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Ruling
Subject: Employee Benefit Scheme
Will the contributions of monies by the Contracting Entity to the Trustee pursuant to clause 4.1 of the Trust Deed in respect of arm's length contractors of the Contracting Entity constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: Yes
Will the loans of monies by the Contracting Entity to the Trustee pursuant to clause 4.1 of the Trust Deed constitute an income tax deduction under section 8-1 of the ITAA 1997?
Answer: No
Will the payment of Administration Fees by the Contracting Entity 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
Will the operating costs associated with the administration of the Share Plan incurred by the Contracting Entity be deductible under section 8-1 of the ITAA 1997?
Answer: Yes
This ruling applies for the following periods:
Income Tax Year ending 30 June 2012
Income Tax Year ending 30 June 2013
Income Tax Year ending 30 June 2014
The scheme has not commenced
Relevant facts and circumstances
The Contracting Entity intends to establish a plan for the purpose of providing a long term equity incentive structure to deliver equity base benefits to key contractors of the Contracting Entity.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Subsection 8-1(1)
Income Tax Assessment Act 1997 Subsection 8-1(2)
Reasons for decision
Will the contributions of monies by the Contracting Entity to the Trustee pursuant to clause 4.1 of the Trust Deed in respect of arm's length contractors of the Contracting Entity constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: Yes
Explanation:
Section 8-1 of the ITAA 1997 provides that:
8-1(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
8-1(2) However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or
(d) a provision of this Act prevents you from deducting it
The contributions of monies by the Contracting Entity to the Trustee in respect of arm's length contractors with the Contracting Entity will be linked to the Contracting Entity's contract with the arm's length contractors and their performance. The contributions represent a cost or outgoing to or in connection with the operation of the Share Plan, and are relevant to the production of the assessable income of the Contracting Entity.
The contributions are therefore incurred in gaining or producing assessable income and are deductible under section 8-1 of the ITAA 1997.
Will the loans of monies by the Contracting Entity to the Trustee pursuant to clause 4.1 of the Trust Deed constitute an income tax deduction under section 8-1 of the ITAA 1997?
Answer: No
Explanation:
A loan is not a loss or outgoing for the purposes of section 8-1 of the ITAA 1997.
Will the payment of Administration Fees by the Contracting Entity 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
Explanation:
Pursuant to the Plan Administration Agreement, the Administrator has agreed to provide certain Administration Services to the Trustee and the Contracting Entity has agreed to pay Administration Fees for these Administration Services.
The Administration Fees payable by the Contracting Entity under the Plan Administration Agreement for the provision of Administration Services represent a cost or outgoing to or in connection with the operation of the Share Plan. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred.
Will the operating costs associated with the administration of the Share Plan incurred by the Contracting Entity be deductible under section 8-1 of the ITAA 1997?
Answer: Yes
Explanation:
The Contracting Entity incurs costs operating the Share Plan. These costs include general administration costs such as accounting fees, bank charges, interest fees, preparation and lodgement of tax returns, rental of office space, office furniture and machinery and computer leases and other ongoing administrative expenses necessarily incurred in running the Share Plan.
The operating costs associated with the administration of the Share Plan represent a cost or outgoing to or in connection with the operation of the Share Plan. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred.