Private ruling: EBA Employee and Contractor Share Trust
Published: May 2013

Ruling: Q1: Will the contributions of money by the contracting entity to the trustee pursuant to the trust deed be included in the assessable income of the contractor under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Will the contributions of money by the contracting entity to the trustee pursuant to the trust deed be included in the assessable income of the contractor under section 15-2 of the ITAA 1997? | A2: No | Q3: Will the contributions of money by the contracting entity to the trustee pursuant to the trust deed be included in the assessable income of the contractor under section 21A of the ITAA 1936? | A3: No | Q4: Will the loans of money by the contracting entity to the trustee pursuant to the trust deed be included in the assessable income of the contractor under section 6-5 of the ITAA 1997? | A4: No | Q5: Will the loans of money by the contracting entity to the trustee pursuant to the trust deed be included in the assessable income of the employee under section 15-2 of the ITAA 1997? | A5: No | Q6: Will the loans of money by the contracting entity to the trustee pursuant to the trust deed be included in the assessable income of the contractor under section 21A of the ITAA 1936? | A6: No | Q7: Will the acquisition of share units by the contractor in return for payment of market value consideration be included in the assessable income of the contractor under section 83A-25 of the ITAA 1997? | A7: No | Q8: Will the issue of the share units to the contractor in return for payment of market value consideration, give rise to any assessable income under section 6-5 of the ITAA 1997 for the contractor? | A8: No | Q9: Will the issue of the share units to the contractor in return for payment of market value consideration, give rise to any assessable income under section 15-2 of the ITAA 1997 for the contractor? | A9: No | Q10: Will the issue of the Share Units to the contractor in return for payment of market value consideration give rise to any assessable income under section 21A of the ITAA 1936 for the contractor? | A10: No | Q11: Will the interest free loan provided by the trustee to the contractor for the purpose of acquiring the share units constitute assessable income under section 6-5 of the ITAA 1997? | A11: No | Q12: Will the interest free loan provided by the trustee to the contractor for the purpose of acquiring the share units constitute assessable income under section 15-2 of the ITAA 1997? | A12: No | Q13: Will the interest free loan provided by the trustee to the contractor for the purpose of acquiring the share units constitute assessable income under section 21A of the ITAA 1936? | A13: Yes | Q14: Will the taxable value of a non-cash business benefit constituted by the interest free loan be reduced to nil due to the application of the otherwise deductible rule under subsection 21A(3) of the ITAA 1936? | A14: Yes | Q15: Will the first element of the CGT cost base of the share units acquired by the contractor, in accordance with section 110-25 of the ITAA 1997, equal the amount paid for those share units? | A15: Yes. | Q16: Will the distribution of dividends included in the calculation of the net income of the trust estate under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) by the trustee to the contractor, to which the contractor is presently entitled, be included as assessable income of the contractor under section 97 of the ITAA 1936? | A16: Yes | Q17: Will the proceeds received by the contractor upon redemption of the share units constitute assessable income under section 6-5 of the ITAA 1997? | A17: No | Q18: Will the proceeds received by the contractor upon redemption of the share units constitute assessable income under section 15-2 of the ITAA 1997? | A18: No | Q19: Will the proceeds received by the contractor upon redemption of the share units constitute assessable income under section 21A of the ITAA 1997? | A19: No | Q20: To the extent that any proceeds received on the redemption of the share units constitute assessable income for the contractor under the provisions of section 6-5 or section 15-2 of the ITAA 1997, or section 21A of the ITAA 1936 will the net proceeds (i.e. gross proceeds less the cost of the share units) be assessable, rather than the gross proceeds? | A20: Yes | Q21: To the extent that the proceeds received on the redemption of the share units do not constitute assessable income under section 6-5 or section 15-2 of the ITAA 1997, or section 21A of the ITAA 1936 for the contractor: (a) will the redemption of the share units constitute a CGT event as set out in Division 104 of the ITAA 1997? | A23: Yes | Q22: To the extent that the proceeds from any given redemption of share units are included in the assessable income under section 6-5 or section 15-2 of the ITAA 1997, or section 21A of the ITAA 1936 and are taken into account in calculating a net capital gain, will the anti-overlap provisions of section 118-20 of the ITAA 1997 operate to reduce the capital gain by the amount included in assessable income or to zero in accordance with subsections 118-20(2) and 118-20(3) of the ITAA 1997? | A24: Yes | Q23: If the trustee, pursuant to the trust deed, decides to make cash payments to the contractor on behalf of the contracting entity, will the amounts paid to the contractor be included as assessable income of the contractor under section 6-5 of the ITAA 1997? | A25: Yes | Q24: If the trustee, pursuant to the trust deed, decides to provide discounted rights to shares to the contractor on behalf of the contracting entity, will the discount to the market value of the rights provided to contractor be included as his/her assessable income under section 83A-25 of the ITAA 1997? | A26: Yes

Relevant facts and circumstances: The contracting entity intends to implement a long-term equity plan for the purpose of providing a long-term equity incentive structure to deliver equity based benefits to employees selected by the board of the contracting entity entity.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 44(1) | Income Tax Assessment Act 1936 Division 6 | Income Tax Assessment Act 1936 Section 95 | Income Tax Assessment Act 1936 Section 97 | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 15-2 | Income Tax Assessment Act 1997 Section 82-130 | Income Tax Assessment Act 1997 Subsection 83A-10(1) | Income Tax Assessment Act 1997 Section 83A-15 | Income Tax Assessment Act 1997 Section 83A-25 | Income Tax Assessment Act 1997 Subsection 83A-25(1) | Income Tax Assessment Act 1997 Division 102 | Income Tax Assessment Act 1997 Section 102-5 | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 Section 104-25 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Subsection 110-25(2) | Income Tax Assessment Act 1997 Division 115 | Income Tax Assessment Act 1997 Section 118-20 | Income Tax Assessment Act 1997 Subsection 118-20(2) | Income Tax Assessment Act 1997 Subsection 118-20(3)

Reasons for decision: Summary: Will the contributions of money by the contracting entity to the trustee pursuant to the trust deed be included as assessable income of the contractor under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? No Section 6-5 of the ITAA 1997 includes in your assessable income any income according to ordinary concepts that you derived directly or indirectly from all sources. You are taken to have derived an amount when you have received it, or when it is applied or dealt with in any way on your behalf or as you direct. In this case, the contributions of money by the contracting entity to the trustee are not applied on the contractor's behalf or as he/she directs because, at the time of the contribution, they are applied for the benefit of the eligible employees and contractors as a whole. As such, the contractor cannot be said to derive income according to ordinary concepts, and as such the contributions of money by the contracting entity to the trustee under the trust deed will not be included in his/her assessable income. Will the contributions of money by the contracting entity to the trustee pursuant to the trust deed be included in the contractor's assessable income under section 15-2 of the ITAA 1997? No In this case, the contributions of money are to be made for the purpose of providing a benefit or bonus to eligible employees and contractors generally, and not provided specifically to the contractor in respect of his/her employment. As such, the contractor will not be provided with any allowances, gratuities, compensation, benefits, bonuses or premiums as a result of the contributions made from the contracting entity to the trustee. Will the contributions of money by the contracting entity to the trustee pursuant to clause 4.1 of the trust deed be included in the contractor's assessable income under section 21A of the ITAA 1936? Section 21A of the ITAA 1936 provides that any non-cash business benefit is to be treated as convertible to cash for the purpose of determining the income of a taxpayer from the carrying on of a business. Non-cash business benefit is defined in subsection 21A(5) to include property and services provided in respect of a business relationship. Section 21A of the ITAA 1936 does not actually deem any benefit in the form of property or services to be income. Its effect is that in the event that the non-cash benefit is already considered to be income derived in carrying on a business, subsection 21A(2) specifies that the amount to be brought to account is the amount that the taxpayer would have paid the provider for the property or services under an arm's length transaction. Contributions of money by the contracting entity to the trustee pursuant to the trust deed are not non-cash business benefits. Therefore, they are not assessable to the contractor under section 21A of the ITAA 1936. Will the loans of money by the contracting entity to the trustee pursuant to the trust deed be included in the contractor's assessable income under section 6-5 of the ITAA 1997? No Section 6-5 of the ITAA 1997 includes in your assessable income any income according to ordinary concepts that you derived directly or indirectly from all sources. In this case loans of money by the contracting entity to the trustee pursuant to clause 4.1 of the trust deed are not income according to ordinary concepts. As such, the contractor cannot be said to derive income according to ordinary concepts, and as such the loans of money by the contracting entity to the trustee under the trust deed will not be included in the contractor's assessable income. Will the loans of money by the contracting entity to the trustee pursuant to the trust deed be included as assessable income of the contractor under section 15-2 of the ITAA 1997? No Subsection 15-2(1) of the ITAA 1997 states that 'Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.' Loans of money by the contracting entity to the trustee pursuant to the trust deed do not constitute the contractor's statutory income under section 15-2 of the ITAA 1997 as the loans do not constitute allowances, gratuities, compensation, benefits, bonuses or premiums provided to the contractor or applied or dealt with in any way on his/her behalf or as he/she directs. Will the loans of money by the contracting entity to the trustee pursuant to the trust deed be included as assessable income of the contractor under section 21A of the ITAA 1936? As stated above, section 21A defines non-cash business benefit to include property and services provided in respect of a business relationship and brings to account all non-cash business benefits, whether or not convertible to cash, that are income derived by a taxpayer in carrying on a business for the purpose of gaining or producing assessable income. Loans of money by the contracting entity to the trustee pursuant to the trust deed are not non-cash business benefits. They are therefore not assessable to the contractor under section 21A of the ITAA 1936. Will the acquisition of share units by the contractor in return for payment of market value consideration be included as assessable income of the contractor under section 83A-25 of the ITAA 1997? No Section 83A-25 of the ITAA 1997 states that your assessable income includes the discount given in the income year in which you acquire the ESS interest. As the payment for the share units is made by you and the application money is used by the trustee to pay full market value for the shares, any interest the contractor acquires in the shares is not acquired at a discount, thus section 83A-25 of the ITAA 1997 does not apply. Will the issue of the share units to the contractor in return for payment of market value consideration, give rise to any assessable income under section 6-5 of the ITAA 1997? No As stated above, section 6-5 of the ITAA 1997 includes in your assessable income any income according to ordinary concepts that you derived directly or indirectly from all sources. It is settled law that the acquisition of capital assets does not constitute income according to ordinary concepts. The acquisition of units in a unit trust for consideration is considered to be the acquisition of a capital asset, and not the provision of income. As such, the issue of share units to the contractor in return for payment of market value consideration does not give rise to any assessable income under section 6-5 of the ITAA 1997. Will the issue of the share units to the contractor in return for payment of market value consideration, give rise to any assessable income under section 15-2 of the ITAA 1997? No As stated above, subsection 15-2(1) of the ITAA 1997 states that 'Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.' The term 'provide' is defined in section 995-1 of the ITAA 1997 as including to ' allow, confer, give, grant or perform the benefit. ' While not exhaustive, all of these terms indicate a unilateral or one-sided provision of a benefit, rather than an acquisition of a benefit for market value and on equal terms. In this case, the contractor will not be provided with the share units, but rather will acquire them at market value. As such, the issue of the share units to the contractor does not meet the definition of section 15-2 of the ITAA 1997. Will the issue of the share units to the contractor in return for payment of market value consideration give rise to any assessable income under section 21A of the ITAA 1936? As stated above, section 21A defines non-cash business benefit to include property and services provided in respect of a business relationship and brings to account all non-cash business benefits, whether or not convertible to cash, that are income derived by a taxpayer in carrying on a business for the purpose of gaining or producing assessable income. Share units issued to the contractor may be non-cash business benefits for the purposes of section 21A of the ITAA 1936, i.e. property provided in relation to a business relationship between the contractor and the contracting entity. Where such benefits are income derived in carrying on a business for the purpose of gaining or producing assessable income, the amount assessable under subsection 21A(2) of the ITAA 1936 is the arm's length value of the benefit, reduced by any amount of consideration paid to the provider by the recipient in respect of the provision of the benefit (the recipient's contribution). Where the recipient's contribution is equal to or greater than the arm's length value of the non-cash business benefit, no amount is assessed under subsection 21A of the ITAA 1936. Therefore, where the contractor pays market value consideration for the share units, the receipt of the share units by you is not assessable to the contractor under section 21A. Will the interest free loan provided by the trustee to the contractor for the purpose of acquiring the share units constitute assessable income under section 6-5 of the ITAA 1997? As stated above, section 6-5 of the ITAA 1997 includes in your assessable income any income according to ordinary concepts that you derived directly or indirectly from all sources. In this case loans of money provided to the contractor by the trustee are not income according to ordinary concepts. As such, the contractor cannot be said to derive income according to ordinary concepts, and the interest free loan by the trustee will not be included in the contractor's assessable income. Will the interest free loan provided by the trustee to the contractor for the purpose of acquiring the share units constitute assessable income under section 15-2 of the ITAA 1997? As stated above, subsection 15-2(1) of the ITAA 1997 states that 'Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.' The interest free loan provided by the trustee to the contractor does not constitute a benefit for the purposes of section 15-2 of the ITAA 1997. Will the interest free loan provided by the trustee to the contractor for the purpose of acquiring the share units constitute assessable income under section 21A of the ITAA 1936? As stated above section 21A defines non-cash business benefit to include property and services provided in respect of a business relationship and brings to account all non-cash business benefits, whether or not convertible to cash, that are income derived by a taxpayer in carrying on a business for the purpose of gaining or producing assessable income. An interest free loan provided to the contractor is a non-cash business benefit for the purposes of section 21A of the ITAA 1936, i.e. property and/or services provided in relation to a business relationship between the contractor and the contracting entity. Where such benefits are income derived in carrying on a business for the purpose of gaining or producing assessable income, the amount assessable under subsection 21A(2) of the ITAA 1936 is the arm's length value of the benefit, reduced by any amount of consideration paid to the provider by the recipient in respect of the provision of the benefit (the recipient's contribution). The value of the non-cash business benefit constituted by the interest free loan will be brought to account as the contractor's assessable income. The amount to be brought into account is the difference between the amount of interest the contractor could reasonably be expected to pay on the loan if the arrangement was at arm's length, and the amount of interest which has actually been paid. Will the taxable value of a non-cash business benefit constituted by the interest free loan be reduced to nil due to the application of the otherwise deductible rule under subsection 21A(3) of the ITAA 1936? As stated above section 21A of the ITAA 1936 defines non-cash business benefit to include property and services provided in respect of a business relationship and brings to account all non-cash business benefits, whether or not convertible to cash, that are income derived by a taxpayer in carrying on a business for the purpose of gaining or producing assessable income. Subsection 21A(3) of the ITAA 1936 states: Where: (a) a non-cash business benefit is income derived by a taxpayer in a year of income; and (b) if the taxpayer had, at the time the benefit was provided, incurred and paid unreimbursed expenditure in respect of the provision of the benefit equal to the amount of the arm's length value of the benefit - a once-only deduction would, or would but for section 82A, and Subdivisions F, GA and G of Division 3 of this Part, of this Act, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the taxpayer in respect of a percentage (in this subsection called the deductible percentage ) of the expenditure; the amount that, apart from this subsection, would be applicable under subsection (2) of this section in respect of the benefit shall be reduced by the deductible percentage. As stated above an interest free loan provided to the contractor is a non-cash business benefit for the purposes of section 21A of the ITAA 1936, i.e. property and/or services provided in relation to a business relationship between the contractor and the contracting entity and the amount assessable under subsection 21A(2) of the ITAA 1936 is the arm's length value of the benefit. However the value of the non-cash business benefit constituted by the interest free loan brought to account as the contractor's assessable income under subsection 21A(2) of the ITAA 1936 will be reduced to nil by virtue of the otherwise deductible rule in subsection 21A(3) of the ITAA 1936 as all of the loan funds will be applied to an income producing purpose. Will the first element of the CGT cost base of the share units acquired by the contractor, in accordance with section 110-25 of the ITAA 1997, equal the amount paid for those Share Units? Under subsection 110-25(2) of the ITAA 1997, the first element of the cost base of a CGT asset includes the costs of acquisition of the CGT asset. This is defined as including the total of the money paid or required to be paid in respect of the CGT asset, as well as the value of any property you gave or were required to give to acquire the CGT asset. Under the plan, the share units will be transferred to you for the market value of the shares acquired in the contracting entity and allocated to those share units. This will be funded by an interest-free loan from the trustee to the contractor. Given that the contractor is only required to pay the market value of the share units and not pay any other amounts or contribute any property to acquire them, then the amount paid for the share units will equal the first element of the CGT cost base. Will the distribution of dividends included in the calculation of the net income of the trust estate under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) by the trustee to the contractor, to which the contractor is presently entitled, be included as assessable income of the contractor under section 97 of the ITAA 1936? Where the contractor is a beneficiary presently entitled to a share of the income of the trust estate, that share of the net income of the trust estate for the purposes of section 95 of the ITAA 1936 is included in the contractor's assessable income under section 97 of the ITAA 1936. The trustee will include in its calculation of net income, as defined in section 95 of the ITAA 1936, the total assessable income of the trust estate calculated under Division 6 of the ITAA 1936 as if the Trustee were a taxpayer in respect of that income less all allowable deductions. Under subsection 44(1) of the ITAA 1936, the assessable income of a resident shareholder in a company includes dividends that are paid to the shareholder by the company out of profits derived by it from any source. Therefore, to the extent that a dividend is received by the trustee as a shareholder and included by the trustee in its calculation of net income for the purposes of Division 6 of the ITAA 1936, the contractor's proportionate share of the section 95 net income of the trust estate for the purposes of section 97 of the ITAA 1936 will be the proportionate share of the income of the trust estate to which the contractor is presently entitled in the relevant income year. Will the proceeds received by the contractor upon redemption of the share units constitute assessable income under section 6-5 of the ITAA 1997? As stated above, section 6-5 of the ITAA 1997 includes in your assessable income any income according to ordinary concepts that you derived directly or indirectly from all sources. The disposal of share units acquired by the contractor is a realisation of a capital asset and the disposal proceeds do not constitute income according to ordinary concepts assessable under section 6-5 of the ITAA 1997. Will the proceeds received by the contractor upon redemption of the share units constitute assessable income under section 15-2 of the ITAA 1997? The disposal of share units acquired by the contractor is a realisation of a capital asset, which was not provided to the contractor but rather acquired by the contractor for market value. As such, the disposal proceeds do not constitute allowances, gratuities, compensation, benefits, bonuses or premiums and are not assessable under section 15-2 of the ITAA 1997. Will the proceeds received by the contractor upon redemption of the share units constitute assessable income under section 21A of the ITAA 1997? As stated above section 21A of the ITAA 1936 defines non-cash business benefit to include property and services provided in respect of a business relationship and brings to account all non-cash business benefits, whether or not convertible to cash, that are income derived by a taxpayer in carrying on a business for the purpose of gaining or producing assessable income. The proceeds from the disposal of share units are not non-cash business benefits. Therefore, they are not assessable to the contractor under section 21A of the ITAA 1936. To the extent that any proceeds received on the redemption of the share units constitute your assessable income under the provisions of section 6-5 or section 15-2 of the ITAA 1997, or section 21A of the ITAA 1936, will the net proceeds (i.e. gross proceeds less the cost of the share units) be assessable, rather than the gross proceeds? As stated at questions 17, 18 and 19 above, it is our position that the proceeds received on the redemption of the share units are not included in the contractor's assessable income under sections 6-5 or 15-2 of the ITAA 1997, or section 21a of the ITAA 1936. Rather, the proceeds received constitute the redemption of a capital asset and as such are more properly considered under the CGT provisions. As such, it is unnecessary to consider this question further. To the extent that the proceeds received on the redemption of the share units do not constitute assessable income under section 6-5 or section 15-2 of the ITAA 1997, or section 21A of the ITAA 1936: (a) will the redemption of the share units constitute a CGT event as set out in Division 104 of the ITAA 1997? Paragraph 104-25(1)(a) of the ITAA 1997 states that CGT Event C2 occurs if your ownership of an intangible asset ends by that asset being redeemed or cancelled. Under the trust deed, the trustee is required to cancel some or all of the share units held by the contractor if his/her employment ends, or if the contractor requests such a cancellation in writing. We consider that the redemption of share units by the contractor will represent a cancellation of those share units, and each cancellation will constitute a CGT event C2 under section 104-25 of the ITAA 1997. (b) will the proceeds received by the contractor upon the redemption of the share units be taken into account in calculating the contractor's net capital gain under Division 102 of the ITAA 1997? Under section 102-5 of the ITAA 1997, your assessable income for an income year includes any net capital gain upon the share units redeemed during that income year. You make a capital gain or loss if a CGT event happens to your CGT asset. As stated above, paragraph 104-25(1)(a) of the ITAA 1997 provides that CGT Event C2 occurs if your ownership of an intangible asset ends by that asset being redeemed or cancelled. Subsection 104-25(3) states that you make a capital gain if the capital proceeds received on cancellation of the intangible asset exceed the cost base of the asset. In this case, the redemption of the share units will constitute a cancellation of those share units. Where the contractor receives the cancellation entitlement upon cancellation of the share units, this will be included in his/her capital proceeds. As such, the proceeds received by the contractor upon redemption of the share units will be taken into account in calculating the contractor's capital gain or capital loss under section 104-24 of the ITAA 1997, and thus will be taken into account in calculating the contractor's net capital gain under Division 102 of the ITAA 1997. (c) will the CGT discount provisions in Division 115 of the ITAA 1997 apply where the share units were acquired at least 12 months before the CGT event? Sections 115-10 to 115-25 of the ITAA 1997 set out the conditions under which an entity will make a discount capital gain. The conditions are as follows: · the capital gain must be made by an individual, complying superannuation fund, trust or life insurance company (section 115-10 of the ITAA 1997); · the discount capital gain must be made after 21 September 1999 (section 115-15 of the ITAA 1997); · the discount capital gain must not have an indexed cost base - which is only relevant to assets acquired prior to 21 September 1999 under Division 114 of the ITAA 1997 (section 115-20 of the ITAA 1997); and · the discount capital gain must result from a CGT event occurring to a CGT asset acquired at least 12 months before the CGT event (section 115-25 of the ITAA 1997). As the contractor is an individual, and will be both acquiring and cancelling the share units after 21 September 1999, then as long as the share units were held by him/her for at least 12 months prior to their cancellation, the capital gain will meet all of the criteria in sections 115-10 to 115-25 of the ITAA 1997 and thus be a discount capital gain. To the extent that the proceeds from any given redemption of share units are included in assessable income under section 6-5 or section 15-2 of the ITAA 1997, or section 21A of the ITAA 1936 and are taken into account in calculating a net capital gain, will the anti-overlap provisions of section 118-20 of the ITAA 1997 operate to reduce the capital gain by the amount included in assessable income or to zero in accordance with subsections 118-20(2) and 118-20(3) of the ITAA 1997? Under subsections 118-20(2) and 118-20(3) of the ITAA 1997, where the disposal of an asset gives rise to assessable income and a capital gain, the amount of the income is included in assessable income and the capital gain is reduced by that amount or to zero. As stated at questions 10 and 11 above, it is our view that proceeds from any cancellation of share units will not be included in the contractor's assessable income under sections 6-5 and 15-2 of the ITAA 1997. However to the extent the disposal of an asset gives rise to assessable income and a capital gain, the amount of the income is included in the assessable income and the capital gain is reduced by that amount or to zero in accordance with subsections 118-20(2) and 118-20(3) of the ITAA 1997. If the trustee, pursuant to the trust deed, decides to make cash payments to the contractor on behalf of the contracting entity, will the amounts paid to the contractor be included as assessable income of the contractor under section 6-5 of the ITAA 1997? Section 6-5 of the ITAA 1997 includes in your assessable income any income according to ordinary concepts that you derived directly or indirectly from all sources. Payments of cash as a reward for services generally constitute ordinary income, and you will have received them indirectly from the contracting entity through the trustee. As such, where the trustee, pursuant to the trust deed, pays amounts to the contractor on behalf of the contracting entity from repayments of a loan pursuant to the trust deed, such amounts, including the amounts of PAYG withheld, will constitute income according to ordinary concepts assessable under section 6-5 of the ITAA 1997. If the trustee, pursuant to the trust deed, decides to provide discounted rights to shares to the contractor on behalf of the contracting entity, will the discount to the market value of the rights provided to contractor be included as his/her assessable income under section 83A-25 of the ITAA 1997? Yes Section 83A-20 of the ITAA 1997 states that the provisions of Subdivision 83A-B, including section 83A-25, apply to an ESS interest if you acquire that interest under an employee share scheme at a discount. Under section 83A-10 of the ITAA 1997, an ESS interest is defined as including a beneficial interest in a share in a company, and an employee share scheme is defined as a scheme in which ESS interests are provided by a company to their employee, in relation to the employment of that employee. Section 83A-325 provides that Division 83A applies to relationships similar to employment. The table at section 83A-325 item 3 states that: Division 83A applies to an individual who provides services to an entity as if he or she were employed by the entity and the arrangement between the individual and the entity under which those services are provided constitutes employment. This includes taxpayers who are independent contractors. Any discount that the contractor receives by acquiring an ESS interest below the market price is a benefit. The value of that discount is taxed under the provisions of Division 83A of the ITAA 1997. The discount is the market value of the ESS interests less any consideration paid or to be paid by the contractor. The discounted rights to shares in the contracting entity provided to the contractor by the trustee on behalf of the contracting entity will constitute ESS interests, as defined under subsection 83A-10(1) of the ITAA 1997. Therefore the value of the discount must be included in the contractor's assessable income for that income year pursuant to section 83A-25 of the ITAA 1997.

(b) will the proceeds received by the contractor upon the redemption of the share units be taken into account in calculating his/her net capital gain under Division 102 of the ITAA 1997?