ATO ID 2005/195: Fringe benefits tax: issue of shares to a trust by a franchisor for the benefit of franchisee employees
Date of decision: 1 July 2005
Year of income: Year ended 30 June 2005
Business line: Superannuation and Employer Obligations

Issue
Where a franchisor company (franchisor) issues shares to a trust for the benefit of franchisee employees, will the franchisor be a person who provides a benefit for the purposes of paragraph (ea) of the definition of fringe benefit at subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes. The franchisor will be a person who provides a benefit for the purposes of paragraph (ea) of the definition of fringe benefit at subsection 136(1) of the FBTAA.

Facts
A franchisor carries on business involving a number of franchisees. The franchisor and franchisee are not associates as defined in subsection 136(1) of the FBTAA. Each franchisee employs its own staff. Under the licence agreement between the franchisor and franchisees the payroll function of the franchisees is performed by the franchisor. The franchisor has established a trust for the benefit of franchisee employees who have signed workplace agreements and hold specified positions for specified periods with franchisees. The franchisor issues shares to the trust, the number of shares issued being calculated by reference to the number of franchisee employees who have signed workplace agreements and have occupied specified positions for specified periods. The settlor intends that the trustee, in exercising its powers to allocate shares to a beneficiary, have regard to (amongst other matters) the employment position and length of service of the beneficiary with a franchisee since becoming a beneficiary. The trustee of the trust has an absolute discretion to allocate shares to employee beneficiaries. The trust has been conceived and established by the franchisor without the consent of, or without consultation with the franchisees. Information about franchisee employees, required by the franchisor to issue shares to the trust, is available to the franchisor because the franchisor performs the payroll function. Information about franchisee employees, required by the trustee to allocate trust income and capital to beneficiaries, is obtained from the franchisor which has access to this information because the franchisor performs the payroll function.

Reasons for decision
Summary: As the franchisor and the franchisees are not associates (for the purposes of the FBTAA), the franchisor will be a person (the provider) for the purposes of paragraph (ea) of the definition of fringe benefit at subsection 136(1) of the FBTAA if: The issue of shares by the franchisor to the trustee will be calculated by reference to the number of franchisee employees who have signed workplace agreements and have occupied specified positions for specified periods. In relation to the ongoing operation of the trust, the trustee, in order to satisfy its fiduciary obligations to the beneficiaries, will need specific information in relation to each of the beneficiaries, for example, position held and length of service. If the franchisees were to provide this information directly to the trustee they would be considered to be participating in or facilitating the issue of shares to the trustee and participating in or facilitating a scheme or plan involving the issue of shares to the trustee and would know, or ought reasonably to know that they were doing so. Where the franchisor provides the information to the trustee the information is only available to the franchisor as a result of the payroll function that it performs under licence agreements between itself and the franchisees. Therefore the franchisees will still be considered to be and would know, or ought reasonably to know that they were doing so Thus for the purposes of paragraph (ea) of the definition of fringe benefit at subsection 136(1) of the FBTAA the franchisor is considered to be a person who provides a benefit.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Subject references: Discretionary trusts Employee share schemes & options Fringe benefits Fringe benefits tax