Private ruling: Employer Benefit Arrangements
Published: December 2011

Ruling: Q1: Will the contributions of monies by the employer to the trustee pursuant the trust deed, in respect of arm's length employees of the employer, constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Will the loans of monies by the employer to the trustee pursuant to the trust deed constitute an income tax deduction under section 8-1 of the ITAA 1997? | A2: No | Q3: Will the contributions of monies made by the employer to the trustee pursuant to the trust deed for the benefit of a general class of employees constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136 (1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A3: No | Q4: Will the loans of monies made by the employer to the trustee pursuant to the trust deed for the benefit of a general class of employees constitute a "fringe benefit" provided by the employer to the employee as defined in subsection 136 (1) of the FBTAA? | A4: No | Q5: Will the acquisition of shares by the trustee constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? | A5: No | Q6: Will the acquisition of share units by the employee at market value, to which trust assets will be allocated by the trustee, constitute a 'fringe benefit' provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? | A6: No | Q7: Will the loan provided by the trustee to the employee for the purpose of acquiring the share units constitute a 'loan fringe benefit' provided by the trustee to the employee under section 16 of the FBTAA? | A7: Yes | Q8: Where the employee pays or accrues interest at least equivalent to the relevant notional or statutory interest rate in respect of the loan provided by the trustee, will the taxable value of the loan fringe benefit which could arise under section 18 of the FBTAA be nil? | A8: This question is not applicable to the scheme upon which this ruling is based. | Q9: Will the taxable value of the loan fringe benefit be reduced to nil due to the application of the "otherwise deductible rule" under subsection 19 (1) of the FBTAA? | A9: Yes | Q10:  | A10: No | Q11: Where the value of the shares allocated to the share unit falls below the issue price and the share unit is surrendered to the trustee in full satisfaction of the employee's loan obligation, will the surrender of the share unit constitute a "fringe benefit" provided by the trustee to the employee as defines in subsection 136(1) of the FBTAA? | A11: No | Q12: Will a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA, arise where assets are transferred to the unallocated assets account of the trust? | A12: No | Q13: Will the issue of bonus share units pursuant to the trust deed made in respect of the employee's original unit holdings by the trustee to the employee constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136(1) of the FBTAA? | A13: No, by virtue of the explicit exclusion of salary or wages from the term 'fringe benefit', as defined in subsection 136(1) of the FBTAA. | Q14: Will the operating costs associated with the administration of the plan incurred by the employer be deductible under section 8-1 of the ITAA 1997? | A14: Yes | Q15: Will the meeting of operating costs associated with the administration of the plan by the employer constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136(1) of the FBTAA? | A15: No | Q16: Will the payment of administration fees by the employer to the administrator under the plan administration agreement for the provision of administration services to the trustee be deductible under section 8-1 of the ITAA 1997? | A16: Yes | Q17: Will the payment of administration fees by the employer to the administrator under the plan administration agreement for the provision of administration services to the trustee constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136(1) of the FBTAA? | A17: No | Q18: Will the general anti-avoidance provisions under section 67 of the FBTAA 86 apply to the scheme described? | A18: No | Q19: Will the general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936 (ITAA36) apply to the scheme described? | A19: No

Relevant facts and circumstances: The employer intends to implement a long term equity plan for the purpose of providing a long term equity incentive structure to deliver equity based benefits to employees selected by the board of the employer.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 16 | Fringe Benefits Tax Assessment Act 1986 Subsection 16(1) | Fringe Benefits Tax Assessment Act 1986 Section 18 | Fringe Benefits Tax Assessment Act 1986 Subsection 19 (1) | Fringe Benefits Tax Assessment Act 1986 Section 67 | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Subsection 8-1(1) | Income Tax Assessment Act 1997 Subsection 8-1(2) Other references | Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16 | J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 | Reason for Decision | These reasons for decision accompany the Notice of private ruling for the Employer. | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Question 1 | Will the contributions of monies by the employer to the trustee pursuant the trust deed in respect of arm's length employees of the employer constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? Answer | Yes | Section 8-1 of the ITAA 1997 provides that: | 8-1(1) You can deduct from your assessable income any loss or outgoing to the extent that: | · it is incurred in gaining or producing your assessable income; or | · it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. | 8-1(2) However, you cannot deduct a loss or outgoing under this section to the extent that: | · it is a loss or outgoing of capital, or of a capital nature; or | · it is a loss or outgoing of a private or domestic nature; or | · it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or | · a provision of this Act prevents you from deducting it. Ongoing and regular contributions of monies to the trustee by the employer will be made as part of providing a long term equity incentive structure to deliver equity based benefits to the employer. the advantage sought is to provide the employee with a wealth creation mechanism linked to the ongoing work and performance with the employer. | It is therefore considered that the contributions are incurred in gaining or producing assessable income and deductible under section 8-1 of the ITAA 1997. | Question 2 | Will the loans of monies by the employer to the trustee pursuant to the trust deed constitute an income tax deduction under section 8-1 of the ITAA 1997? | Answer | No | A loan is not a loss or outgoing for the purposes of section 8-1 of the ITAA 1997. | Question 3 | Will the contributions of monies made by the employer to the trustee pursuant to the trust deed for the benefit of a general class of employees constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136 (1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | The Full Federal Court in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16 held that, for the purposes of determining whether there was a 'fringe benefit', it was necessary to identify, at the time a benefit was provided, a particular employee in respect of whose employment the benefit was provided. | Therefore, it is considered that the contributions of monies provided by the employer to the trustee for the benefit of a general class of employees is not a 'fringe benefit' provided by the employer to the employee in respect of his/her employment at the time the contribution is provided to the trustee. | Question 4 | Will the loans of monies made by the employer to the trustee pursuant to the trust deed for the benefit of a general class of employees constitute a "fringe benefit" provided by the employer to the employee as defined in subsection 136 (1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | The Full Federal Court in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16 held that, for the purposes of determining whether there was a 'fringe benefit', it was necessary to identify, at the time a benefit was provided, a particular employee in respect of whose employment the benefit was provided. | Therefore, it is considered that the loans of monies provided by the employer to the trustee for the benefit of a general class of employees is not a 'fringe benefit' provided by the employer to the employee in respect of his/her employment at the time the loan is provided to the trustee. | Question 5 | Will the acquisition of shares by the trustee constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | - be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | There is no 'benefit' that arises to the employee upon the acquisition of investments by the trustee for market value consideration. | Question 6 | Will the acquisition of share units by the employee at market value, to which trust assets will be allocated by the trustee, constitute a 'fringe benefit' provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | There is no 'benefit' that arises to the employee upon the acquisition of share units at market value to which trust assets will be allocated by the trustee. | Question 7 | Will the loan provided by the trustee to the employee for the purpose of acquiring the share units constitute a 'loan fringe benefit' provided by the trustee to the employee under section 16 of the FBTAA? | Answer | Yes | A loan fringe benefit means a fringe benefit that is a loan benefit. Subsection 16(1) of the FBTAA provides that a 'loan benefit' arises where a person (the 'provider') makes a loan to another person (the 'recipient') and the recipient is under an obligation to repay the whole or any part of the loan. It is therefore considered that the loan provided by the trustee to the employee constitutes a benefit under subsection 16(1) of the FBTAA, as the employee is under an obligation to repay the whole or any part of the loan pursuant to the trust deed. | The loan provided by the trustee to the employee forms part of the scheme implemented by the employer to confer benefits on the employee in respect of' the employment of the employer. The expression 'in respect of' is defined in subsection 136(1) as including 'by reason of, by virtue of, or for or in relation directly or indirectly'. In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 it was noted that the term 'in respect of employment', includes benefits where '… there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment…' | It is considered that the loan provided by the trustee to the employee has a sufficient or material connection with the employee's employment of the employer. The loan benefit therefore constitutes a fringe benefit under subsection 136(1) of the FBTAA. | Question 8 | Where the employee pays or accrues interest at least equivalent to the relevant notional or statutory interest rate in respect of the loan provided by the trustee, will the taxable value of the loan fringe benefit which could arise under section 18 of the FBTAA be nil? | Answer | This question is not applicable to the scheme upon which this ruling is based. | The loan provided to the employee for the purposes of this ruling will not bear interest. | Question 9 | Will the taxable value of the loan fringe benefit be reduced to nil due to the application of the "otherwise deductible rule" under subsection 19 (1) of the FBTAA? | Answer | Yes | As a beneficiary of the trust, the employee will be entitled to deduct interest expenses incurred in acquiring share units in the trust under section 8-1 of the ITAA 1997 if he/she is presently entitled to any part of the trust. | The loan is made to the employee for the purpose of acquiring share units in the trust. The share units held by the employee entitle the employee to receive distributions of the net income of the trust fund, and distributions of the share unit distribution entitlement. | Accordingly, subsection 19(1) of the FBTAA will apply to reduce the taxable value of the loan fringe benefit to nil. | Question 10 Where the share units are redeemed by the employee for cash, will that redemption constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | There is no 'benefit' that arises to the employee upon redemption of the class a, b or c share units for cash. | Question 11 | Where the value of the shares allocated to the share unit falls below the issue price and the share unit is surrendered to the trustee in full satisfaction of the employee's loan obligation, will the surrender of the share unit constitute a "fringe benefit" provided by the trustee to the employee as defines in subsection 136(1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | When the employee surrenders the share units to the trustee in full satisfaction of the loan, and the value of the asset(s) allocated to the share units is less than the balance of the outstanding loan, a benefit is considered to arise to the employee. | However, the benefit that arises upon discharge of the loan is not considered to be provided 'in respect of the employment' of the employee, but as a result of the employee exercising rights under the terms of the trust deed. | Under the terms of the trust deed the employee obtains the right to cancel the share unit and have the amounts payable to the employee set off as full and final satisfaction of the debt outstanding on the loan. If this right is subsequently exercised, any benefit would be in respect of the exercise of this right, and not in respect of employment (ATO Interpretative Decision 2003/316). | Thus, the benefit that arises to the employee upon surrender of the share unit does not give rise to a fringe benefit as the benefit is not provided to the employee in respect of' the employment relationship. | Question 12 | Will a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA, arise where assets are transferred to the unallocated assets account of the Trust? | Answer | No | Question 13 | Will the issue of bonus share units pursuant to the trust deed made in respect of the employee's original unit holdings by the trustee to the employee constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136(1) of the FBTAA? | Answer | No, by virtue of the explicit exclusion of salary or wages from the term 'fringe benefit', as defined in subsection 136(1) of the FBTAA. | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | Paragraph (f) of subsection 136(1) of the FBTAA excludes from the definition of fringe benefit 'a payment of salary or wages'. | Bonus share units are issued to the employee in respect of the employment at the request of the employer. bonus share units may be cancelled and redeemed at any time. As soon as the bonus share unit is issued, it is redeemable for the redemption distribution as defined in the trust deed. There are no contingencies attached to the bonus share unit. | The bonus share unit is therefore immediately redeemable for the redemption distribution and its receipt by the employee is considered to constitute a payment to the employee of salary or wages, constituting ordinary income. | Section 6-5 of the ITAA 1997 operates to include in an employee's assessable income 'income according to ordinary concepts'. As the receipt of bonus share units constitutes a derivation of ordinary income, it is assessable as salary or wage income under section 6-5 of the ITAA 1997 in the income year that the bonus share units are issued. | As subparagraph (f) of the definition of fringe benefit in subsection 136(1) of FBTAA excludes 'a payment of salary or wages', the issue of bonus share units do not constitute a fringe benefit under subsection 136(1) of the FBTAA. | Question 14 | Will the operating costs associated with the administration of the share plan incurred by the employer be deductible under section 8-1 of the ITAA 1997? | Answer | Yes | A trustee is appointed to administer the share plan. The employer incurs costs operating the share plan. These costs include brokerage fees, audit fees, bank charges and other ongoing administrative expenses necessarily incurred in running the share plan. | The operating costs associated with the administration of the share plan are part of the ordinary employee remuneration costs of the employer. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred (ATO Interpretative Decision 2002/961). | Question 15 | Will the meeting of operating costs associated with the administration of the share plan by the employer constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136(1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, and arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | There is no 'benefit' that arises to the employee upon the employer meeting the operating costs associated with administering the share plan. | Question 16 | Will the payment of administration fees by the employer to the administrator under the plan administration agreement for the provision of administration services to the trustee be deductible under section 8-1 of the ITAA 1997? | Answer | Yes | Pursuant to the plan administration agreement, the administrator has agreed to provide certain administration services to the trustee and the employer has agreed to pay administration fees for these administration services. | The administration fees payable by the employer under the plan administration agreement for the provision of administration services are part of the ordinary employee remuneration costs of the employer. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred. | Question 17 | Will the payment of administration fees by the employer to the administrator under the plan administration agreement for the provision of administration services to the trustee constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136(1) of the FBTAA? | Answer | No | A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: | · be a 'benefit' provided during a year of tax; | · to an employee or an associate of an employee; | · by the employer, an associate of the employer, and arranger or a person to whom paragraph (ea) applies; | · in respect of the employment of the employee; and | · where none of the exclusions listed in the definition apply. | There is no 'benefit' that arises to the employee upon the employer paying the administration fees to the administrator under the plan administration. | Question 18 | Will the general anti-avoidance provisions under section 67 of the FBTAA 86 apply to the scheme described? | Answer | No | Question 19 | Will the general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936 (ITAA36) apply to the scheme described? Answer | No | Provided that the scheme as implemented is materially identical to the scheme described in this ruling it is considered that Part IVA of the ITAA 1936 would not apply in respect of the employer.

Reasons for decision: Summary: Will the contributions of monies by the employer to the trustee pursuant the trust deed in respect of arm's length employees of the employer constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? Yes Section 8-1 of the ITAA 1997 provides that: 8-1(1) You can deduct from your assessable income any loss or outgoing to the extent that: · it is incurred in gaining or producing your assessable income; or · it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. 8-1(2) However, you cannot deduct a loss or outgoing under this section to the extent that: · it is a loss or outgoing of capital, or of a capital nature; or · it is a loss or outgoing of a private or domestic nature; or · it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or · a provision of this Act prevents you from deducting it. Ongoing and regular contributions of monies to the trustee by the employer will be made as part of providing a long term equity incentive structure to deliver equity based benefits to the employer. the advantage sought is to provide the employee with a wealth creation mechanism linked to the ongoing work and performance with the employer. It is therefore considered that the contributions are incurred in gaining or producing assessable income and deductible under section 8-1 of the ITAA 1997. Will the loans of monies by the employer to the trustee pursuant to the trust deed constitute an income tax deduction under section 8-1 of the ITAA 1997? No A loan is not a loss or outgoing for the purposes of section 8-1 of the ITAA 1997. Will the contributions of monies made by the employer to the trustee pursuant to the trust deed for the benefit of a general class of employees constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136 (1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. The Full Federal Court in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16 held that, for the purposes of determining whether there was a 'fringe benefit', it was necessary to identify, at the time a benefit was provided, a particular employee in respect of whose employment the benefit was provided. Therefore, it is considered that the contributions of monies provided by the employer to the trustee for the benefit of a general class of employees is not a 'fringe benefit' provided by the employer to the employee in respect of his/her employment at the time the contribution is provided to the trustee. Will the loans of monies made by the employer to the trustee pursuant to the trust deed for the benefit of a general class of employees constitute a "fringe benefit" provided by the employer to the employee as defined in subsection 136 (1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. The Full Federal Court in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16 held that, for the purposes of determining whether there was a 'fringe benefit', it was necessary to identify, at the time a benefit was provided, a particular employee in respect of whose employment the benefit was provided. Therefore, it is considered that the loans of monies provided by the employer to the trustee for the benefit of a general class of employees is not a 'fringe benefit' provided by the employer to the employee in respect of his/her employment at the time the loan is provided to the trustee. Will the acquisition of shares by the trustee constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: - be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. There is no 'benefit' that arises to the employee upon the acquisition of investments by the trustee for market value consideration. Will the acquisition of share units by the employee at market value, to which trust assets will be allocated by the trustee, constitute a 'fringe benefit' provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. There is no 'benefit' that arises to the employee upon the acquisition of share units at market value to which trust assets will be allocated by the trustee. Will the loan provided by the trustee to the employee for the purpose of acquiring the share units constitute a 'loan fringe benefit' provided by the trustee to the employee under section 16 of the FBTAA? Yes A loan fringe benefit means a fringe benefit that is a loan benefit. Subsection 16(1) of the FBTAA provides that a 'loan benefit' arises where a person (the 'provider') makes a loan to another person (the 'recipient') and the recipient is under an obligation to repay the whole or any part of the loan. It is therefore considered that the loan provided by the trustee to the employee constitutes a benefit under subsection 16(1) of the FBTAA, as the employee is under an obligation to repay the whole or any part of the loan pursuant to the trust deed. The loan provided by the trustee to the employee forms part of the scheme implemented by the employer to confer benefits on the employee in respect of' the employment of the employer. The expression 'in respect of' is defined in subsection 136(1) as including 'by reason of, by virtue of, or for or in relation directly or indirectly'. In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 it was noted that the term 'in respect of employment', includes benefits where '… there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment…' It is considered that the loan provided by the trustee to the employee has a sufficient or material connection with the employee's employment of the employer. The loan benefit therefore constitutes a fringe benefit under subsection 136(1) of the FBTAA. Where the employee pays or accrues interest at least equivalent to the relevant notional or statutory interest rate in respect of the loan provided by the trustee, will the taxable value of the loan fringe benefit which could arise under section 18 of the FBTAA be nil? This question is not applicable to the scheme upon which this ruling is based. The loan provided to the employee for the purposes of this ruling will not bear interest. Will the taxable value of the loan fringe benefit be reduced to nil due to the application of the "otherwise deductible rule" under subsection 19 (1) of the FBTAA? Yes As a beneficiary of the trust, the employee will be entitled to deduct interest expenses incurred in acquiring share units in the trust under section 8-1 of the ITAA 1997 if he/she is presently entitled to any part of the trust. The loan is made to the employee for the purpose of acquiring share units in the trust. The share units held by the employee entitle the employee to receive distributions of the net income of the trust fund, and distributions of the share unit distribution entitlement. Accordingly, subsection 19(1) of the FBTAA will apply to reduce the taxable value of the loan fringe benefit to nil. Question 10 Where the share units are redeemed by the employee for cash, will that redemption constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. There is no 'benefit' that arises to the employee upon redemption of the class a, b or c share units for cash. Where the value of the shares allocated to the share unit falls below the issue price and the share unit is surrendered to the trustee in full satisfaction of the employee's loan obligation, will the surrender of the share unit constitute a "fringe benefit" provided by the trustee to the employee as defines in subsection 136(1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. When the employee surrenders the share units to the trustee in full satisfaction of the loan, and the value of the asset(s) allocated to the share units is less than the balance of the outstanding loan, a benefit is considered to arise to the employee. However, the benefit that arises upon discharge of the loan is not considered to be provided 'in respect of the employment' of the employee, but as a result of the employee exercising rights under the terms of the trust deed. Under the terms of the trust deed the employee obtains the right to cancel the share unit and have the amounts payable to the employee set off as full and final satisfaction of the debt outstanding on the loan. If this right is subsequently exercised, any benefit would be in respect of the exercise of this right, and not in respect of employment (ATO Interpretative Decision 2003/316). Thus, the benefit that arises to the employee upon surrender of the share unit does not give rise to a fringe benefit as the benefit is not provided to the employee in respect of' the employment relationship. Will a "fringe benefit" provided by the trustee to the employee as defined in subsection 136 (1) of the FBTAA, arise where assets are transferred to the unallocated assets account of the Trust? No Will the issue of bonus share units pursuant to the trust deed made in respect of the employee's original unit holdings by the trustee to the employee constitute a "fringe benefit" provided by the trustee to the employee as defined in subsection 136(1) of the FBTAA? No, by virtue of the explicit exclusion of salary or wages from the term 'fringe benefit', as defined in subsection 136(1) of the FBTAA. A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, an arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. Paragraph (f) of subsection 136(1) of the FBTAA excludes from the definition of fringe benefit 'a payment of salary or wages'. Bonus share units are issued to the employee in respect of the employment at the request of the employer. bonus share units may be cancelled and redeemed at any time. As soon as the bonus share unit is issued, it is redeemable for the redemption distribution as defined in the trust deed. There are no contingencies attached to the bonus share unit. The bonus share unit is therefore immediately redeemable for the redemption distribution and its receipt by the employee is considered to constitute a payment to the employee of salary or wages, constituting ordinary income. Section 6-5 of the ITAA 1997 operates to include in an employee's assessable income 'income according to ordinary concepts'. As the receipt of bonus share units constitutes a derivation of ordinary income, it is assessable as salary or wage income under section 6-5 of the ITAA 1997 in the income year that the bonus share units are issued. As subparagraph (f) of the definition of fringe benefit in subsection 136(1) of FBTAA excludes 'a payment of salary or wages', the issue of bonus share units do not constitute a fringe benefit under subsection 136(1) of the FBTAA. Will the operating costs associated with the administration of the share plan incurred by the employer be deductible under section 8-1 of the ITAA 1997? Yes A trustee is appointed to administer the share plan. The employer incurs costs operating the share plan. These costs include brokerage fees, audit fees, bank charges and other ongoing administrative expenses necessarily incurred in running the share plan. The operating costs associated with the administration of the share plan are part of the ordinary employee remuneration costs of the employer. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred (ATO Interpretative Decision 2002/961). Will the meeting of operating costs associated with the administration of the share plan by the employer constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136(1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, and arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. There is no 'benefit' that arises to the employee upon the employer meeting the operating costs associated with administering the share plan. Will the payment of administration fees by the employer to the administrator under the plan administration agreement for the provision of administration services to the trustee be deductible under section 8-1 of the ITAA 1997? Yes Pursuant to the plan administration agreement, the administrator has agreed to provide certain administration services to the trustee and the employer has agreed to pay administration fees for these administration services. The administration fees payable by the employer under the plan administration agreement for the provision of administration services are part of the ordinary employee remuneration costs of the employer. Accordingly they are deductible under section 8-1 of the ITAA 1997 in the year that they are incurred. Will the payment of administration fees by the employer to the administrator under the plan administration agreement for the provision of administration services to the trustee constitute a 'fringe benefit' provided by the employer to the employee as defined in subsection 136(1) of the FBTAA? No A 'fringe benefit' is defined in subsection 136(1) of the FBTAA. It must have the following features: · be a 'benefit' provided during a year of tax; · to an employee or an associate of an employee; · by the employer, an associate of the employer, and arranger or a person to whom paragraph (ea) applies; · in respect of the employment of the employee; and · where none of the exclusions listed in the definition apply. There is no 'benefit' that arises to the employee upon the employer paying the administration fees to the administrator under the plan administration. Will the general anti-avoidance provisions under section 67 of the FBTAA 86 apply to the scheme described? No Will the general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936 (ITAA36) apply to the scheme described? No Provided that the scheme as implemented is materially identical to the scheme described in this ruling it is considered that Part IVA of the ITAA 1936 would not apply in respect of the employer.

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