Income Tax - deductibility - irretrievable employer contributions paid to the Trustee of its employee share scheme to acquire a share or right under the employee share scheme

Will a company taxpayer obtain an income tax deduction under section 8-1 of Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable contributions of money or other property made by it to the Trustee of its employee share scheme when the employee or associate of the employee acquires a share or right under Subdivision 139G of ITAA 1997?

Yes. The company taxpayer is able to obtain an income tax deduction under section 8-1 of ITAA 1997 for irretrievable contributions of money or other property made by it to the Trustee of the employee share scheme. The deduction will be allowed at the time determined by section 139DB Income Tax Assessment Act 1936 (ITAA 1936), being not before the time the ultimate beneficiary (ie employee or associate of the employee) acquires a share or right under Subdivision 139G of ITAA 1936.

The Scheme is an Employee Share Scheme which complies with the provisions of Division 13A of ITAA 1936.

A Trustee is appointed to administer the Scheme. Under the employee share scheme, the employer makes irretrievable contributions of money or property to the trustee each year. The trustee uses the funds and/or property to acquire shares or rights for the purpose of and under the employee share scheme for the benefit of the employer's employees or associates of employees.

The purpose of the employee share plan is to provide a benefit to an employee, or an associate of the employee, by allowing them to obtain a share or right in the employer company at a discount. The discounted share or right is part of the overall remuneration of the employee. The employer contributions of money and/or property to the trustee of its employee share scheme are part of the overall employee remuneration costs of the employer. The contributions when used to acquire shares or rights are deductible to the employer under section 8-1 of ITAA 1997 subject to section 139DB of ITAA 1936.

Section 139DB of ITAA 1936 determines when an amount that is represented by the money or property that is deductible under section 8-1 of ITAA 1997 will be allowed. The amount will be deductible not before the time when the ultimate beneficiary (ie employee or associate of the employee) acquires a share or right. In the case of a property contribution, this will be when the property or proceeds from the sale of the property is used to acquire a share or right for the ultimate beneficiary. Section 139G of ITAA 1936 determines when the employee or associate of the employee acquires a share or right for the purposes of Division 13A of ITAA 1936.