Taxation Determination TD 2010/11
Date of effect: 19 November 2008

What this ruling is about: This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. Ruling 1. Yes. If the employee does not derive salary or wages or bonus income at: then consideration would be given to the application of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) [1] . The application of Part IVA to any particular scheme depends on a careful weighing of all the relevant circumstances of the scheme and the relative weight that should be attached to each of those circumstances. Therefore, in the absence of all relevant information, it is not possible to state definitively whether Part IVA will apply to a particular scheme. However, it is the Commissioner's view that Part IVA is likely to apply to salary deferral arrangements as described at paragraph 4 of this Determination. 2. If the employee derives the salary or wages or bonus income at the time of the agreement to defer it, or at the time of receiving the loan, or at the time of acquiring the assets, to that extent the salary deferral arrangements would not give rise to a tax benefit within the meaning of section 177C, and Part IVA would not apply. 3. Taxpayer Alert TA 2008/14 issued on 25 June 2008. It describes a remuneration arrangement (the arrangement) entered into by an employee and an employer whereby the parties agree that the employee will defer receipt of an amount of salary or wages or bonus income and be provided with a loan of an equivalent or greater amount in lieu. The deferred income will be paid to the employee in a later income year and the payment is applied or credited against the outstanding loan balance. 4. The arrangement exhibits the following features: 5. For the purposes of this Determination, it is assumed that the employee does not derive the income until it is received by them or applied against their outstanding loan balance. Whether an employee has effectively deferred income for the purposes of subsection 6-5(4) of the Income Tax Assessment Act 1997 (ITAA 1997) will be decided on a case by case basis with careful examination of the relevant facts. In certain circumstances, there is a question as to whether the employee is taken to have derived the salary or wages or bonus income at the time of the agreement to defer it, or upon receiving the loan, or acquiring assets with the loan proceeds. 6. The salary deferral arrangement as described in paragraph 4 of this Determination is not a salary sacrifice arrangement as outlined in Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements. 7. This Determination does not apply to circumstances where the loan is a deemed dividend for the purposes of Division 7A of Part III. Date of effect 8. Subject to paragraph 9 of this Determination, it applies both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 to 77 of Taxation Ruling TR 2006/10). 9. Class Ruling CR 2007/48 was withdrawn on 19 November 2008. CR 2007/48 will continue to bind the Commissioner in relation to the class of entities who entered into the particular scheme as described in that ruling prior to the date of its withdrawal. Although CR 2007/48 does not bind the Commissioner with regard to the application of Part IVA, the Commissioner will not seek to apply Part IVA to the class of entities where they entered into the scheme prior to the withdrawal of the ruling. Commissioner of Taxation 31 March 2010




Appendix: 10. Part IVA gives the Commissioner the discretion to cancel all or part of a tax benefit that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. Part IVA applies if: 11. The scheme under section 177A would consist of the steps taken to establish and conduct the salary deferral scheme. If it is assumed that the income is not derived until it is received by the employee or applied against the employee's outstanding loan balance, it is considered that the scheme would give rise to a tax benefit under paragraph 177C(1)(a). The objective circumstances of the scheme indicate that if the scheme had not been entered into it might reasonably be expected that the amount of deferred income would have been received by the employee during the income year in which it was agreed to be deferred and those monies used by the employee to acquire the relevant income producing assets. The tax benefit therefore is the amount of deferred salary or wages or bonus income that was not included in the assessable income of the employee in the year of deferment. 12. Section 177D provides that Part IVA applies to a scheme in connection with which the taxpayer has obtained a tax benefit if, after having regard to eight specified matters, it would be concluded that a person who entered into or carried out the scheme, or any part of it, did so for the purpose of enabling the taxpayer to obtain the tax benefit. 13. Whether the section 177D purpose test is satisfied depends on all the facts and circumstances. However, it would be reasonable to conclude, having regard to the matters set out in section 177D, that the sole or dominant purpose of the employee (and/or the promoter and/or the employer) in entering into or carrying out the scheme was for the employee to obtain a tax benefit. In this context the following general observations can be made: 14. The Commissioner is therefore likely in these circumstances to exercise his powers under subsection 177F(1) of the ITAA 1936 to cancel the tax benefit and determine that the whole or part of the deferred amount was derived by the employee under section 6-5 of the ITAA 1997 as salary or wages or bonus income during the income year in which it was deferred. Previously released in draft form as TD 2009/D6




Related rulings: TR 2001/10 TR 2006/10 CR 2007/48
Legislative references: ITAA 1936 ITAA 1936 Pt III Div 7A ITAA 1936 Pt IVA ITAA 1936 177A ITAA 1936 177C ITAA 1936 177C(1)(a) ITAA 1936 177D ITAA 1936 177D(b)(i) ITAA 1936 177D(b)(ii) ITAA 1936 177D(b)(iii) ITAA 1936 177D(b)(iv) ITAA 1936 177D(b)(v) ITAA 1936 177D(b)(vi) ITAA 1936 177D(b)(vii) ITAA 1936 177D(b)(viii) ITAA 1936 177F ITAA 1936 177F(1) ITAA 1997 6-5 ITAA 1997 6-5(4) TAA 1953
Subject references: anti avoidance arrangement employee bonuses fringe benefits tax Part IVA salary & wages income salary deferral salary sacrifice
Other references: Taxpayer Alert TA 2008/14