ATO Interpretative Decision
ATO ID 2010/142
Fringe Benefits Tax
Employee share scheme: indeterminate rights not fringe benefitsFOI status: may be released
This ATOID provides you with the following level of protection:
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the grant by a company of indeterminate rights to employees in relation to their employment excluded from the definition of fringe benefit by paragraph 136(1)(f) or 136(1)(h) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
Yes. The grant of indeterminate rights to employees of a company in relation to their employment is excluded from the definition of fringe benefit by paragraph 136(1)(f) or 136(1)(h) of the FBTAA.
Facts
A company operates a scheme under which the company grants rights (indeterminate rights) to its employees in relation to their employment at a discount.
The rights granted entitle the employees to acquire:
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- either shares in the company or cash, to be determined at a future time at the discretion of the company; or
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- a number of company shares, where that number cannot be determined at the time of grant but will be determined at a future time.
Reasons for Decision
The definition of benefit in subsection 136(1) of the FBTAA includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility. The indeterminate rights come within the definition of 'benefit'.
Generally, a benefit provided to an employee by their employer in respect of the employee's employment is a fringe benefit as defined in subsection 136(1) of the FBTAA. However, the definition of 'fringe benefit' does not include:
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- a payment of 'salary or wages' (paragraph (f) of the definition); or
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- a benefit constituted by the acquisition of an ESS interest under an employee share scheme within the meaning of the Income Tax Assessment Act 1997 (ITAA 1997) to which Subdivision 83A-B or 83A-C of that Act applies (paragraph (h) of the definition).
At the time the indeterminate rights are granted it may be considered unclear if paragraph (f) or (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because:
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- at that time, the employee has not acquired rights that are ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997; and
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- if they are rights to shares or cash, it is also unclear if the employee will ultimately receive cash that would on payment be considered salary or wages.
Although the indeterminate rights are not ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997 at the time they are granted, where they are ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to receive is determined):
- •
- the indeterminate rights will, pursuant to section 83A-340 of the ITAA 1997, be treated as if they had always been ESS interests; and
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- as they will constitute the acquisition of ESS interests acquired under an employee share scheme (within the meaning of the ITAA 1997) to which Subdivision 83A-B or Subdivision 83A-C of the ITAA 1997 applies, they will be excluded from the definition of fringe benefit by paragraph 136(1)(h) of the FBTAA.
Alternatively, where an employee's indeterminate rights are ultimately satisfied with cash instead of shares, the granting of the rights:
- •
- will be viewed as one of a series of steps in the payment of salary or wages; and
- •
- will not be viewed as a separate benefit to the payment of salary or wages which are excluded from the definition of fringe benefit by paragraph 136(1)(f) of the FBTAA.
Therefore, the grant of indeterminate rights to employees of the company in relation to their employment will be excluded from the definition of fringe benefit by either paragraph 136(1)(f) or (h) of the FBTAA.
Date of decision: 24 June 2010Year of income: Year ended 30 June 2010
Legislative References:
Fringe Benefits Tax Assessment Act 1986
subsection 136(1)
paragraph 136(1)(f)
paragraph 136(1)(h)
Subdivision 83A-B
Subdivision 83A-C
subsection 83A-10(1)
section 83A-340
Keywords
Fringe benefits tax
Benefit
Employee share schemes & options
Date reviewed: 19 January 2018
ISSN: 1445-2782
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