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Ruling
Subject: Employee share trust
Question 1
Will CGT Event E5 be triggered at the time that the Trustee of the Trust starts to hold the Shares for and on behalf of the Participants?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
Year ending 30 June 2012
Relevant facts and circumstances
The scheme the subject of this Ruling has been ascertained from the following documents:
· Application for Private Ruling
· Plan Rules
· The Trust Deed of the Trust
· Shareholders Agreement
· Offer documents
Relevant legislative provisions
Subsection 104-75(1) of the Income Tax Assessment Act 1997
Subsection 104-75(2) of the Income Tax Assessment Act 1997
Subsection 104-75(3) of the Income Tax Assessment Act 1997
Reasons for decision
Section 104-75 of the ITAA 1997 contains the rules dealing with CGT event E5. Subsection 104-75(1) of the ITAA 1997 states that CGT event E5 happens if a beneficiary of a trust becomes absolutely entitled to an asset of the trust as against the trustee of the trust. Subsection 104-75(2) of the ITAA 1997 provides that the timing of the event is when the beneficiary becomes absolutely entitled to the asset, and under subsection 104-75(3) of the ITAA 1997 the trustee makes a capital gain if the market value of the asset (at the time of the event ) is more than its cost base.
It is necessary to determine if and when the employee becomes absolutely entitled to the shares to ascertain if and when CGT event E5 happens.
Draft Taxation Ruling TR 2004/D25 Income Tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 provides that the core principle underlying the concept of absolute entitlement in the CGT rules is the ability of a beneficiary who has a vested and indefeasible interest in a trust asset to call for the asset to be transferred to them as they so direct.
Paragraph 74 of TR 2004/D25 provides:
74. A vested interest is one that is bound to take effect in possession at some time and is not contingent upon an event occurring that may or may not take place. A beneficiary's interest in an asset is vested in possession if they the right to immediate possession or enjoyment of it.
Applying the above to the terms of the Trust Deed in this case, it is considered that the employee becomes absolutely entitled to the Shares as against the Trustee of the Trust, and CGT event E5 happens, when the shares are allocated to the employee.