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Edited version of private ruling
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Ruling
Subject: Employee Benefit Arrangement
Question and answer
Will the issue of Bonus Share Units pursuant to the Trust Deed made in respect of the employee's original unitholdings by the Trustee to the employee constitute a 'fringe benefit' provided by the Trustee to the employee as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
No, by virtue of the explicit exclusion of salary or wages from the term 'fringe benefit', as defined in subsection 136(1) of the FBTAA.
Relevant facts and circumstances
The Employer intends to implement a long term equity plan (the Plan) for the purpose of providing a long term equity incentive structure to deliver equity based benefits to the Employee
In order to facilitate the Plan, it is proposed to establish a unit trust (the Trust)
Bonus Share Units will be issued to the employee in respect of their employment at the request of the employer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Fringe Benefits Tax Assessment Act 1986 Sub-section 136(1)
\Reasons for decision
A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features:
· be a 'benefit' provided during a year of tax;
· to an employee or an associate of an employee;
· by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies;
· in respect of the employment of the employee; and
· where none of the exclusions listed in the definition apply.
Paragraph (f) of subsection 136(1) of the FBTAA excludes from the definition of fringe benefit 'a payment of salary or wages'.
Bonus Share Units are issued to the employee in respect of their employment at the request of the employer. Bonus Share Units may be cancelled and redeemed at any time. As soon as the Bonus Share Unit is issued, it is redeemable for the Redemption Distribution as defined in the Trust Deed. There are no contingencies attached to the Bonus Share Unit.
The Bonus Share Unit is therefore immediately redeemable for the Redemption Distribution and its receipt by the employee is considered to constitute a payment to the employee of salary or wages, constituting ordinary income.
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) operates to include in an employee's assessable income 'income according to ordinary concepts'. As the receipt of Bonus Share Units constitutes a derivation of ordinary income, it is assessable as salary or wage income under section 6-5 of the ITAA 1997 in the income year that the Bonus Share Units are issued.
As subparagraph (f) of the definition of fringe benefit in subsection 136(1) of FBTAA excludes 'a payment of salary or wages', the issue of Bonus Share Units do not constitute a fringe benefit under subsection 136(1) of the FBTAA.