Issue
Does the allotment of shares in a demerged entity to employees, in respect of shares held in the head entity of the demerged group acquired under an employee share scheme, constitute a 'fringe benefit' under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
No. The allotment of the shares in the demerged entity is not in respect of employment and thus does not constitute a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.
Facts
A head entity has established an employee share scheme under which participating employees acquire shares in the head entity.
Under a demerger, the head entity allots shares in the demerged entity to existing shareholders in the head entity. Those shareholders include the participating employees.
Reasons for Decision
For a benefit to be a 'fringe benefit' in accordance with the definition in subsection 136(1) of the FBTAA, it must be provided in respect of the employment of the employee.
Whilst the expression 'in respect of' has no fixed meaning, the full Federal Court in J & G Knowles v FC of T (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 examined its meaning in relation to Fringe Benefits Tax (FBT) and noted that: ... what must be established is whether there is a sufficient or material, rather than a causal connection or relationship between the benefit and the employment...
The Court also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'.
Whilst participating employees' shares in the head entity are acquired pursuant to an employee share scheme and therefore in respect of their employment, shares in the demerged entity are allotted to all shareholders on the basis of their ownership of shares in the head entity at the time of the demerger.
Thus, as the allotment of shares to participating employees is considered to be a product or incident of the shareholder relationship rather than the employment relationship, it does not constitute a 'fringe benefit'.
Amendment History
Date of Amendment Part Comment 1 May 2026 Reasons for Decision Minor grammatical changes 1 May 2026 Business Line Updated to correct business line 1 May 2026 Date reviewed Updated review date
Date of Amendment | Part | Comment
1 May 2026 | Reasons for Decision | Minor grammatical changes
1 May 2026 | Business Line | Updated to correct business line
1 May 2026 | Date reviewed | Updated review date