Private ruling: ESS I
Published: December 2013
Ruling period: For the income years: | 1 July 2013 - 30 June 2014 | 1 July 2014 - 30 June 2015 | 1 July 2015 - 30 June 2016 | 1 July 2016 - 30 June 2017 | 1 July 2017 - 30 June 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the non-refundable cash contributions made by a Company to the Trustee of the Employee Share Trust (EST) be assessable income of the EST? | A1: No | Q2: In respect of shares acquired by the Trustee of the EST under the terms of the Long Term Incentive Plan (the Plan), will any capital gain or capital loss made by the Trustee under CGT Event E5 (section 104-75 ITAA 1997) be disregarded when Participants become absolutely entitled to shares in the Company? | A2: Yes | Q3: In respect of shares disposed of by the Trustee of the EST under the terms of the Plan, will the Trustee make a capital gain or capital loss under CGT Event E7 (section 104-85 ITAA 1997) when Participants acquire the shares? | A3: No

Relevant facts and circumstances: The Company is the head Company of an income tax consolidated group. Remuneration and Incentive Programme The objective of the Company's remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The Company currently operates a Share Option Plan and a Performance Rights Plan. The Long Term Incentive Plan (the Plan) The Plan Rules (the Rules) provide the objectives of the Plan are to establish a method by which Eligible Employees can participate in the future growth and profitability of the Company, to provide an incentive and reward for Eligible Employees for their contributions to the Company, and to attract and retain a high standard of managerial and technical personnel for the benefit of the Company (Rule 2). The Rules include two schedules with: · Schedule 1 applying where the Company makes an offer of Options to an Eligible Employee, and · Schedule 2 applying where the Company makes an offer of Performance Rights to an Eligible Employee. The definitions of terms used in the Rules are contained in Rule 3.1. An Option is defined as a right, other than a Performance Right, to subscribe for or otherwise acquire a Share on the terms set on in the Rules. A Performance Right means a right to subscribe or otherwise acquire shares on terms set out in the Rules. An Eligible Employee is a person who is an executive director, or a full time or part time employee of the Company or a Related Body Corporate of the Company, other than such a person who has given notice of resignation, or who has been given notice of termination, of his or her employment, or removed from his or her position. The Plan will be administered by the Board and commence on a date determined by resolution of the Board. The Board shall determine the number of Options and Performance Rights to be set aside for the purposes of the Plan. For so long as the Company is admitted to the official list of ASX, Options and Performance Rights may not be offered to a Director or his or her associates except where approval is given by the shareholders of the Company in general meeting in accordance with the requirements of the Listing Rules.(Rule 4) The Board powers are provided in Rule 15.1 and include the discretion to delegate to the exercise of any of the Board's powers or discretions under the Plan to one or more persons. Rule 5 states that the Board may use an employee share trust for the purposes of holding any Plan Shares for Participants under the Plan. Participant is defined as an Eligible Employee to whom Options or Performance Rights have been validly granted under the Plan. The Board may determine criteria to apply to an Eligible Employee for participation in the Plan including a minimum period of service. The Board may in its discretion determine the number of Options and Performance Rights offered to an Eligible Employee and the terms and conditions applicable to such Options and Performance Rights. (Rule 6) Generally, Options and Performance Rights will automatically lapse and be forfeited if the Participant to whom the Options or Performance rights were first granted voluntarily resigns, is dismissed from employment or removed from his or her position during the Restricted Period (Rule 7.1). However, in certain circumstances as set out in Rule 7.2, Options and Performance Rights will not lapse and be forfeited if the Participant ceases employment or is removed from his or her position. The discretion in Rule 7.2(e) will not be exercised on a routine basis to allow Participants voluntarily ceasing employment to receive their unvested Options or Performance Rights. The Restricted Period is defined as the period commencing on the Issue Date and expiring on the later of the Vesting Date (if any) and the date when the last of any Exercise Conditions (if any) is satisfied or waived by the Company. The Issue Date means the date on which the Company issues the Option or Performance Right. The Vesting Date is a date after the Issue Date as determined by the Board and specified in the Offer of Options or Performance Rights. The Board must not offer or grant Options or Performance Rights if the total number of Shares to be granted under the Offer, plus the shares subject to outstanding Offers, the number of shares to be issued if outstanding Options and Performances rights were to be exercised and the number of Shares issued during the previous five years under an employee share plan, exceeds 5% of the total number of Shares of the Company (Rule 9). Rule 10 provides the Exercise Conditions and Vesting Conditions. The Board may impose Exercise Conditions or Vesting Conditions in respect of an Option or Performance Right on such terms as the Board considers appropriate. If an Option or Performance Right is subject to Exercise Conditions or Vesting Conditions then the Option or Performance Right may only be exercised if the Exercise Conditions or Vesting Conditions relating to it have been satisfied or waived by the Board in its absolute discretion. The Company may determine and enforce transfer restrictions on Plan Shares, including imposing a holding lock on the Plan Shares or using an employee share trust to hold the Plan Shares during the relevant restriction period (Rule 11). Participants granted Options or Performance Rights are bound by the Plan Rules and the constitution of the Company. Schedule 1 - Options Schedule 1 contains the provisions that will apply where the Company makes an offer of Options to an Eligible Employee. Broadly, the Company may make Offers in writing to Eligible Employees inviting them to accept an offer of Options under the Plan. Each Offer must specify the number of Options being offered and the terms and conditions including Expiry Date, Exercise Price and the Restricted Period. Options must be offered for no more than Nominal Consideration. Each Option entitles the holder to subscribe for one Share on exercise of the Option. The Exercise Price of an Option shall be the price determined by the Board prior to or on grant of the Options. The Exercise Period of an Option shall be the period determined by the Board prior to or on grant of the Option and if no period is determined by the Board then the Exercise Period shall be the period from the date of grant of the Option to the Expiry Date. On expiry of the Exercise Period an Option not exercised shall automatically lapse. Options may only be exercised by notice in writing to the Company which specifies the number of Options being exercised and must be accompanied by the Exercise Price for the number of Options specified. Shares issued, transferred or allocated pursuant to the exercise of Options will be dispatched within ten business days after the holder has validly exercised the Options. All shares allotted upon exercise of Options will be credited as fully paid and will be of the same class and rank equally in all respects with other Shares. Schedule 2 - Performance Rights Schedule 2 contains the provisions that apply where the Company makes an offer of Performance Rights to an Eligible Employee. Broadly, the Company may make Offers in writing to Eligible Employees inviting then to accept an offer of Performance Rights under the Plan. Each Offer must specify the number of Performance Rights being offered and the terms and conditions including the Performance Hurdles (if any), the Vesting Dates and the Vesting Conditions (if any). Performance Hurdles are determined by the Remuneration Committee of the Board. The Board determines the Vesting Conditions which may include Performance Hurdles. Rights must be offered under the Plan for no more than Nominal Consideration. Each Performance Right entitles the holder to subscribe for one share on vesting of the Performance Right. The Vesting Conditions of a Performance Right shall be the determined by the Board prior to or on grant of the Performance Right. On expiry of the Exercise Period a Performance Right not exercised shall automatically lapse. Performance Rights will automatically vest on the satisfaction of the Vesting Conditions. Shares issued, transferred or allocated pursuant to the vesting of Performance Rights will be dispatched within ten business days after the holder has validly exercised the Performance Rights. All Shares allotted upon exercise of Performance Rights will be credited as fully paid and will be of the same class and rank equally in all respects with other shares. Employee Share Trust (EST) The Employee Share Trust Deed (Trust Deed) between the Company and the Company acting as trustee (the Trustee) will establish a trust to facilitate the provision of shares to employees under the the Plan. The Trustee is an external trustee and will act in an independent capacity on behalf of the beneficiaries of the EST in accordance with the terms of the Trust Deed. The Trustee is not trustee for any member of the Group and no member of the Group is a beneficiary of the Trust. The EST is being established for the sole purpose of obtaining Shares for the benefit of Participants, including subscribing for or acquiring, allocating, holding, and delivering Shares under the Plan and other employee equity plans for the benefit of Participants (Clause B of Recitals of the Trust Deed). The Trustee declares in respect of: · the Trust Shares held by the Trustee on behalf of the Participant; · the proceeds of sale by the Trustee of rights under a Rights Issue on behalf of the Participant; and · all other benefits and privileges related to or arising from Trust Share held on behalf of the Participant will be held by the Trustee on trust for and on behalf of that Participant on the terms of the Trust Deed and subject to the Relevant Plan rules and relevant Terms of Participation (Sub-clause xxx The Trustee will, in accordance with instructions received from the Company pursuant to the Plan Rules, acquire, allocate and deliver Shares for the benefit of the Participants provided the Trustee receives sufficient payment to subscribe for or purchase Shares and/or has sufficient Unallocated Trust Shares available. (Clause xx) The Trust Deed does not confer on the Company any charge, lien or any other proprietary right or interest in the Shares acquired by the Trustee in accordance with the Trust Deed. Once Options or Performance Rights are exercised pursuant to Schedule x, paragraph xx and Schedule x, paragraph xx of the Plan, within 10 Business Days after delivery of the Exercise Notice or the vesting of Performance Rights, the Company must instruct the Trustee to subscribe for, acquire and/or allocate the relevant number of shares specified, and the Trustee will hold those shares on behalf of the Participant in accordance with the terms of the Trust Deed (Clause xx). After receiving a notice from the Board and subject to receiving sufficient funds from the Company, the Trustee must on behalf of the Participants: · purchase the requisite number of Shares on or off market; · subscribe for the requisite number of Shares; · allocate Shares that are Trust Assets; or · effect a combination of these alternatives (Clause xx) Clause xx of the Trust Deed requires the Company to provide the Trustee with any funds required in order to fulfill its obligations under Clause xx. All funds received by the Trustee from the Company will constitute accretions to the corpus of the Trust and will not be repaid to the Company and no Participant will be entitled to receive the funds. Funds received by the Trustee from the Company may be paid to the Company where the Trustee subscribes for Shares in accordance with this Deed, the relevant Plan Rules or relevant Terms of Participation. The Trustee must maintain a separate share account or record for each participant, notify each Participant of Shares acquired, allocated and held on their behalf and maintain adequate books and records of the Trust (Clause x). Where the Trustee holds shares on behalf of a Participant: a) the dividends payable on those shares will be paid by the Company to the Trustee, and the Trustee will then pay any such dividends to the Participant (Clause xx); b) the Participant may direct the Trustee by notice in writing how to exercise voting rights attaching to those shares, and in the absence of such direction, the Trustee must not exercise those voting rights (Clause xx); and c) the Company must forward to the Trustee and the Trustee must forward to a Participant a copy of any notices of meetings of members of the Company received by the Trustee, unless the Participant has notified the Trustee in writing that they do not wish to receive such notices (Clause xx). Any time after the Restrictive Period, being the period during which there are restrictions on dealing with or transferring the relevant Trust Shares, the Participant may give the Trustee a Withdrawal Notice and following approval of the Board, the Trustee must transfer legal title in the Trust shares or sell the Trust shares in accordance with the Withdrawal Notice and clause 12. (Clause xx) Clause xx requires the Trustee to sell shares at the direction of the Participant and pay the balance of proceeds of sale to the Participant, less any brokerage costs and other expenses incurred by the Trustee. Clause xx requires the Trustee to do all things necessary to transfer legal title in Trust Shares to a Participant, as directed by the Participant, where required to do so by the Plan Rules, if the Trust is terminated or otherwise, where the Board in its discretion determines. The Company must provide to the Trustee all necessary funds required to be able to pay any liability for any Tax in relation to any Trust Shares held by the Trustee or any Tax, fees, costs and expenses in relation to the Trust.

Relevant legislative provisions: · Income Tax Assessment Act 1997 Section 6-5 | · Income Tax Assessment Act 1997 Section 6-10 | · Income Tax Assessment Act 1997 Section 10-5 | · Income Tax Assessment Act 1997 Division 83A | · Income Tax Assessment Act 1997 Section 104-75 | · Income Tax Assessment Act 1997 Section 104-85 | · Income Tax Assessment Act 1997 Section 106-50 | · Income Tax Assessment Act 1997 Section 130-90 | · Income Tax Assessment Act 1997 Section 130-85 | · Income Tax Assessment Act 1936 Section 95 Further issues for you to consider | Anti-avoidance rules | Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement that are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter ' part iva general ' in the search box at the top right of the page, then select ' Part IVA: the general anti-avoidance rule for income tax '.

Reasons for decision: Detailed Reasoning - Question 1: Will the non-refundable cash contributions made by the Company to the Trustee of the EST be assessable income of the EST? Answer No Detailed reasoning The basic trust assessing provisions are contained in Division 6 in Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 95(1) of the ITAA 1936 defines net income of a trust as the total assessable income of the trust calculated as if the trustee were a resident taxpayer in respect of that income, less all allowable deductions. Subsection 6-5(1) of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts, which is also called ordinary income. Subsection 6-10(1) of the ITAA 1997 provides that assessable income also includes some amounts that are not ordinary income. Subsection 6-10(2) of the ITAA 1997 details that amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income are called statutory income. An employee share trust is defined in subsection 130-85(4) of the ITAA 1997 as follows: An employee share trust , for an *employee share scheme, is a trust whose sole activities are: a) obtaining *shares or rights in a Company; and b) ensuring that *ESS interests in the Company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to *associates of employees, of: (i) the Company; or (ii) a *subsidiary of the Company; and (iii) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b) An employee share scheme is defined in subsection 83A-10(1) of the ITAA 1997 as a scheme under which ESS interests in a Company are provided to employees, or associates of employees (including past or prospective employees) in relation to the employees' employment. A trust will satisfy the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997, and be an employee share trust as defined, where the activities of the trustee of the trust are limited to managing an employee share plan and the general administration of the trust. Clause B of the Recitals to the draft Trust Deed states: The Company wishes to establish a trust for the sole purpose of obtaining Shares for the benefit of Participants, including subscribing for or acquiring, allocating, holding and delivering Shares under the Long Term Incentive Plan and other employee equity plans for the benefit of Participants. Clause xx of the draft Trust Deed states: Without limiting the generality of clause 4.1, the Company and the Trustee agree that 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) of the ITAA 1997. Clause xx of the draft Trust Deed states: Despite any other provision of this Deed, the Trustee: a) is not permitted to offer, issue or acquire any Share or any right to any Share if to do so would contravene any Applicable Law and is not obliged to offer, issue or acquire any Share or any right to any Share where compliance with any Applicable Law would in the opinion of the Trustee or the Board be unduly onerous or impractical; b) is not permitted to carry out activities that are not matters or things which are necessary or expedient to administer and maintain the Trust and the Trust Assets or for the purpose of giving effect to, and carrying out, the trusts, powers and discretions conferred on the Trustee by this Deed or the law; c) is not permitted to carry out activities which result in the Participants being provided with additional benefits other than the benefits that arise from this Deed, the relevant Plan Rules and/or the relevant Terms of Participation; and d) may not use any Trust Assets or Trust Shares as security. Clause xx of the draft Trust Deed states: Where the terms of the relevant Plan Rules and relevant Terms of Participation for a Participant include that Shares are to be held by the Trustee on behalf of Participants, the Board must by notice in writing instruct the Trustee to subscribe for, purchase and/or allocate a number of Shares specified in the notice, to be held by the Trustee as Trust Shares in respect of an identified Participant or Participants. The above terms and conditions set out in the draft Trust Deed confirm that the Trust is an 'employee share trust' as defined in subsection 130-85(4) of the ITAA 1997. It is also noted that under Clause xx of the draft Trust Deed, all funds received by the Trustee will constitute accretions to the corpus of the Trust and will not be repaid to the Company and no Participant shall be entitled to receive such funds. The non-refundable cash contributions made by the Company to the Trustee are to be used in accordance with the draft Trust Deed and Plan Rules for the sole purpose of and under the employee share scheme. Consequently, the contributions constitute capital receipts to the Trust and are not assessable under section 6-5 of the ITAA 1997 (ordinary income) or section 6-10 of the ITAA 1997 (statutory income) (ATOID 2002/965). Clause xx of the draft Trust Deed states: The Trustee is not entitled to receive from the Trust any fees, commission or remuneration in respect of its performance of its obligations as trustee of the Trust. The Company may pay to the Trustee from the Company's own resources any fees, commission or remuneration and reimburse any expenses incurred by the Trustee as the Company and the Trustee may agree from time to time. The Trustee is entitled to retain for its own benefit any such remuneration or reimbursement. Any such receipts will be assessable income of the Trust in contrast to the non-refundable cash contributions made to facilitate the acquisition of the Company shares. | Detailed Reasoning - Question 2: In respect of shares acquired by the Trustee of the EST under the terms of the Plan, will any capital gain or capital loss made by the Trustee under CGT Event E5 (section 104-75 ITAA 1997) be disregarded when Participants become absolutely entitled to shares in the Company? Answer Yes Detailed reasoning CGT event E5 Section 104-75 of the ITAA 1997 provides that CGT event E5 happens at the time a beneficiary becomes 'absolutely entitled' to a CGT asset of a trust as against the Trustee. Section 130-90 of the ITAA 1997 operates to ensure that any capital gain or loss made by an EST is disregarded if it arises as a result of the beneficiary of the trust becoming absolutely entitled to an employee share scheme share (CGT event E5), or as a result of a disposal of an employee share scheme share or right to a beneficiary (CGT event E7). In determining whether a beneficiary is absolutely entitled to the asset, any legal disability (i.e. beneficiary under 18) is ignored. In Draft Taxation Ruling TR 2004/D25 the Commissioner stated his view that the core principle underlying the concept of absolute entitlement in the CGT rules is the ability of a beneficiary who has a vested and indefeasible interest in the entire trust asset to be transferred to them or as they so direct. Subdivision 130-D of the ITAA 1997 treats an employee who acquires an ESS interest through an 'employee share trust' to be 'absolutely entitled' to the share or right to which the ESS interest relates from the time that they acquire the ESS interest (subsections 130-85(1) of the ITAA 1997). Clause 3.1(b)(i) of the draft Trust Deed states: The Trustee declares and agrees that: (i) each Participant is, subject to the relevant Plan Rules and relevant Terms of Participation: (A) the beneficial owner of the Trust Shares held by the Trustee on their behalf; and (B) absolutely entitled to all other benefits and privileges attached to, or resulting from holding those shares; and … Thus Clause xx of the draft Trust Deed states that each Participant will be absolutely entitled to shares held by the Trustee of the EST from the time the Trustee of the EST acquires shares on their behalf as a result of the Participant exercising their Options or Performance Rights. Subsections 130-90(1) and 130-90(2) state: | Detailed Reasoning - 130-90(1): Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if: (a) the CGT event is CGT event E5 or E7; and (b) the CGT event happens in relation to a *share; and (c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d) the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. | Detailed Reasoning - 130-90(2): Subsection (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens. Employee share trust As detailed in question 1, the terms and conditions set out in the draft Trust Deed confirm that the Trust is an 'employee share trust' as defined in subsection 130-85(4) of the ITAA 1997. Paragraph 130-90(1)(a) of the ITAA 1997 CGT event E5 is the CGT event that will apply under the terms of the Plan at the time the Participant becomes absolutely entitled to the shares. Under the terms of the draft Trust Deed, the Trustee is required to deal with the shares in accordance with the relevant Plan Rules. The relevant Plan Rules have a number of conditions that may restrict the Participant's access to the shares. These restrictions may affect a Participant's absolute entitlement to the shares as against the Trustee. When the Participants are no longer restricted by any of the conditions under the Plan Rules from calling for and receiving the shares, then the Participants will become absolutely entitled to the shares and CGT event E5 happens, and paragraph 130-90(1)(a) of the ITAA 1997 will be satisfied. Paragraph 130-90(1)(b) of the ITAA 1997 Section 995 of the ITAA 1997 defines a share to mean a share in the capital of a Company. An ordinary share in the Company held by the Trustee and to which a Participant is entitled upon exercise of an Option or Performance Right is a share in the capital of a Company, that is the Company. Accordingly, paragraph 130-90(1)(b) is satisfied as CGT event E5 happens in relation to a share for the purposes of that paragraph. Paragraph 130-90(1)(c) of the ITAA 1997 Paragraph130-90(1)(c) is satisfied as a Participant will have acquired a beneficial interest in a share (in the Company) by exercising an Option or Performance Right granted under the Plan. Paragraph 130-90(1)(d) of the ITAA 1997 The term 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997. Subsection 83A-10(2) states: An employee share scheme is a *scheme under which *ESS interests in a Company are provided to employees, or *associates of employees, (including past or prospective employees) of: (a) the Company;…. in relation to the employees' employment. For the purposes of subsection 83A-10(2) of the ITAA 1997, section 995 of the ITAA 1997 defines the term 'scheme' as follows: scheme means: (a) any * arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. The Plan is an employee share scheme for the purposes of Division 83A of the ITAA 1997 as it is an arrangement under which an ESS interest i.e. a beneficial interest in an option or right to acquire a beneficial interest in a share of the Company, is provided to eligible employees in relation to their employment by the Company. The options and rights are acquired for no more than nominal consideration. Accordingly, prima facie Subdivision 83A-B of the ITAA 1997 will apply to the Options and Performance rights acquired as pursuant to subsection 83A-20(1) of the ITAA 1997 the ESS interest will be acquired under an employee share scheme (for the reasons stated in the preceding paragraph) at a discount. However, Subdivision 83A-B will not apply if Subdivision 83A-C applies. Whether a participant is ultimately taxed upfront on some or all of any discount received (under Subdivision 83A-B of the ITAA 1997) or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C of the ITAA 1997), will depend on which of the additional requirements in subdivision 83A-B of the ITAA 1997 or subdivision 83A-C of the ITAA 1997 have been satisfied. Under either circumstance paragraph 130-90(1)(d) of the ITAA 1997 will be satisfied. Accordingly, all the conditions in subsection 130-90(1) of the ITAA 1997 are satisfied. Provided that the beneficiary does not acquire the beneficial interest in the share for more than its cost base in the hands of the EST at the time that CGT event E5 happens, subsection 130-90(2) of the ITAA 1997 is also satisfied. Under these circumstances, section 130-90 of the ITAA 1997 will operate to disregard any capital gain or loss made by the Trustee or a beneficiary of the EST on any share when a participant becomes absolutely entitled to that share. | Detailed Reasoning - Question 3: In respect of shares disposed of by the Trustee of the EST under the terms of the Plan, will the Trustee make a capital gain or capital loss under CGT Event E7 (section 104-85 ITAA 1997) when Participants acquire the shares? Answer No Detailed reasoning CGT event E7 Section 104-85 of the ITAA 1997 provides that CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 of the ITAA 1997 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it in the trust capital. The time of CGT event E7 is when the asset is disposed of by the trustee to the beneficiary (subsection 104-85(2) of the ITAA 1997). As discussed in the answer to Question 2, section 130-90 of the ITAA 1997 operates to ensure that any capital gain or loss made by an EST is disregarded if it arises as a result of a beneficiary of the trust becoming absolutely entitled to an employee scheme share (CGT event E5), or as a result of a disposal of an ESS share or right to a beneficiary (CGT Event E7). As discussed in question 1, the EST is an employee share trust within the meaning of subsection 130-85(4). In regard to the Plan, the transfer of trust shares is contained in Clause xx of the draft Trust Deed, which states: | Detailed Reasoning - xx Sales of Trust Shares by Trustee: Subject to clause [no.], if the relevant Plan Rules and/or relevant Terms of Participation permit, the Trustee may at the direction of the Participant, sell any of the Trust shares to which the Participant is entitled. On sale of any such Trust Shares, subject to any Plan Rules and/or relevant Terms of Participation, the Trustee will apply the proceeds of sale (and pay to the Participant any other monies held on the account for the Participant). (a) first, in payment of any brokerage and other costs and expenses of the sale incurred by the Trustee (including an amount to meet the Tax liability (if any) incurred by the Trustee resulting from that sale); and (b) second, the balance (if any) in payment to the relevant Participant. | Detailed Reasoning - xx Trustee to transfer: Subject to clause [no.], the Trustee must do all things required by it to transfer legal title in Trust Shares to a Participant on whose behalf Trust Shares are held or to any third party as directed by the relevant Participant (and pay to the Participant any other monies held on the account for the Participant). (a) where required to do so, or permitted, by the relevant Plan Rules and/or relevant Terms of Participation as soon as reasonably practicable; (b) if the Trust is terminated under clause [no.]; or (c) otherwise where the Board in its discretion determines. Upon transfer of the legal title in those trust shares, in accordance with the relevant Plan Rules, CGT event E7 will occur at the time legal title in the shares is transferred to either the Participant, or a third party as directed by the Participant. A capital gain arises to the Trustee if the market value of the share at the time of disposal to the participant is more than the share's cost base (subsection 104-85(3) of the ITAA 1997). A capital loss arises to the Trustee if the market value of the share at the time of disposal to the participant is less than the share's reduced cost base (subsection 104-85(3) of the ITAA 1997). As discussed in the answer to question 2, in regards to the Plan, paragraphs 130-90(1) (a) to (d) will be satisfied. Provided a participant in the Plan does not acquire the beneficial interest in the share for more than its cost base in the hands of the EST, at the time that CGT event E7 happens, subsection 130-90(2) of the ITAA 1997 will also be satisfied. Under these circumstances, section 130-90 will operate to disregard a CGT event E7 capital gain or capital loss made by the Trustee or a beneficiary of the EST.