ATO warns of FBT risk with loan-backed share plans using trust structures

Loan backed share plans are a tax effective method for aligning the interests of employees with shareholders. Employees are liable for capital gains tax on the share price appreciation instead of income tax, and dividends can be used to help pay off the loan.  But, it seems, some companies have taken it too far.


On 27 June 2011 the Australian Taxation Office issued a taxpayer alert and an interpretative decision reminding employers of the FBT implications of funding a trust to provide employees with loans to acquire shares, where the loan is repaid by the employer using salary sacrifice contributions from employees. This ATO alert follows the release of ATO ID 2010/108 in May 2010, which confirmed that a trust that makes loans to employees is not a valid ‘employee share trust’.  Loan plans do not come within the scope of the employee share scheme tax regime in Division 83A of the Income Tax Assessment Act 1997, because the employee pays the full market price for the shares (i.e. there is no ‘discount’).


FBT does not apply to money or property acquired by a valid employee share trust, as the employee is taxed on their employee share scheme interests in the trust pursuant to the employee share scheme tax regime contained in Division 83A of the Income Tax Assessment Act 1997.


For full details, see the Taxpayer Alert HERE and the ID HERE

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