Employee Share Scheme - Capital Gains Tax - liability of Trustee on disposal of shares or rights

Will any capital gain or capital loss the taxpayer, a Trustee of an employee share scheme, makes when a beneficiary becomes absolutely entitled to a share or right under the scheme be disregarded pursuant to section 130-90 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Yes. Any capital gain or capital loss the taxpayer, a Trustee of an employee share scheme Trust, makes when a beneficiary becomes absolutely entitled to a share or right under the scheme will be disregarded pursuant to subsection 130-90(1) of the ITAA 1997.

The employee share scheme complies with the provisions of Division 13A of the Income Tax Assessment Act 1936 ('ITAA 1936').

A Trustee is appointed to administer the scheme. The sole activities of the Trustee are obtaining shares or rights in the employer company or a holding company of the employer and providing those shares or rights to the employees or associates of the employees. The employer contributes amounts to the Trustee each year and the Trustee uses those funds to purchase shares and rights in the employer or a holding company of the employer from fresh issues or the stock exchange. The shares or rights purchased are then registered in the name of the Trustee and held for the benefit of participating employees or associates. Upon the employee becoming absolutely entitled to the shares or rights the Trustee disposes of the shares or rights at the employees or associates request and distributes the proceeds to the employee or associate.

Subsection 130-90(1) of ITAA 1997 states that a capital gain or a capital loss a trustee makes when a beneficiary becomes absolutely entitled to a share or right in a company is disregarded if the following conditions are satisfied. a. The beneficiary is an employee or associate of the company or of another company; b. The terms of the trust must have required or authorised the trustee to transfer the share or right to the employee or associate; c. The employee or associate must have acquired the share or right under an employee share scheme; and d. The employee or associate must not have acquired the share or right for more than the cost base of the share or right (in the hand of the trustee) at the time of the transfer.

As the beneficiary of the Trust and the employee share scheme itself satisfy these conditions, subsection 130-90(1) of ITAA 1997 deems that a capital gain or a capital loss the Trustee makes when a beneficiary becomes absolutely entitled to a share or right is disregarded.