ATO Interpretative Decision
ATO ID 2002/848 (Withdrawn)
Fringe Benefits tax
Employee Share Plan - Payments made by a Company to a Plan companyFOI status: may be released
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This ATO ID is withdrawn because it is no longer necessary. The issue addressed in the ATO ID is covered by TR 2013/6 Fringe benefits tax: otherwise deductible rules and Division 35 of the Income Tax Assessment Act 1997.This document has changed over time. View its history.
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Whether payments made by Company A to a Plan Company to cover the Plan Company's shortfall, in the event that it is required to acquire the forfeited shares, for more than their market value at the time, gives rise to fringe benefits under the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
No. The payments made by Company A to the Plan Company to cover the Plan Company's shortfall in the event that it is required to acquire the forfeited shares from the participants, for more than their market value at the time, does not give rise to fringe benefits under the FBTAA.
Facts
Company A wish to establish an employee share plan (ESP) as part of a broad remuneration strategy. To benefit under the ESP, participants are required to satisfy certain performance criteria.
The ESP does not come within Division 13A of the Income Tax Assessment Act 1936.
Company A through its Human Resource Committee would provide selected employees with the opportunity to acquire shares in the Company. The Human Resource Committee will impose offer conditions on these shares based on performance and continued employment within Company A.
A Plan Company will be engaged to administer certain aspects of the Employee Share Plan in accordance with the Plan rules. The Plan Company will be a third party for Corporations Law reasons, it will not be controlled or owned by Company A.
The participating employees will fund the cost of the acquisition of shares by way of a loan provided by an associate of Company A. The loan provided is non-interest bearing and fully recourse in nature.
In the event that the Human Resource Committee determines that a participant's shares are to be forfeited, such shares will generally be forfeited by the Plan Company acquiring the shares for an amount being the greater of the market value of the shares or the amount of the participant's loan which ever is greater.
In these circumstances, if there are insufficient funds standing to the balance of the "Plan Account", Company A will make a payment to the Plan Company to cover the shortfall between the proceeds from the Plan Company's sale of the forfeited shares and the amount the Plan company is required to pay to acquire the forfeited shares from the participants.
Reasons for Decision
The Plan Company is not an employee of Company A or an associate of Company A. Therefore, the payment made by Company A to the Plan Company, in these circumstances are not considered benefits provided to an employee and does not come within the definition of a fringe benefit as defined in section 136(1) of the FBTAA.
Date of decision: 17 May 2002Year of income: Other/Substituted Accounting Period 2004
Legislative References:
Fringe Benefits Tax Assessment Act 1986
Section 16
Subsection 136(1)
Subsection 148(2)
ATO ID 2002/847
ATO ID 2002/849
Keywords
Employee share loan benefit
ISSN: 1445-2782
Date: | Version: | |
17 May 2002 | Original statement | |
You are here | 28 July 2017 | Archived |
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