Edited version of private advice

Authorisation Number: 1052276988393

Date of advice: 13 September 2024

Ruling

Subject:Employee share scheme

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 made to the trustee of A Trust (Trustee)?

Answer

Yes.

Question 2

(a)          Will the irretrievable cash contributions made by Company A to the Trustee be deductible to Company A under section 8-1 of the ITAA 1997 at the time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the Rights have been granted to the employees?

Answer

Yes.

(b)          Will the irretrievable cash contributions made by Company A to the Trustee be deductible to Company A under section 8-1 of the ITAA 1997 in the income year the contributions are made, if the contributions are made after the Rights have been granted to the employees?

Answer

Yes.

Question 3

Will the Commissioner seek to make a determination under subsection 177F(1) of the Income Tax Assessment Act 1936 (ITAA 1936), as a result of section 177D of the ITAA 1936, to deny, in part or in full, a deduction claimed by Company A for the irretrievable cash contributions made to the Trustee to fund the acquisition of shares in Company A by the Trustee, pursuant to the Plan?

Answer

No.

Question 4

Will the provision of Rights and shares to employees of Company A under the Plan constitute a 'fringe benefit' within the meaning of that term in 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 to fund the acquisition of shares pursuant to the Plan, constitute a 'fringe benefit' within the meaning of that term in subsection 136(1) of the FBTAA?

Answer

No.

Question 6

Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A, by the amount of tax benefit gained from irretrievable contributions made by Company A to the Trustee to fund the acquisition of shares by the Trustee?

Answer

No.

This ruling applies for the following periods in respect of questions 1 to 3:

1 July 20YY to 30 June 20YY

This ruling applies for the following period in respect of questions 4 to 6:

1 April 20YY to 31 March 20YY

Relevant facts and circumstances

Company A is a company incorporated in Australia. It operates an employee share plan (the Plan) as part of its remuneration strategy.

Under the Plan, eligible employees (Participants) are granted rights (Rights) to acquire shares in Company A subject to certain conditions being met.

The Plan operates as follows:

•         Company A settled 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 shares in Company A in order to satisfy the Rights. The contributions will be determined in accordance with certain protocols.

•         The Rights are offered by Company A to the Participants subject to certain conditions. When the conditions of the Rights are satisfied by a Participant, shares are released by the Trustee to the Participant.

•         Once the shares are transferred to the Participants, the Participants are entitled to dispose of their shares (subject to complying with certain policies of Company A) according to their own wishes.

Company A is not a beneficiary of A Trust. It does not have any legal or beneficial entitlement to any of the shares forming part of the trust fund at any time, and it cannot acquire such an interest.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 67

Fringe Benefits Tax Assessment Act 1986 subsection 67(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 177D

Income Tax Assessment Act 1936 subsection 177F(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 83A-210

Income Tax Assessment Act 1997 subsection 130-85(4)

Reasons for decision

Questions 1 and 2

Company A is entitled to deduct its irretrievable cash contributions to the Trustee under section 8-1 of the ITAA 1997 as they are expenses directly related to the production of Company A's assessable income.

The deduction for the contributions will be allowed in the year of income when the contribution is made to the Trustee, provided it is in respect of rights to acquire shares that have previously been granted to employees. If the contributions are made before the rights to acquire shares have been granted to employees, the contributions will be deductible at the time determined by section 83A-210 of the ITAA 1997.

Question 3

The Commissioner will not make a determination under subsection 177F(1) of the ITAA 1936, as a result of section 177D of the ITAA 1936, to deny, in part or in full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee.

Questions 4 and 5

The provision of Rights and shares to the Participants under the Plan do not satisfy the definition of 'fringe benefit' under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

The contribution of funds by the Company A to the Trustee in order to acquire shares satisfies the exclusion in paragraph (ha) of the definition of 'fringe benefit' under subsection 136(1) of the FBTAA.

Question 6

As the requirements of subsection 67(1) of the FBTAA are not satisfied, the Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A, by the amount of tax benefit gained from irretrievable contributions made by Company A to the Trustee to fund the acquisition of shares by the Trustee.