ATO Interpretative Decision
ATO ID 2008/149 (Withdrawn)
Income Tax
Capital gains tax: employee share trust - whether capital gain by trustee disregarded - payments by employees to the company issuing the shares as contributions to share capitalFOI status: may be released
-
This ATO ID is withdrawn because changes made to the law by Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 mean that the issue will not arise in the scenario considered by the ATO ID. The changes apply to employee share scheme interests acquired on and after 1 July 2009 (subject to certain tiebreaker rules).This document has changed over time. View its history.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Where an employee acquires a share in a company from the trustee of an employee share trust, and as consideration for that share pays an amount to the company as a contribution to share capital, is that payment taken into account in calculating, for the purposes of subsection 130-90(4) of the Income Tax Assessment Act 1997 (ITAA 1997), the amount for which the employee acquired the share?
Decision
No. The payment to the company is not taken into account in calculating, for the purposes of subsection 130-90(4) of the ITAA 1997, the amount for which the employee acquired the share.
Facts
Under an employee share scheme, employees of a company were offered shares in the employer company provided, amongst other things, they made a payment to the company as consideration for the shares.
These payments were received by the company as contributions to share capital.
The company issued the shares to the trustee of an employee share trust and the employees acquired beneficial interests in the shares.
At a later time, when all the relevant conditions were satisfied (including payment to the company for the shares), the employees became absolutely entitled to the shares as against the trustee.
The employees paid nothing to the trustee, either directly or indirectly.
Reasons for Decision
Subsection 130-90(4) of the ITAA 1997 requires that the amount for which a share is acquired by the beneficiary must not be greater than the cost base of that share to the trustee at the time of the transfer.
Subsection 130-90(4) of the ITAA 1997 is aimed at sparing the trustee a tax liability for a capital gain that arises due to the use of market value, as with subsection 104-75(3) of the ITAA 1997. This may arise in circumstances in which the trustee of an employee share trust has transferred shares to a beneficiary pursuant to an employee share scheme without having actually received any capital proceeds. The intended purpose of subsection 130-90(4) of the ITAA 1997 is not achieved if the trustee makes a capital gain that does not reflect the true nature of the transaction, as is the case when payment for shares is directed away from the trustee.
Subsection 130-90(4) of the ITAA 1997 achieves the appropriate outcome if amounts not included in the trustee's capital proceeds, such as payments made directly to the company issuing the share, are excluded from amounts covered by that provision. This approach to subsection 130-90(4) of the ITAA 1997 presents a purposive interpretation and is consistent with both the emphasis on legislative purpose and the focus in the subsection on the trustee's dealings (see Bermingham v. Corrective Services Commissioner of NSW (1988) 15 NSWLR 292 at 302 per McHugh J.).
Date of decision: 18 September 2008Year of income: Year ended 30 June 2008 Year ended 30 June 2009
Legislative References:
Income Tax Assessment Act 1997
subsection 130-90(4)
Keywords
Employee share schemes & options
Trustees
ISSN: 1445-2782
| Date: | Version: | |
| 18 September 2008 | Original statement | |
| You are here | 19 February 2010 | Archived |