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27 Jun 11 FBT avoidance where employer repays employee’s loan from purported employee share trust – TA 2011/5

On 27 June 2011 the ATO issued a Taxpayer Alert entitled “FBT Avoidance through an arrangement where an employer repays an employee’s loan from a purported employee share”, which describes an arrangement where an employer establishes an employee benefit arrangement for employees to acquire share units in a purported employee share trust (EST): TA 2011/5 (27 June 2011). In such an arrangement, the acquisition of share units by employees is funded by way of a loan from the trustee and that loan is repaid by the employer paying amounts which have been salary sacrificed by the employees.

In the ATO’s view, the arrangement may be an attempt by the employer to provide a benefit to employees without regard to the application of the Fringe Benefits Tax Assessment Act 1986 as the taxable value of benefits provided is not included as part of the employer’s FBT liability.

The ATO is currently reviewing these arrangements. It should be noted that the ATO has also issued ATO ID 2011/54 in respect of Expense payment fringe benefit: employee loan from a trust repaid by employer.