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ATO Issues Warning On Employee Share Schemes

by Mary Swire, Tax-News.com, Hong Kong

07 June 2007


The Australian Tax Office on Tuesday warned employees, directors and executives to be cautious of using trust arrangements to reduce tax on options and shares acquired under an employee share scheme.

Under the arrangements in question, an individual (typically a director or executive) is entitled to the rights to acquire shares under an employee share scheme.

The individual arranges for those rights to be granted to an associated trust. The trust then acquires the shares at below market value, sells the shares and distributes the gain to an associate with losses or who has a lower tax rate.

Tax Commissioner Michael D’Ascenzo has raised concerns about the efficacy of the arrangement.

This arrangement is one of the areas being reviewed by the Tax Office under the high-income individuals project announced in the 2006-07 Compliance Program.

Last month, the ATO announced that it is investigating arrangements that seek to reduce tax on Australian income through the use of foreign tax credits.

D’Ascenzo said the latter arrangement or variations are mainly marketed to financial institutions. The arrangements involve the purchase of bonds by Australian financial institutions, from offshore banks to generate large foreign tax credits.

“We are concerned that financial institutions who participate in these arrangements may be claiming foreign tax credits they are not entitled to under double taxation agreements. The anti-avoidance provisions may apply to such arrangements and we are investigating further," he stated.


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