Private ruling: Employee share scheme, CGT - market value substitution, fringe benefits tax
Date of advice: 20 August 2025
Published: 1 December 2025
Ruling period: Income year ended 30 June 2026 | Income year ended 30 June 2027 | Fringe benefits tax year ended 31 March 2026 | Fringe benefits tax year ended 31 March 2027 | Fringe benefits tax year ended 31 March 2028
Date scheme commenced: 1 July 2025

Ruling: Q1: Will the sale of the shares by in the Company by the Trust be considered a provision of an ESS interest in an employee share scheme for the purposes of section 83A-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Where the Trust sells the shares in the Company to the Individual, or someone nominated by them, for less than market value, will subsection 116-30(2) of the ITAA 1997 apply to deem the capital proceeds on sale of the shares to be market value? | A2: Yes | Q3: Will the sale of the shares in the Company by the Trust to the Individual be a provision of a 'fringe benefit' under section 136(1) of the Fringe Benefits Tax Assessment Act 1986? | A3: No


Relevant legislative provisions: Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 subsection 116-20(1) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 section 116-30 | Income Tax Assessment Act 1997 subsection 116-30(1) | Income Tax Assessment Act 1997 subsection 116-30(2) | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: Unless otherwise indicated, all legislative references are to the Income Tax Assessment Act 1997 . | Detailed Reasoning - Issue 1: Income Tax | Detailed Reasoning - Question 1: Will the sale of the shares in the Company by the Trust to Person C be considered a provision of an ESS interest in an employee share scheme for the purposes of section 83A-10? | Summary: No, the sale of shares in the Company the Trust will not be considered a provision of an ESS interest in an employee share scheme as the discount provided on the sale price is not in relation to the Individual's employment with the Company. | Detailed Reasoning - Detailed reasoning: Subsection 83A-10(1) defines an 'ESS interest', in a company, as a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. Subsection 83A-10(2) defines an 'employee share scheme' as a scheme under which ESS interests in a company are provided to employees, or associates of employees (including past or prospective employees) of the company or subsidiaries of the company, in relation to the employee's employment. Although the Individual is an employee of the Company, you have indicated that the sale at a discount/on favourable terms is due to your close relationship with them. Any discount on the sale price is not in relation to the Individual's employment with the Company, rather any discount has been provided due to the personal relationship between Person A and Person B, and Person C. Specifically, the arrangement here is the provision of shares in relation to the sale of a private company - the shares are not provided in relation to the Individual's employment. The Individual only acquires the shares after a run-in period, as part of a business sale deal - the shares are not specifically granted to them as a benefit for services rendered in the ordinary course of their employment. Therefore, the shares in the Company, although they could be considered ESS interests, would not be provided to Person C under an employee share scheme pursuant to section 83A-10. | Detailed Reasoning - Question 2: Where the Trust sells the shares in the Company to Person C, or someone nominated by them, for less than market value, will subsection 116-30(2) apply to deem the capital proceeds on sale of the shares to be market value? | Summary: Yes, the capital proceeds on sale of the shares will be deemed to be market value. A capital gain on sale of shares will arise, calculated as the difference between the capital proceeds and the cost base of the shares in the Company. | Detailed Reasoning - Detailed reasoning: Under the general rules in subsection 116-20(1), the capital proceeds from a CGT event A1 happening on disposal of an asset are the total of: (a) the money you have received, or are entitled to receive, in respect of the event happening; and (b) the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event). Generally, CGT event A1 happens when you enter into the disposal contract for an asset, refer subsection 104-10(3). The general rules about capital proceeds in section 116-20 may be modified by the market value substitution rule in section 116-30. Subsection 116-30(1) applies in circumstances where no capital proceeds are received, otherwise subsection 116-30(2) applies. Under subsection 116-30(2), the capital proceeds from a CGT event are replaced with the market value of the CGT asset that is the subject of the event if: (a) some or all of those capital proceeds cannot be valued; or (b) those capital proceeds are more or less than the market value of the asset and: (i) you and the entity that *acquired the asset did not deal with each other at *arm's length in connection with the event, or (ii) the CGT event is CGT event C2 (about cancellation, surrender and similar endings). In relation to arm's length dealings, Dodds-Streeton J in ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312 (at [223]) said the authorities establish that: ... an arm's length relationship is that of strangers, or parties who are unaffected by existing mutual duties, liabilities, obligations, cross-ownership of assets, or identity of interests which present a capacity in either party to influence or control the other, or an inducement to serve that common interest, which might operate to modify the terms on which strangers would deal. In determining whether parties are dealing with each other at arm's length, the relationship between the parties is not the key factor, but rather the nature of the dealings between the parties in the circumstances, see T rustee for the Estate of the late AW Furse No 5 Will Trust v FCT (1990) 21 ATR 1123 The test to be adopted... does not concern the relationship between parties, but rather than the quality of the dealing between them. The emphasis is on whether the parties to the relevant agreement dealt with each other at arm's length, in the sense that the outcome of their dealing was a matter of real bargaining. Subsection 116-30(2) also provides that the market value is worked out as at the time of the CGT event. For an CGT event A1, that time is generally when you enter into the contract for the disposal of the asset. | Detailed Reasoning - Application to this case: When the Agreement for the sale of shares in the Company is signed, a CGT event A1 will occur. The capital gain on the CGT event will be calculated as the capital proceeds less the cost base of the shares in the Company. In this regard, the capital proceeds of $10 is less than the market value of the shares in the Company. In this case, the Commissioner accepts that the Trust, and the Individual have not deal with each other at arm's length in connection with the sale of the shares. Therefore, section 116-30(2) will apply such that the market value of the shares in the Company is substituted for the $10 capital proceeds in the capital gain calculation. | Detailed Reasoning - Issue 2: Fringe Benefits Tax | Detailed Reasoning - Question 3: Will the sale of the shares by in the Company by the Trust to the Individual be a provision of a 'fringe benefit' under section 136(1) of the Fringe Benefits Tax Assessment Act 1986? | Summary: No, the sale of shares in the Company by the Trust will not be considered a provision of a 'fringe benefit' as the discount provided on the sale price is not in relation to the Individual's employment with the Company. | Detailed Reasoning - Detailed reasoning: The definition of a 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA') requires that the following conditions are satisfied: 1. A benefit is provided at any time during the year of tax. 2. The benefit is provided to an employee or an associate of the employee. 3. The benefit is provided by: a. their employer; or b. an associate of the employer; or c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer: i. participates in or facilitates the provision or receipt of the benefit; or ii. participates in, facilitates, or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so. | Detailed Reasoning - Is a benefit provided?: Subsection 136(1) of the FBTAA provides a broad definition of 'benefit' as including: any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is or is to be, provided under: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. The sale of shares in the Company for less than market value is a benefit. Therefore, the first condition (i.e. the provision of a benefit) is satisfied. | Detailed Reasoning - Is the benefit provided to an employee or an associate of the employee?: An employee is defined in subsection 136(1) of the FBTAA to include a current, future and former employee. The definition of 'current employee' includes a person who receives 'salary or wages' (subsection 136(1) of the FBTAA). As the Individual receives salary and wages, they would be considered a current employee. Therefore the second condition (i.e. a benefit is provided to an employee) has been met. | Detailed Reasoning - Is the benefit provided by the employer, an associate of the employer or a third party?: An 'employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer. The definition of 'current employer' being an entity liable to pay 'salary or wages' (subsection 136(1) of the FBTAA). The Company pays salary and wages to the Individual and so would be considered a current employer. For the purposes of the FBTAA, an associate is given the meaning as per section 318 of the Income Tax Assessment Act 1936 (ITAA 1936) . As the Trust holds all the shares in the Company, the Trust would be considered an associate of the Company under section 318 of the ITAA 1936. The sale of the shares in the Company by the Trust at a discount would be a benefit provided by an associate of the employer Therefore, the third condition (i.e. a benefit is provided by an associate of the employer) as defined in subsection 136(1) of the FBTAA is satisfied. | Detailed Reasoning - Is the benefit provided in respect of the employee's employment?: 'In respect of' is defined in subsection 136(1) of the FBTAA as in relation to the employment of an employee, including by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. Subsections 148(1) and 148(3) of the FBTAA extend this meaning. Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment explains that these subsections do not remove, in any circumstances, the fundamental requirement that, before there can be a tax liability, the benefit under consideration must be provided in respect of the employment of the employee. In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 , the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. In this case, the Individual being an employee of the Company, has entered into a contract to purchase the shares in the Company, their employer, at a discount. The Trust, the current owner of the shares in the Company, will enter into this contract only due to the relationship between Person A and Person B, as controllers of the Trust, and Person C. The ultimate benefit is primarily, first and foremost, an ownership benefit that is grounded in and stems entirely from shareholding rights. The shares are being transferred as part of a commercial succession arrangement, they are not being provided as remuneration for performance associated with or in respect of, employment duties. As such the Commissioner accepts that the sale of shares in the Company at a discount is not provided in respect of the employment of an employee. Therefore the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) would not be satisfied. | Detailed Reasoning - Conclusion: As the sale of the shares in the Company at a discount is not provided in respect of the employment of an employee, it is not a benefit as per the definition in subsection 136(1) of the FBTAA. Therefore, the sale of the shares at a discount would not be the provision of a fringe benefit, such that the Company would not be liable to fringe benefits tax on the transaction.

1. Trustee Co is company and acts as trustee for the Trust. Person A and Person B own the shares in Trustee Co. | 2. The Trust owns all the shares in the Company. | 3. The directors of the Company are Person A and Person B. | 4. The Company operates franchise store operating a business in small country town in Australia. | 5. Due to health issues, Person A and Person B have been trying to find a buyer for the business or the shares in the Company for some time, since early 202X. However, they have been unable to find a buyer of the business or the company. | 6. Steps taken to try and sell the company and business include advertising in the local newspaper and social media, appointing a business broker to sell the business and advertising 'For Sale' posters outside the business premises. | 7. Person A and Person B would like the Company and the business to remain open as it is an important business to the small country town. | 8. As there was no interest in anyone buying the business, a Manager was appointed to run the business in July 202X, however this did not work out and they were terminated in January 202X. | 9. In January 202X, Person A and Person B approached Person C to take over the company and business. | 10. The Individual is a very close friend of Person A and Person B, with their shared history going back many years. | 11. Person C worked from a very young age in the business for Person A and Person B. When they finished their schooling, they worked full time in the business for approximately 2 years in 200X-200X. Person C then moved away for work, but returned to employment at the business in December 201X. In mid-202X, Person C decided to travel solo and see Australia. | 12. Person C returned to the town on occasion to manage the business to enable Person A and Person B to go on extended holidays. | 13. After discussions with Person A and Person B, Person C agreed to return to the town in April 202X and become the Manager of the business. | 14. It is proposed, the Trust will sell its shares in the Company to the Individual for the purchase price of $10. | 15. The purchase price of $10 will be less than the market value of the Company. | 16. Person A and Person B have indicated the sale price of $XX has only been offered to Person C due to their close relationship. They would offer their children the company at the same price if they had wanted to take over the business, but it would not be offered at this price to the public at large. | 17. A draft 'Agreement for Sale of Shares' has been prepared, a copy of which was provided to the Commissioner via email, pursuant to which he Individual will pay the deposit of $Y on the date of the Agreement, and the balance of $Z on completion, being 30 June 202X. | 18. From the date of agreement to 30 June 202X, Person C must remain working full time in the business. | 19. Person A and Person B will be available to assist Person C in the business until 30 June 202X. | 20. The Commissioner has reviewed the draft 'Agreement for Sale of Shares'. | Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar . | Reasons for decision: These reasons for decision accompany the Notice of private ruling for the Company and The Trust. | This is to explain how we reached our decision. This is not part of the private ruling. | The benefit is provided in respect of the employment of the employee. | The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of the fringe benefit in subsection 136(1) of the FBTAA.