The AAT has ruled that a “preservation payment” made under an Employee Share Scheme (ESS) to supposedly keep the shares in the scheme once the restrictions on them had been lifted, did not form part of the cost base of the shares for the purpose of determining the “deferred” amount to be included in the employee’s assessable income under s 83A-110 of the ITAA 1997. The ESS shares had been acquired by the employee under a salary sacrifice arrangement, while the monies for the “preservation” payment were “loaned” to the employee by the trustee of the ESS.
In finding that the payment did not form part of the cost base of the shares, the AAT emphasised that the employee already beneficially owned the shares at the time the “preservation payment” was required and that he had already given consideration for their acquisition – being the foregoing of salary to which he was legally entitled. It also found that the payment did not form part of any of the other elements of the cost base of the shares. The AAT also questioned whether the loan was a “genuine” loan in the circumstances.
In arriving at its conclusion, the AAT also stated that “the sole purpose of the so-called payment was to increase the cost base of the acquired shares to their market value at the ESS deferred taxing point [which] would have the consequence of ensuring that no tax was payable by the employee as a result of acquiring shares by salary sacrifice”.
(AAT Case [2012] AATA 175, Re Munnery and FCT, AAT, Ref No: 2011/0843, Fice SM, 23 March 2012.)
[LTN 58, 26/3]