ATO Draft Public Ruling on Use of Employee Remuneration Trusts (Including Employee Share Trusts for LTI Plans)

On 5 March 2014 the Australian Taxation Office (ATO) released a draft Tax Ruling for public comment.  Its focus is on employee remuneration trust arrangements and represents a significant change of attitude to some well accepted practices.  .  The affected trust arrangements potentially include employee share trusts that have long been used in relation to executive long term incentive plans.  They facilitate a tax deduction for the company and enforcement of dealing restrictions. 

At first reading the focus seems to be on plans that were designed to gain other benefits for companies or employees.  Any employee share schemes involving trusts particularly those where loans are provided by the trustee or assets are being accumulated prior to benefits being provided to employees should be reviewed in relation to the draft Tax Ruling.  The trust arrangement that GRG has implemented for many clients seem to be fall within acceptable practice under the new approach by the ATO.

The Tax Ruling when finalised will be implemented on a retrospective basis except for companies that have current private binding tax rulings where compliance with the new ATO approach is expected from 5 March 2014.  Thus it may be prudent to suspend further use of trusts until the Tax Ruling is finalised and your company’s specific circumstances can be reviewed.