Private ruling: Employee Share Scheme
Date of advice: 6 December 2018
Published: April 2019
Ruling period: Income years ending 30 June 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the irretrievable cash contributions by Company B to Trustee B to fund the acquisition of, or subscription for, Company B shares by Trustee B be assessable income of Trust B under section 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Will a capital gain or capital loss that arises for Trustee B, at the time when the employees become absolutely entitled to the Company B shares (CGT event E5) or when Trustee B disposes of the shares to the employees (CGT event E7), be disregarded under section 130-90 of ITAA 1997 if the employees acquire the shares for the same or less than the cost base of the shares in the hands of Trustee B? | A2: Yes

Relevant facts and circumstances: Company B is an Australian resident company. It operates an employee incentive plan (the Plan) as part of its remuneration strategy. Under the Plan, Company B will grant employees who are participants of the Plan (the Participants) with rights (the Rights) to acquire shares in Company B. Company B established Trust B to facilitate the acquisition, holding of and allocation of shares to the participants. Trustee B is the trustee to Trust B and Trust B is governed in accordance with the Trust Deed. Company B executed plan rules to govern the Plan (the Plan Rules) and, under the Plan Rules and Trust Deed, the Plan operates as follows: ● Company B makes recurring irretrievable cash contributions to Trustee B to enable Trustee B to acquire Company B shares to satisfy the Rights, ● Company B has incurred costs in the on-going administration of Trust B, ● Company B offers the Rights to Participants, ● When the Rights vest to a Participant, shares are released by Trustee B and allocated to the Participants, ● Then the Company B shares are transferred to the Participants, and ● The Participants are entitled to dispose of their Company B shares (subject to complying with certain policies of Company B) according to their own wishes.


Reasons for decision: Summary: The irretrievable cash contributions made by Company B to Trustee B to fund the subscription for, or acquisition of, Company B shares by Trust B will not be assessable income of Trust B under section 6-5 or 6-10. All of the requirements in section 130-90 have been satisfied. Therefore, a capital gain or capital loss that arises for Trust B, at the time Trustee B allocates a Company B share to a Participant under the Plan Rules in satisfaction of a Right, will be disregarded.

Reasons for decision: All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.