ATO ID 2010/142: Employee share scheme: indeterminate rights not fringe benefits
Date of decision: 24 June 2010
Year of income: Year ended 30 June 2010
Business line: Superannuation and Employer Obligations

Issue
Is the grant by a company of indeterminate rights to employees in relation to their employment excluded from the definition of fringe benefit by paragraph 136(1)(f) or 136(1)(h) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes. The grant of indeterminate rights to employees of a company in relation to their employment is excluded from the definition of fringe benefit by paragraph 136(1)(f) or 136(1)(h) of the FBTAA.

Facts
A company operates a scheme under which the company grants rights (indeterminate rights) to its employees in relation to their employment at a discount. The rights granted entitle the employees to acquire:

Reasons for decision
Summary: The definition of benefit in subsection 136(1) of the FBTAA includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility. The indeterminate rights come within the definition of 'benefit'. Generally, a benefit provided to an employee by their employer in respect of the employee's employment is a fringe benefit as defined in subsection 136(1) of the FBTAA. However, the definition of 'fringe benefit' does not include: At the time the indeterminate rights are granted it may be considered unclear if paragraph (f) or (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because: Although the indeterminate rights are not ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997 at the time they are granted, where they are ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to receive is determined): Alternatively, where an employee's indeterminate rights are ultimately satisfied with cash instead of shares, the granting of the rights: Therefore, the grant of indeterminate rights to employees of the company in relation to their employment will be excluded from the definition of fringe benefit by either paragraph 136(1)(f) or (h) of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 136(1) paragraph 136(1)(f) paragraph 136(1)(h)
Subject references: Fringe benefits tax Benefit Employee share schemes & options