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Edited version of your written advice
Authorisation Number: 1051202946977
Date of advice: 10 April 2017
Ruling
Subject: Employee Share Plan
Question 1
Will Company A be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for its irretrievable cash contributions to the trustee of A Trust (Trustee)?
Answer
Yes.
Question 2
(a) Will Company A be able to deduct the irretrievable cash contributions to the Trustee at a time determined by section 83A-210 of the ITAA 1997, where the contributions are made before the acquisition of the relevant rights to acquire shares in Company A (Rights) by the Participants?
Answer
Yes.
(b) Will Company A be able to deduct the irretrievable cash contributions to the Trustee under section 8-1 of the ITAA 1997 in the income year when the contributions are made, where the contribution is made after the acquisition of the relevant Rights by the Participants?
Answer
Yes.
Question 3
Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in full or in part, any deduction claimed by Company A in respect of irretrievable cash contributions made to the Trustee?
Answer
No.
Question 4
Is the provision of the Rights by Company A to its employees under the employee share plan, a 'fringe benefit' within the meaning of subsection 136(1) of the Fringe Benefit Tax Assessment Act 1986 (FBTAA)?
Answer
No.
Question 5
Will the irretrievable cash contributions made by Company A to the Trustee be treated as a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA?
Answer
No.
This ruling applies for questions 1 to 3 for the following periods:
1 July 2016 to 30 June 2021
This ruling applies for questions 4 and 5 for the following periods:
1 April 2016 to 31 March 2021
Relevant facts and circumstances
1. Company A is an Australian resident company. It operates an employee share plan (the Plan) as part of its remuneration strategy.
Under the Plan, eligible employees (Participants) are granted Rights to acquire Company A shares subject to certain conditions are met.
2. The Plan operates as follows:
● Company A established A Trust to facilitate the acquisition, holding of, and allocation of shares to Participants.
● Company A makes irretrievable cash contributions to the Trustee to enable the Trustee to acquire Company A shares to satisfy the Rights.
● The Rights are offered by Company A to Participants. When the Rights vest to a Participant, shares are released by the Trustee and allocated to the Participants.
● Once Rights vest and shares are transferred to the Participants, the Participants are entitled to dispose of their shares (subject to complying with the Company A's policy) according to their own wishes.
3. Company A is not a beneficiary of A Trust and it has no interest in the shares held by the Trustee.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Income Tax Assessment Act 1936 Part IVA
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 83A-10
Income Tax Assessment Act 1997 section 83A-210
Income Tax Assessment Act 1997 subsection 130-85(4)
Reasons for decision
Question 1
The irretrievable cash contributions to the Trustee are employee remuneration costs, directly related to enhancing the profitability of Company A. They are not business outgoings of capital or of a capital nature. Therefore, Company A is entitled to deduct them under section 8-1 of the ITAA 1997.
Question 2
Where the contributions are made before the acquisition of the relevant Rights by the Participants, the requirements of section 83A-210 of the ITAA 1997 will be satisfied. Therefore, Company A will be able to deduct the irretrievable cash contributions to the Trustee at a time determined by section 83A-210 of the ITAA 1997.
Where the contributions are made after the acquisition of the relevant Rights by the Participants, the requirements of section 83A-210 of the ITAA 1997 will not be satisfied. Therefore, Company A will be able to deduct the irretrievable cash contributions to the Trustee under section 8-1 of the ITAA 1997 in the income year when the contributions are made,
Question 3
Part IVA is a general anti-avoidance provision. It gives the Commissioner the discretion to cancel a tax benefit that has been obtained, or would but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies.
Having regard to the relevant circumstances of the present case, it cannot be concluded that the scheme was entered into for the dominant purpose of enabling Company A to obtain a tax benefit. Therefore, the Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by Company A for the irretrievable cash contributions made to the Trustee.
Question 4
The provision of Rights to employees of Company A under the Plan will not be treated as a 'fringe benefit' because it does not fall within the meaning of the term in subsection 136(1) of the FBTAA.
Question 5
The irretrievable cash contributions made by Company A to the Trustee will not constitute a 'fringe benefit' because they do not fall within the meaning of the term in subsection 136(1) of the FBTAA.