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10 Nov 11 Payments to employee trust under salary sacrifice arrangement were employee's income - Yip

The AAT has upheld the Commissioner's objection decision on a private ruling request that payments to be made by an employer to an employee share trust under a salary sacrifice arrangement between the employer and one of its employees (Ms Yip) would be income in Ms Yip's hands under s 6-5 ITAA 1997.

Alternatively, the AAT upheld the Commissioner' objection decision on a separate private ruling that if the payments were not income under s 6-5, Ms Yip would obtain a tax benefit as defined by s 177C ITAA 1936 which would entitle him to make a determination under s 177F ITAA 1936 to cancel the tax benefit.

Under the arrangement, it was proposed to establish a unit trust to be known as the Ambassador Funds Management Services Pty Ltd Employee Share Trust (the Trust) by way of declaration of trust by the trustee (the Trustee). The employer would then settle the moneys attributable to Ms Yip's salary sacrifice (and the moneys attributable to other employees' salary sacrifices) on the Trustee. The settled moneys would then be applied by the Trustee at its discretion in making loans to Ms Yip and other employees for the purpose of making application to the Trustee for the issue of Share Units in the Trust. Application moneys then received from Ms Yip and other employees would be used exclusively by the Trustee to acquire shares in the employer or its holding company.

The Commissioner submitted that the amount of the contribution by the employer to the Trustee was assessable as Ms Yip’s ordinary income under s 6-5 of ITAA97 for three reasons: it was an amount deducted from her salary or wages for that income year; it has been made on her behalf and at her request; and, under s 6-5(4), she must be taken to have received the amount for, when it was contributed by the employer to the Trustee, the contribution was made at, and in accordance with, her direction. The AAT agreed. Further, Ms Yip would not become entitled to a fringe benefit (in the form of the discretionary loan) and, accordingly, s 23L ITAA 1936 had no application.

Yip and FCT [2011] AATA 785 (AAT, Forgie DP, 4 November 2011).


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