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Edited version of your written advice
Authorisation Number: 1051458721748
Date of advice: 30 November 2018
Ruling
Subject: Employee Share Scheme
Question 1
Will the irretrievable cash contributions by the company to the Trustee to fund the acquisition of, or subscription for, the company’s shares by the Trustee be assessable income of the Trust under section 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
Question 2
Will a capital gain or capital loss that arises for the Trustee at the time when the employees become absolutely entitled to the company’s shares (capital gains tax (CGT) event E5), or when the Trustee disposes of the shares to the employees (CGT event E7), be disregarded under section 130-90 of ITAA 1997 if the employees acquire the shares for the same or less than the cost base of the shares in the hands of the Trustee?
Answer
Yes
This ruling applies for the following periods:
Income years ending 30 June 2017 to 30 June 2019
The scheme commences on:
1 July 2016
Relevant facts and circumstances
Company X is an Australian resident company. It operates an employee incentive plan (the Plan) as part of its remuneration strategy.
The employees who are participants of the Plan (the Participants) will be granted with rights (the Rights) to acquire beneficial interests in the shares of the company.
Company X established the Trust to facilitate the acquisition, holding of and allocation of shares to Participants.
The Plan operates as follows:
● Company X makes recurring irretrievable cash contributions to the Trustee to enable the Trustee to acquire the Company shares to satisfy the Rights; and
● The Rights are offered by Company X 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 certain policies of Company X) according to their own wishes.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 section 130-90
Reasons for decision
All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.
Question 1
The irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition of, Company X shares by Trust X will not be assessable income of Trust X under section 6-5 or 6-10 of the ITAA 1997.
Question 2
All of the requirements in section 130-90 of the ITAA 1997 have been satisfied. Therefore a capital gain or capital loss that arises for Trust X at the time when a Company X share is allocated by the Trustee to a Participant pursuant to the Plan Rules in satisfaction of a Right will be disregarded.