Edited version of private advice

Authorisation Number: 1051648129641

Date of advice: 29 April 2020

Ruling

Subject: Employee share scheme

Issue 1

Question 1

Will Company X obtain an income tax deduction, pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), in respect of the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for or acquisition on-market of Company X shares by the Trust?

Answer

Yes

Question 2

Will Company X obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997 in respect of costs incurred by Company X in relation to the on-going administration of the Trust?

Answer

Yes

Question 3

Will irretrievable cash contributions made by Company X to the Trustee, to fund the subscription for or acquisition on-market of Company X shares by the Trust, be deductible to Company X at a time determined by section 83A-210 of the ITAA 1997?

Answer

Yes

Question 4

If the Trust satisfies its obligation under the Plans by subscribing for new shares in Company X, will the subscription proceeds be included in the assessable income of Company X under section 6-5 or 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA 1997?

Answer

No

Question 5

Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or full, any deduction claimed by Company X in respect of the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for or acquisition on-market of Company X shares by the Trust?

Answer

No

The rulings for questions 1 to 5 inclusive each apply for the following periods:

Income tax year ended 30 June 20xx to 30 June 20xx

Issue 2

Question 6

Will the provision of options/rights or shares by Company X to its employees under the Employee Share Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 7

Will the irretrievable cash contributions made by Company X to the Trustee, to fund the subscription for or acquisition on-market of Company X shares, be treated as a fringe benefit within the meaning of section 136(1) of the FBTAA?

Answer

No

Question 8

Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company X by the amount of tax benefit gained from irretrievable cash contributions made by Company X to the Trustee, to fund the subscription for or acquisition on-market of Company X shares?

Answer

No

The rulings for questions 6 to 8 each apply for the following periods:

Fringe benefits tax year ended 31 March 20xx to 31 March 20xx

The scheme commences on:

7 December 20xx

Relevant facts and circumstances

Company X is an Australian resident company. It operates an employee incentive plan (the Plans) as part of its remuneration strategy.

The employees who are participants of the Plans (the Participants) will be granted with options/rights (the Options/Rights) to acquire shares in Company X.

Company X established the Trust to facilitate the acquisition, holding of and allocation of shares to Participants.

The Plans is governed by the Plan Rules and operates as follows:

·         Company X makes recurring irretrievable cash contributions to the Trustee to enable the Trustee to acquire Company X shares to satisfy the Rights; and

·         Company X has incurred costs in the on-going administration of the Trust.

·         The Options/Rights are offered by Company X to Participants. When the Options/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

Fringe Benefits Tax Assessment Act 1986 section 67

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 177F

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 20-20

Income Tax Assessment Act 1997 section 83A-210

Income Tax Assessment Act 1997 Division 104

Reasons for decision

Question 1

The irretrievable contribution made by Company X to the Trustee of the Trust to fund the acquisition of ordinary shares in Company X in accordance with the Trust Deed and the Plans would be an allowable deduction to Company X under section 8-1 of the ITAA 1997.

Question 2

Company X is entitled to an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred in relation to the on-going administration of the Trust.

Question 3

Where contributions are made by Company X to the Trust in the same income year in which the Rights are granted to the Participant under the Plans or in a later income year, the deduction under section 8-1 of the ITAA 197 will be available in the income year in which the contribution is made.

Question 4

When the Trustee of the Trust satisfies its obligations under the Trust Deed by subscribing for new shares in Company X, the subscription proceeds will not be included in the assessable income of Company X under section 6-5 of the ITAA 1997 or section 20-20 of the ITAA 1997, and nor will it trigger a CGT event under Division 104 of the ITAA 1997.

Question 5

The Commissioner will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or in full, any deduction claimed by Company X for the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, ordinary shares in Company X.

Question 6

The provision of Rights under the Plan will not be subject to fringe benefits tax either on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA or on the basis that they are a payment of salary or wages (in the case of Rights which are ultimately satisfied with cash) and are thereby excluded from the definition of fringe benefit by paragraph 136(1)(f) of the FBTAA.

Accordingly, when an employee of Company X participates in the Plans obtain a right (being a right to acquire a beneficial interest in a share in Company X) and this right constitutes an ESS interest. When this right is subsequently exercised, any benefit received would be in respect of the exercise of the right, and not in respect of employment. Therefore, will not give rise to a fringe benefit as a benefit has not been provided in respect of the employment of the employee.

Question 7

Paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA excludes the contributions to the Trustee from being a fringe benefit.

The irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition on-market of, Company X shares, will not constitute a fringe benefit within the meaning of section 136(1) of the FBTAA.

Question 8

The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of Company X by the amount of the tax benefit gained from the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, shares in Company X.