Private ruling: Employee Share Scheme (ESS)
Date of advice: 5 September 2022
Published: November 2022

Ruling: Q1: Will Company A be entitled to obtain a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, ordinary fully paid shares in Company A (Shares) by the Trust pursuant to the Plan? | A1: Yes | Q2: Will Company A be entitled to obtain a deduction, pursuant to section 8-1 of the ITAA 1997, in respect of the costs incurred by Company A in relation to the on-going administration of the Trust? | A2: Yes | Q3: Will Company A be entitled to deduct an amount, pursuant to section 40-880 of the ITAA 1997, in respect of implementation costs of the Trust? | A3: Yes | Q4: Will irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or acquisition on-market of, Shares by the Trust pursuant to the Plan, be deductible to Company A at a time determined by section 83A-210 of the ITAA 1997, if those contributions are made before allocation of the Shares to the employees? | A4: Yes | Q5: If the Trust satisfies its obligation under the Plan by subscribing for new Shares, will the subscription proceeds be included in the assessable income of Company A under section 6-5 or 20-20 of the ITAA 1997, or trigger a CGT event under Division 104 of the ITAA 1997? | A5: No | Q6: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or acquisition on-market of, Shares by the Trust pursuant to the Plan? | A6: No | Q7: Will the provision of Performance Rights by Company A to employees under the Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A7: No | Q8: Will the irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or acquisition on-market of, Shares pursuant to the Plan, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A8: No | Q9: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A, Company B, Company C, Company D and Company E by the amount of tax benefit gained from irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or acquisition on-market of, Shares pursuant to the Plan? | A9: No

Relevant facts and circumstances: Background Company A is an Australian registered company listed on the Australian Securities Exchange. Company A is the head company of the Company A tax consolidated group (Company A TCG). The Plan The Plan was approved by the Board and by Company A's shareholders. The Plan allows Company A to issue Performance Rights to eligible employees (Eligible Persons). Performance Rights are conditional entitlements to Sharesand will be acquired at a discount. The Plan is administered by the Board in accordance with the Plan. While the Plan is not restricted to Australian tax-resident employees, the scope of this ruling is limited to the Performance Rights granted under the Plan to Australian tax-resident employees who engage in activities that derive assessable income in Australia. The tax treatment of any contributions made by Company A with respect to non-resident participants, and any associated Australian tax implications for Company A or the Trust, is outside the scope of this ruling. Offer Where the Board invites any Eligible Persons to participate in the Plan at any time at its sole discretion, Company A must issue the Eligible Person with an Invitation. An Invitation must be in writing and include the total number of Performance Rights being made available, the Issue Price, the Exercise Price, the Vesting Conditions, the Vesting Period, and any Restrictions. The Issue Price (if any) is determined by the Board from time to time and may be nil. An Eligible Person accepts an Invitation by validly signing the application form attached to the Invitation and returning it to Company A, paying to Company A the Issue Price (if any), and signing any other documents required by the Constitution. Performance Rights When vested, each Performance Right entitles the Participant to subscribe for, and be issued with the number of Shares set out in the Invitation in respect of that Performance Right. The Board has discretion to decide that the exercise of a Performance Right will be satisfied by payment in cash to the Participant. However, the Trust will not be involved in the process of satisfying any cash settled Performance Rights as they will be settled outside the Trust directly by Company A. The Board may at its sole discretion determine the Vesting Conditions which will apply to any Performance Rights granted under the Plan. If and when Vesting Conditions are satisfied to the extent determined by the Board in its sole discretion, the Board must inform the Participant in writing of that determination and inform the Participant of the number of Shares which the Performance Right entitles the Participant to subscribe for. The Shares issued are to be provided to the Participant subject to the Restrictions. Lapse of Performance Rights Performance Rights will lapse on the earliest of: The Board has absolute discretion to allow any Participant to retain any Performance Rights regardless of the expiry of the Vesting Period or the Vesting Conditions not being fully satisfied. The Trust The Trust was established under the Trust Deed entered into between Company A and the Trustee. Under the Trust Deed, the Trustee obtains and holds Shares for the benefit of Participants in accordance with the Plan and the Trust Deed. The Trustee's activities are limited to the Plan and the Trustee must act in accordance with the Plan. The Trustee has the powers to: The Trust will be managed and administered so that it satisfies the definition of 'employee share trust' for the purposes of subsection 130-85(4). Nothing in the Trust Deed confers or is intended to confer on Company A or any Group company, any charge, lien or any other proprietary right or proprietary interest in the Shares acquired by the Trustee. Acquisition and transfer of Shares When the Trustee is to hold Shares on behalf of Participants in accordance with the Plan and/or Offer, the Board must by notice in writing instruct the Trustee to subscribe for, acquire and/or allocate Shares to be held by the Trustee. The Board may also by notice in writing instruct the Trustee to subscribe for or acquire Shares to be held by the Trustee on an unallocated basis on trust for Participants generally. A notice by the Board must do any of the following: The Trustee may, upon direction by the Board, subscribe for or acquire Shares from time to time in accordance with the notice from the Board. Company A does not, and no Group Company will, have and shall not have any beneficial interest in the Shares. Upon direction from the Board, the Trustee must allocate Shares to the Account established for a Participant, provided any of the following apply: Allocated Shares must be held on the terms of the Trust Deed by the Trustee on behalf of the relevant Participant until the Shares are transferred or disposed of under the Trust Deed, or forfeited by the Participant under the Plan. The Trustee must transfer or dispose of Shares in accordance with the Plan and any Offer. On forfeiture, the Shares will be held by the Trustee on an unallocated basis in the Fund as general Trust property. Unallocated Shares In respect of an unallocated Share, the Trustee may apply any capitals receipts, dividends or other distributions received to purchase further Shares to be held on trust for the purposes of the Trust and pay any reasonable disbursements. The Trustee must hold any bonus Shares issued in respect of an unallocated Share as an unallocated Share within the Fund. Funding Any funds provided by Company A or a member of the Group to the Trustee for the purpose of purchasing Shares on the terms of the Trust Deed constitute the corpus of the Trust and are irretrievable by Company A or a member of the Group. No loans will be provided by Company A or the Group to the Trust for the period which is the subject of this ruling. Company A will pay to the Trustee, from Company A's own resources, such fees and reimburse such reasonable expenses incurred by the Trustee as Company A and the Trustee agree from time to time. The Trustee is entitled to retain for its own benefit any such fee or reimbursement. The Trustee will not levy any fees or charges for administering the Trust that are payable directly by any Eligible Participant or out of assets of the Trust, other than reasonable disbursements including brokerage and tax levied or incurred in connection with the Trust. Company A incurs costs associated with the services provided by the Trustee, including but not limited to: Rights in respect of allocated Shares A Participant is presently entitled to so much of the Net Income of the Trust for a Year of Income which is attributable to: Balance of Net Income The balance of the Net Income of the Trust for a Year of Income to which no Participant is presently entitled may be applied, in whole or in part, to meet any reasonable costs and expenses properly incurred by Company A in relation to the establishment, administration or termination of the Trust. The remaining balance may be accumulated by the Trustee as an Accretion to the Trust.


Reasons for decision: Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) allows you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Company A carries on a business which provides assessable income, and operates an ESS as part of its remuneration strategy. Under the Plan, Company A grants Performance Rights to Participants and makes irretrievable cash contributions to the Trustee (in accordance with the Plan and the Trust Deed) which the Trustee will use to acquire Shares for allocation to Participants. Incurred in carrying on a business Company A provides the Trustee with the funds required to enable the Trustee to subscribe for, or acquire, Shares. The contributions made by Company A to the Trustee are irretrievable as: Company A has granted (and will grant in the future) ESS interests as part of its remuneration and reward program for Participants. The costs incurred by Company A for the acquisition of Shares to satisfy grants of ESS interest arise as part of these remuneration arrangements, and contributions to the Trust are part of an ongoing series of payments in the nature of remuneration of its employees. Therefore, subsection 8-1(1) is satisfied. Not capital or of a capital nature The costs will be an outgoing incurred for periodic funding of an ESS for employees of Company A. Costs incurred are likely to be in relation to more than one grant of Performance Rights, and Company A intends to continue satisfying the outstanding Performance Rights using Shares acquired by the Trust. This indicates that the irretrievable cash contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the irretrievable cash contributions may secure an enduring or lasting benefit for the employer that is independent of the year to year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be comparatively small. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied. Accordingly, Company A will be entitled to deduct an amount under section 8-1 for its irretrievable cash contributions to the Trustee to acquire Shares to satisfy ESS interests issued pursuant to the Plan. | Detailed Reasoning - Detailed reasoning: In addition to the reasoning provided in Question 1, Company A incurs on-going administration costs for operating the Trust and has appointed the Trustee to administer the Trust. Clause 4.1 of the Trust Deed states that a Board must offer to the Trustee to have Company A or a member of the Group provide funds for the sole purpose of acquiring Shares and/or request the Trustee to apply some of the capital of the Trust for the purposes of acquiring Shares. Company A incurs costs associated with the services provided by the Trustee, including but not limited to: With the exception of initial costs incurred to establish the Trust (which is dealt with in the response to Question 3, below), the above costs are regular and recurrent which are deductible under section 8-1 as they are costs necessarily incurred by Company A in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income. These costs are not capital or of a capital nature as the loss or outgoings are regular, recurrent and part of the ordinary employee remuneration costs of Company A (ATO Interpretative Decision ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible ). | Detailed Reasoning - Detailed reasoning: Subsection 40-880(1) provides that: The object of this section is to make certain business capital expenditure deductible over 5 years, or immediately in the case of some start-up expenses for small businesses, if: (a) the expenditure is not otherwise taken into account; and (b) a deduction is not denied by some other provision; and (c) the business is, was or is proposed to be carried on for a taxable purpose. Subsection 40-880(2) provides that: You can deduct, in equal proportions over a period of 5 income years starting in the year in which you incur it, capital expenditure you incur: (a) in relation to your business; or ... Subsections 40-880(3) to (9) contain limitations and exceptions which may prevent a deduction being allowed. Subsection 40-880(3) limits deducting expenditure to the extent that the business carried on is for a taxable purpose. The other limitations and exceptions in subsections 40-880(4) to (9) do not prevent the deductibility of establishment expenses under section 40-880. Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an employee share scheme sets out the Commissioner's views on the deductibility of expenses in establishing and administering an ESS. Establishment expenses incurred in amending and implementing an ESS are not deductible to Company A under section 8-1 because they are capital in nature. The expenses are not otherwise taken into account, nor is (subject to the discussion below) the expenditure denied a deduction by some other provision. In order for the expenditure to qualify for a deduction under subsection 40-880(2), the expenditure must be incurred 'in relation to' Hansen's business. When considering what is meant by 'in relation to' in paragraph 40-880(2)(a), paragraph 2.25 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 states: The provision is concerned with expenditure that has the character of a business expense because it is relevantly related to the business. The concept used to establish this character or requisite relationship between the expenditure incurred by the taxpayer and the business carried on (current, past or prospective) is "in relation to". The connector "in relation to" allows the appropriate latitude to enable the deductibility of qualifying capital expenditure incurred before the business commences or after it has ceased. Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 core issues provides guidance on the nature of the connection required between the expense and the business being carried on. Paragraphs 73 and 75 state: 73. The use of the expression 'in relation to' in subsection 40-880(2) rather than 'in carrying on' or the preposition 'on' to qualify the closeness of the required connection indicates that Parliament intended there to be greater latitude in the connection that needs to exist. ... 75. The words 'in relation to', whilst positing a test that is not as strict as 'in carrying on' however indicate that the expenditure in question is sufficiently relevant to the business to impress on it the character of a business expense of that business. The phrase 'in relation to' was considered by the High Court in PMT Partners Pty Ltd (In Liquidation) v Australian National Parks & Wildlife Service [ 1995] HCA 36, where Brennan CJ, Gaudron and McHugh JJ observed, in considering the application of the Commercial Arbitration Act 1985 (NT), at [26]: Inevitably, the closeness of the relation required by the expression 'in or in relation to' in s 48 of the Act, indeed, in any instrument - must be ascertained by reference to the nature and purpose of the provision in question and the context in which it appears. Toohey and Gummow JJ also observed at [61] and [65]: The question of sufficiency of nexus is, of course, dependent on the statutory context... ...The connection which is required by the phrase 'in relation to' is a question of degree. There must be some "association" which is "relevant" or "appropriate". The question of the relevance or appropriateness of the connection is a question which cannot be divorced from the particular statutory context. Expenditure that relates to remuneration of employees who work within that business, can be said to be incurred in relation to that business. As explained by the High Court in W Nevill & Co Ltd v Federal Commissioner of Taxation [1937] HCA 9 ( W Nevill ), all such expenses are: part of the necessary expenses of conducting the business... connected with the ever recurring question of personnel. With respect to the present case, the establishment expenditure relates to remuneration of employees of the employer company who work within that business. It is accepted that such expenses have the requisite connection with the business being carried on by the employing entity where both: The expenses are, as was described in W Nevill , an expense connected with the ever-recurring question of personnel. Therefore, where Company A incurs establishment and implementation expenses in relation to the Trust, these expenses are deductible in equal proportions over five years under section 40-880 to Company A to the extent that the business carried on is for a taxable purpose. 'Taxable purpose' is a defined term in subsection 995-1(1) and has the meaning given by subsection 40-25(7). This includes the 'purpose of producing assessable income', itself a term defined in subsection 995-1(1) as follows: [S]omething is done for the purpose of producing assessable income if it is done: (a) for the purpose of gaining or producing assessable income; or (b) in carrying on a business for the purpose of gaining or producing assessable income. As Company A's business is carried on for a taxable purpose, subsection 40-880(3) does not limit the extent of the expenditure that may be deducted under subsection 40-880(2). | Detailed Reasoning - Detailed reasoning: Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contribution provided to the Trust to purchase Shares in excess of the number required to grant the relevant ESS interests to the employees arising in the year of income under an ESS. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income Tax- Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . The Plan is an ESS for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (that is a beneficial interest in a share or a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees in relation to their employment with Company A (or the Group). Company A's ESS contains a number of interrelated components which include the provision of irretrievable cash contributions by Company A to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly as part of the Plan, to acquire ESS interests. The deduction for the irretrievable cash contribution can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a Share, or beneficial interest in a right to a beneficial interest in a Share, is acquired by a Participant under the Plan. Indeterminate rights under the Plan A Performance Right provided under the Plan is an indeterminate right because the right entitles the employee to acquire either a Share or cash, to be determined at a future time at the discretion of the employer. Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, where it is ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to receive is determined), the indeterminate right will, pursuant to section 83A-340, be treated as if it had always been an ESS interest. Section 83A-210 applies equally to contributions made in respect of ESS interests and indeterminate rights. Therefore, an irretrievable cash contribution in respect of an indeterminate right is taken to have been paid at the acquisition time of the ESS interest. If an indeterminate right becomes an ESS interest, deductible contributions made in respect of those rights can be claimed in the income year when the ESS interest is deemed to have been acquired under section 83A-340 (this will be the year in which the indeterminate right was granted to an employee). Once this has been established, such contributions can be matched to ESS interests issued to the employee, and where necessary, the relevant earlier income year assessments can be amended to allow the deduction (Item 28 of subsection 170(10AA)). It is important to note that an indeterminate right which is satisfied by the provision of cash never becomes an ESS interest and the contribution to the Trust in respect of the provision of that right is permanently deferred. However, where that ESS interest is subsequently issued to another participating employee, this employee becomes the 'ultimate beneficiary' and the deduction is available in the income year that this participating employee acquired this ESS interest. | Detailed Reasoning - Detailed reasoning: Section 6-5 Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. Where the Trustee subscribes to Company A for an issue of Shares and pays the full subscription price for the Shares, Company A receives a contribution of share capital from the Trustee. The character of the contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. As Company A issues Shares in itself to the Trustee in exchange for the subscription proceeds, the character of the newly issued shares is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital and is of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee . Accordingly, when Company A receives subscription proceeds from the Trustee where the Trustee has subscribed for new Shares to satisfy obligations under the Plan, that subscription price received by Company A is a capital receipt. That is, it will not be on revenue account and it will not be ordinary income under section 6-5. Section 20-20 Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year. Company A will receive an amount when the Trustee subscribes for Shares. There is no insurance contract in this case, so the amount received is not by way of insurance. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Subsection 20-20(3) makes assessable income a recoupment of a loss or outgoing that is deductible in the current income year or has been deductible or deducted in a previous income year, where the deduction was claimed under a provision in section 20-30. Subsection 20-25(1) defines a recoupment as including any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described, and a grant in respect of the loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. To the extent that section 8-1 allows a deduction for bad debts, rates or taxes, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. The receipt by Company A is in return for issuing Shares to the Trustee, not as a recoupment of previously deducted expenditure under section 8-1 regarding bad debts, rates or taxes that could be subject to section 20-30. The subscription proceeds will therefore not be an assessable recoupment under section 20-20. CGT Section 102-20 provides that you make a capital gain or loss if, and only if, a CGT event happens. Where the receipt of subscription proceeds does not relate to a CGT event, a capital gain will not arise. CGT events for which you can make a gain or loss are specified in Division 104. The relevant CGT events that may be applicable when the subscription proceeds are received by Company A from the Trustee are CGT event D1 (creating contractual or other rights) and CGT event H2 (receipt for event relating to a CGT asset). However, paragraphs 104-35(5)(c) and 104-155(5)(c) state that CGT events D1 and H2 respectively do not happen if a company issues or allots equity interests or non-equity shares in the company. As Company A is issuing Shares, being equity interests as defined in section 974-75, to the Trustee, CGT events D1 and H2 do not happen. Given that no CGT event happens, there is no amount assessable as a capital gain to Company A. Therefore, if the Trustee satisfied its obligations under the Plan by subscribing for new Shares, then the subscription proceeds received by Company A will not be included in the assessable income of Company A under section 6-5 or 20-20, and a CGT event will not happen under Division 104. | Detailed Reasoning - Detailed reasoning: Part IVA is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would be obtained but for section 177F, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust (EST) where the conditions of Division 83A are met. In this case, the ESS does not contain the elements of artificiality or unnecessary complexity, and the commercial drivers sufficiently explain the entry into the use of the EST arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2), the Commissioner has concluded that the ESS is not being entered into or carried out for the dominate purpose of enabling Company A to obtain a tax benefit. | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition. In particular, paragraph (h) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA, is a benefit constituted by the acquisition of an ESS interest under an ESS (within the meaning of the ITAA 1997) to which Subdivision 83A-B or 83A-C applies. The Commissioner accepts that the Plan is an ESS as a Performance Right granted under the Plan is an ESS interest under paragraph 83A-10(1), being a beneficial interest in either a share in a company or a right to acquire a share in a company. A Performance Right is also an ESS interest to which Subdivision 83A-B or 83A-C applies because a Participant acquires the ESS interest under an ESS for nil consideration, which is at a discount. Accordingly, the provision of ESS interests under the Plan will not be subject to FBT on the basis that they are acquired under an ESS (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA. In addition, when a Performance Right is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the Performance Right and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee shares scheme ). | Detailed Reasoning - Detailed reasoning: As stated above in response to Question 7, an employer's liability to FBT arises under section 66 of the FBTAA, which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. One benefit excluded from being a fringe benefit, pursuant to paragraph (ha) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA, excludes a benefit constituted by the acquisition of money or property by an EST within the meaning of subsection 130-85(4). In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that are relevant. To qualify as an EST, a trustee's activities must be limited to: As stated above in the response to Question 7, the Commissioner accepts that the Plan is an ESS and a Performance Right granted under the Plan is an ESS interest under paragraph 83A-10(1)(b), as well as an ESS interest to which Subdivision 83A-B or 83A-C applies. Accordingly, paragraphs 130-85(4)(a) and (b) are satisfied because: Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13 Income tax: what is an 'employee share trust'? Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered to be merely incidental. In the present case, the objects of the Trust are for the sole purpose of undertaking activities that are in line with the definition of an EST under section 130-85(4), including paragraph 130-85(4)(c). The other activities undertaken by the Trustee are merely incidental to managing the Plan. Therefore, the irretrievable cash contributions made by Company A, to fund the subscription for, or acquisition on-market of, Shares pursuant to the Plan, will not be a fringe benefit.

the Board determining that the Performance Rights will not vest | been dismissed or removed from office for a reason which entitles a company in the Group to dismiss the Participant without notice | committed any act of fraud, dishonesty or serious misconduct in relation to the affairs of company in the Group | done any act which brings the Group into disrepute | the date on which the Participant ceases to be employed by any member of the Group (other than due to the occurrence of a Special Circumstance) | the receipt by Company A of a notice from the Participant (after a Special Circumstance has arisen with respect to the Participant) that the Participant has elected to surrender the Performance Right. | enter into and execute contacts and do all acts or things which it deems expedient for the purpose of giving effect to and carrying out the trusts, powers and discretions conferred on the Trustee by the Trust Deed | subscribe for, purchase or otherwise acquire and sell, transfer or otherwise dispose of Shares which the Trustee is authorised to on terms and conditions it thinks fit | open bank accounts and retain, on current or deposit account at any bank, any money it considers proper | buy, transfer or sell Shares and apply the proceeds of sale in accordance with the Trust Deed | receive any money, dividends or distributions in relation to Shares and apply those amounts in accordance with the Trust Deed | take and act upon the advice or opinion of any legal practitioner or other professional person | do anything the Board reasonably directs or requests the Trustee to do in relation to the Plan as contemplated under the Trust Deed | generally do all acts and things the Trustee considers necessary for the administration, maintenance and preservation of the Trust in performance of its obligations under the Trust Deed. | effect a combination of the above acts. | the Trustee receives sufficient payment from Company A or a member of the Group or having sufficient capital to subscribe for or acquire the relevant Shares | the Trustee holds sufficient Shares on an unallocated basis in the Fund | any combination of the above. | employee plan record keeping | production and dispatch of holding statements to employees | costs incurred in the acquisition of shares on market, such as brokerage costs and the allocation of such shares to Participants | other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. | the Shares held by the Trustee on behalf of the Participant | the proceeds of sales arising from any sale of Shares by the Trustee on behalf of the Participant | transactions or events related to the Shares or property related to or arising from Shares held by the Trustee on behalf of the Participant. | Reasons for decision: All legislative references are to provisions of the ITAA 1936 or to provisions of the ITAA 1997, unless otherwise indicated. | any funds provided by Company A or a member of the Group to the Trustee for the purpose of purchasing Shares on the terms of the Trust Deed constitute corpus of the Trust and are irretrievable by Company A or a member of the Group. | an expense is incurred by an employing entity in relation to the establishment of an employee share trust (EST) to which Division 83A applies | the employees who are to be provided the ESS interest are the employees of that employing entity. | obtaining share or rights in a company (paragraph 130-85(4)(a)) | ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b) | other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(c)). | the Trust acquires shares in a company, namely Company A | the Trust ensures that ESS interests (as defined in subsection 83A-10(1)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Trust Deed and the Plan.