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On 5 March 2014, the ATO released for public comment by 18 April 2014 draft Taxation Ruling TR 2014/D1 entitled "Income tax: employee remuneration trust arrangements".

The draft Ruling explains the taxation consequences for employers, trustees and employees who participate in an employee remuneration trust arrangement (ERT). In particular, it explains how the taxation laws apply when a contribution is made by an employer to the trustee of an ERT and benefits are paid or provided by the trustee of the ERT to employees.

The essential elements of an ERT for the purposes of this draft Ruling are:

  • an employer carries on business for the purpose of gaining or producing assessable income;
  • Australian resident employees are employed by the employer in the ordinary course of carrying on that business;
  • a trust is established by or at the instruction of the employer;
  • the trust is a resident trust for the purposes of Division 6;
  • the employer makes one or more contributions to the trustee of the trust;
  • the trustee applies the contributions to make loans to employees and/or to acquire shares or other assets;
  • employees of the employer are capable of benefiting under the trust (for example, in the form of loans, distributions of cash and/or a transfer of assets); and
  • the value of any benefits provided to employees is determined by the employer or the trustee, having regard to:
    - the performance of the employees;
    - the growth in value of, or generation of income from, investments held by the trustee; and/or
    - objective indices, for example, movements in the value of shares in the employer or a related entity.

The draft Ruling has no application to superannuation funds as defined in s 10 of the Superannuation Industry (Supervision) Act 1993 or to approved worker entitlement funds as defined by subss 58PB(1) and (2) of the FBTAA or financial arrangements to which Div 230 of ITAA 1997 applies to.

For other ATO information about ERTs, go here

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