The AAT has held that payments of consideration by a taxpayer, a member of an employee salary sacrifice share plan (ESS), at the occurrence of the ESS deferred taxing point, which were purportedly made to preserve his shares in the plan, did not constitute part of the cost base of the shares as determined under Subdivision 110-A of the ITAA 1997.
The trust deed constituting the ESS placed certain restrictions on dealing with the shares acquired by participants under the ESS. Clause 8.1 of the trust deed prevented participants from withdrawing from the plan or disposing of the shares for a period of 5 years after the shares were acquired. Once the shares become unrestricted shares, the participant could elect either to withdraw the unrestricted shares or to preserve them in the ESS. A participant wishing to preserve his or her shares was required to pay to the Plan Trustee an amount to preserve the unrestricted shares in the plan. The amount payable was funded by a loan made by the Plan Trustee to the participant.
In finding against the taxpayer, the AAT said at para 40:
"I find that the payment, which is made by a so-called loan provided by the Plan Trustee for the so-called preservation of unrestricted shares in the plan, which is also said to be consideration for shares which the employee already owns beneficially and for which he has already given consideration, being the foregoing of salary to which the employee was legally entitled, does not satisfy any of the five elements of the cost base set out in s 110-25 of the ITAA 1997. I find that the sole purpose of the so-called payment was to increase the cost base of the acquired shares to their market value at the ESS deferred taxing point. That of course would have the consequence of ensuring that no tax was payable by the employee as a result of acquiring shares by salary sacrifice."
Munnery and FCT  AATA 175 (AAT, Fice SM, 23 March 2012).