted taxable income for the income year does not exceed $180,000 (as required under subsection 83A-35(2)) and the ESS interest is one in which subsections (3) to (9) of section 83A-35 apply.

The Employee will not derive adjusted taxable income of more than $180,000 per annum in the income years ending 30 June 2011, 2012 and 2013, thereby satisfying paragraph 83A-35(2)(b) of the ITAA 1997.

At the time the Employee will acquire the ESS interest under the Tax Exempt Share Plan, all the ESS interests available for acquisition under that plan will relate to ordinary shares in the Employer which is his current employer, thereby satisfying subsections 83A-35(3) and 83A-35(4) of the ITAA 1997.

The predominant business of the Employer is not the acquisition, sale or holding of shares, securities or other investments, thereby satisfying subsection 83A-35(5) of the ITAA 1997.

At the time the Employee will acquire the ESS interests under the Tax Exempt Share Plan, the Tax Exempt Share Plan and the contributions made by the Employer to acquire the ESS interests under that plan will be operated on a non-discriminatory basis in relation to at least 75% of Australian resident permanent employees of the Employer who have completed at least 3 years service with the Employer, thereby satisfying subsection 83A-35(6) of the ITAA 1997.

At the time the Employee will acquire the ESS interests under the Tax Exempt Share Plan, there is no real risk under that plan that the Employee will forfeit or lose those ESS interests other than by disposal, thereby satisfying subsection 83A-35(7) of the ITAA 1997.

The Tax Exempt Share Plan will be operated so as not to permit disposal of the ESS interests acquired by the Employee and all other Participants under that plan before the earlier of 3 years after its acquisition and cessation of their employment with the Employer, thereby satisfying subsection 83A-35(8) of the ITAA 1997.

Immediately after the Employee will acquire the ESS interests, he will not hold a beneficial interest in more than 5% of the shares in the Employer or be in a position to cast or control the casting of more than 5% of the maximum number of votes that may be cast at a general meeting of the Employer, thereby satisfying subsection 83A-35(9) of the ITAA 1997.

As the Employee will not derive adjusted taxable income of more than $180,000 per annum in the income years ending 30 June 2011, 2012 and 2013, and the ESS interests to be acquired by him are ones in which subsections (3) to (9) of section 83A-35 of the ITAA 1997 apply, the amount included in the Employee's assessable income under subsection 83A-25(1) of the ITAA 1997 in those income years, which under the Tax Exempt Share Plan cannot exceed more than $1,000, will be reduced by that amount pursuant to section 83A-35.

Question 8

Will the shares to be acquired under the Tax Deferred Share Plan meet the requirements of section 83A-105 of the ITAA 1997 and enable the Employee to access the $5,000 salary sacrifice tax deferral concession in section 83A-105 and section 83A-115 of the ITAA 1997?

Yes.

The shares to be acquired by the Employee under the Tax Deferred Share Plan will be:

a) beneficial interests in shares in a company at a discount;

b) in which subsections (3), (4), (5) and (9) of section 83A-35 of the ITAA 1997 apply; and

c) in which subsections 83A-105(2) and (4) of the ITAA 1997 apply.

Those shares will therefore constitute ESS interests that satisfy the requirements of section 83A-105 of the ITAA 1997 and enable him to defer the payment of tax on his ESS interests until the ESS deferred taxing point for those interests arises, as determined under section 83A-115 of the ITAA 1997.

Question 9

Will the conditions prohibiting the disposal of shares contained in the Tax Exempt Share Plan Trust Deed be sufficient for the purposes of meeting the exemption conditions of subsection 83A-35(8) of the ITAA 1997?

Yes.

Subsection 83A-35(8) of the ITAA 1997 applies to ESS interests acquired under an employee share scheme if those and all other ESS interests acquired under the scheme are not permitted to be disposed of before the earlier of the end of the period of 3 years after the ESS interests are acquired and when the holder of the ESS interests cease their employment with their employer.

Under the Trust Deed governing the Tax Exempt Share Plan, Participants allocated shares under that plan will not be permitted to dispose of their shares before the earlier of five years after the date of acquisition of those shares and cessation of their employment with the Employer.

Subsection 83A-35(8) of the ITAA 1997 will therefore apply to the shares acquired under the Tax Exempt Share Plan.

Question 10

Will the conditions prohibiting the disposal of shares contained in the Tax Deferred Share Plan Trust Deed be sufficient for the purposes of meeting the salary sacrifice tax deferral conditions of section 83A-115 of the ITAA 1997?

Yes.

Section 83A-115 of the ITAA 1997 determines the ESS deferred taxing point for ESS interests constituted by a beneficial interest in shares. Subject to subsection 83A-115(3) of the ITAA 1997, the deferred taxing point for shares is the earliest of when:

§ there is no real risk that the employee will forfeit the share, or lose the share other than by disposing of it; and there are no genuine restrictions preventing disposal; or

§ when the employee ceases the employment in respect of which they acquired the share; or

§ seven years after the employee acquired the share.

ESS interests acquired under an employee share scheme and constituted by a beneficial interest in shares referred to in subsection 83A-105(4) of the ITAA 1997 are only entitled to a deferred taxing time under section 83A-115 where, at the time the shares are acquired, the scheme genuinely restricts the shares being immediately sold. The deferral requires that the shares be subject to genuine restrictions on disposal for the duration of the deferral (up to a maximum deferral period of 7 years).

Under the Trust Deed governing the Tax Deferred Share Plan, Participants allocated shares under that plan will not be permitted to dispose of their shares before the earlier of five years after the date of acquisition of those shares and cessation of their employment with the Employer.

These conditions prohibiting the disposal of shares will therefore be sufficient for the purposes of meeting the tax deferral conditions of section 83A-115 of the ITAA 1997.

Question 11

Will the discount on the shares acquired under the Tax Deferred Share Plan be equal to their market value at the time of their acquisition by the Employee?

Yes.

The value of the discount given in relation to an ESS interest is the market value of the discount.

The market value of the discount on the shares provided to the Employee under the Tax Deferred Share Plan will equal the market value of the Shares at the time of their acquisition.

Question 12

Will the requirements relating to the sale of small or minimum numbers of shares constitute conditions that breach subsection 83A-35(7) of the ITAA 1997?

No.

Where an ESS interest acquired under an employee share scheme is a beneficial interest in a share, subsection 83A-35(7) of the ITAA 1997 applies to those ESS interests if, when you acquire them there is no real risk under the conditions of the scheme that the ESS interest will be forfeited or lost other than by disposing of it.

At the time the Employee will acquire the shares under the Tax Exempt Share Plan, there will not be any requirements relating to their sale under that plan which will constitute a real risk that the Employee will forfeit or lose those shares other than by disposal.

Subsection 83A-35(7) of the ITAA 1997 will therefore apply to the shares acquired under the Tax Exempt Share Plan.

Question 13

Will the discount on the shares acquired under the Tax Exempt Share Plan be equal to their market value at the time of their acquisition by the Employee?

Yes.

The value of the discount given in relation to an ESS interest that is included as assessable income under subsection 83A-25(1) of the ITAA 1997 is the market value of the discount.

As the shares will be treated as having been acquired under the Tax Deferred Share Plan by the Employee for no consideration, the market value of the discount on the shares provided to the Employee under that plan will equal the market value of the shares at the time of their acquisition.

Question 14

Will the cost base of the shares acquired under the Tax Exempt Share Plan for the purpose of Part 3.1 of the ITAA 1997 be their market value at the time of their acquisition by the Employee?

Yes.

The employee share scheme rules consider ESS interests to be acquired for their market value when initially acquired, or reacquired for their market value immediately after the point they are taxed under Division 83A of the ITAA 1997.

ESS interests, and shares or rights of which the interests form part, in respect of which Subdivision 83A-B of the ITAA 1997 applies are therefore taken to have been acquired for their market value from the point at which the ESS interests are initially acquired (section 83A-30 of the ITAA 1997) (see paragraph 1.211 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009).

The first element of the cost base of the shares acquired by the Employee under the Tax Exempt Share Plan will therefore be the market value of those shares at the time of their acquisition.

Question 15

Where the ESS deferred taxing point occurs under the Tax Deferred Share Plan, will the cost base of the Employee's shares for the purpose of Part 3.1 of the ITAA 1997 be determined by reference to Subdivision 110-A of the ITAA 1997?

Yes.

The cost base of the shares acquired by the Employee under the Tax Deferred Share Plan will be determined by reference to Subdivision 110-A of the ITAA 1997.