Private ruling: Employee share scheme
Date of advice: 16 August 2023
Published: 20 November 2023
Ruling period: Year ended 30 June 20xx Income | Year ended 30 June 20xx | This ruling applies for the following periods for questions 5 to 6 : | Year ended 31 March 20xx Fringe benefits | Year ended 31 March 20xx
Date scheme commenced: X 2021

Ruling: Q1: Will ACo, as head company of the ACo consolidated group (ACo TCG), be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the irretrievable cash contributions made by BCo to the Trustee, as trustee of the Trust to fund the subscription for, or acquisition on-market of, ACo ordinary shares by the Trustee under the Plan, in respect of participants that are directly employed by members of the ACo TCG? | A1: Yes. | Q2: Will ACo, as head company of the ACo TCG, be entitled to deduct an amount under section 8-1 of the ITAA 1997, in respect of costs incurred by ACo or BCo in relation to the on-going administration of the Trust? | A2: Yes. | Q3: Will irretrievable cash contributions made by ACo or BCo to the Trustee, to fund the subscription for, or acquisition on-market of, shares by the Trustee under the Plan, in respect of Participants that are directly employed by members of the ACo TCG, be deductible to ACo under section 8-1 of the ITAA 1997 at a time determined by section 83A-210 of the ITAA 1997 if the contributions are made before the acquisition of the relevant ESS interests? | A3: Yes. | Q4: 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 full, a deduction claimed by ACo for costs incurred by ACo or BCo in relation to the on-going administration of the Trust or irretrievable cash contributions made by ACo or BCo to the Trustee to fund the subscription for, or acquisition on-market of, shares under the Plan in respect of Participants that are directly employed by members of the ACo TCG? | A4: No. | Q5: Will the provision of awards to employees of BCo under the Plan and the X Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A5: No. | Q6: Will the irretrievable cash contributions made by ACo or BCo to fund the subscription for, or acquisition on-market of, shares under the Plan and the X Plan in respect of employees of BCo or to fund the administration of the Trust, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A6: No.

Relevant facts and circumstances: Participants may include employees of subsidiaries which are not members of the ACo TCG. Under the Plan, members of the ACo TCG may make irretrievable cash contributions to the Trustee in respect of employees of subsidiaries which are not members of the ACo TCG. The consideration of contributions made with respect to employees that are not directly employed by members of the ACo TCG (and any associated Australian tax implications for ACo) is outside the scope of this ruling. Background ACo is an Australian resident public company. ACo is the parent company of the ACo Group, which carries on a business in Australia and overseas. ACo is the head company of the ACo TCG and has no employees. BCo is a wholly owned subsidiary of ACo and a member of the ACo TCG. As part of ACo Group's remuneration strategy, ACo may provide awards under the Plan to ACo Group employees. ACo may grant or allocate awards consisting of options, rights or shares. ACo currently provides awards in the form of rights which are subject to performance conditions and/or service requirements. ACo may provide an award of shares to which it is intended that section 83A-35 of the ITAA 1997 applies. ACo will meet the ongoing administration expenses of the Plan. The Plan will be administered in accordance with the Plan Rules. Invitations The ACo board may make an invitation to eligible persons to participate in the Plan. Invitations may be made upon such additional terms and any performance, service and/or other conditions that must be satisfied in relation to the grant of an award. An invitation may provide information in relation to, amongst other things: • the acquisition price (if any) for an award • details of any applicable conditions attaching to an award • the performance period over which the conditions in relation to the grant of an award are assessed • in respect to an award of options or rights • the amount payable on the exercise of an option or right (if any) • details of the manner in which an option or right may be exercised • the expiry date after which the option or right lapses and may no longer be exercised. An invitation may provide that an award may be granted on the condition that the participant sacrifices an amount of their salary or fees. An invitation made under the Plan is personal to the eligible person to whom it is made and the invitation may only be accepted by, and the awards may only be made to, the eligible person to whom the invitation is made, unless otherwise determined by the ACo board. Options or rights An option or right which has not lapsed vests if and when any conditions applicable to the award have been satisfied, or waived. A vested option or right may only be exercised by a participant once the conditions have been satisfied. Following the exercise of an option or right, ACo must either, at the election of the ACo board: • allocate to, or procure the transfer to or for the benefit of, the participant (or their representative) shares • make a cash payment of an amount equivalent to the market value of an ACo share in full satisfaction of the vested option or right (less any exercise price in respect of the option or right). Where an option or right is settled by cash, the payment will not flow through the Trust as it will be paid by ACo or BCo and reported via payroll. Some or all of the shares allocated or transferred on exercise of an option or right may remain subject to dealing restrictions. On exercise of an option or right, dealing restrictions which apply to a share may apply from the date of allocation of a share until the earlier of: • the date the participant ceases to be an employee of an ACo Group company and the relevant conditions (if any) are satisfied • the ACo board determines that the shares should be released having regard to the existence of special circumstances • the end of the period during which awards granted under the Plan or shares allocated in respect of awards are subject to dealing restrictions • the fifteenth anniversary of the date of grant of the options or rights. Shares A share which has not been forfeited vests if and when any conditions applicable to the share have been satisfied, or waived. Dealing restrictions and the restriction period applicable to a share may continue after the share has vested or after a participant ceases employment within the ACo Group. Ownership of an unvested share or a restricted share may be forfeited. Shares cease to be restricted shares and cease to be subject to dealing restrictions at the end of the restriction period. On or before the end of the restriction period, the ACo board may determine that ACo will pay a cash amount to the participant equal to the market value of a share as at the end of the restriction period instead of the participant retaining the share. Where a restricted share is settled by cash, the payment will not flow through the Trust as it will be paid by ACo or BCo and reported via payroll. Lapse or forfeiture of awards Unless the Board determines otherwise, an award, will lapse or be forfeited on the earliest of: • the date the ACo board determines that any applicable condition cannot be satisfied • in the case of an option or right, the expiry date • cessation of employment prior to vesting or exercise of the award, or an award ceasing to be subject to any dealing restrictions or restriction period • in clawback and malus circumstances • a change of control event prior to vesting or exercise of the award, or an Award ceasing to be subject to any dealing restrictions or restriction period • the participant purporting to deal or enter into any arrangement in respect of the award in breach of the Plan. Under the Plan Rules, a Participant's entitlement to: • specified awards may not be amended, adjusted, reduced, extinguished or be deemed to have lapsed in clawback and malus circumstances • a specified award may not be forfeited by the participant for any reason. FYXX Award During the income year ended 30 June 20XX eligible persons were invited to apply for an award under the Plan (FYXX Award). Eligible persons who accept the FYXX Award invitation, were granted performance rights which entitled the participant to acquire one ACo share allocated under the terms of the Plan for no consideration. This may occur by way of issue or transfer of a share, or a cash payment in lieu of a share at the discretion of the ACo board, once certain conditions have been met. The performance conditions are measured at the end of an X-year period. Participants are not entitled to notice of, or to attend, a meeting of shareholders, or to receive any dividends in respect of performance rights, until the performance rights have vested and the Participant has been awarded a share. Performance rights cannot be transferred, disposed of, or have a security interest imposed over them without the prior written consent of the ACo board or unless required by law. The vesting of performance rights will also be conditional on the participant continuing to be an employee of an ACo group company on the date the relevant performance rights are due to vest. Under the FYXX Award, performance rights which have not lapsed will vest on the date provided for under the invitation, subject to the performance conditions being satisfied. The shares a participant receives following the vesting of performance rights will not be subject to a trading lock or disposal restrictions. Participants are free to sell, transfer or otherwise deal shares subject to compliance with ACo's share trading policy and minimum shareholding guidelines and any applicable laws. X Plan Before 30 June 20XX, ACo invited ACo group company employees to participate in an offer to receive shares under the X Plan. Shares were: • provided for no consideration • not subject to forfeiture • not subject to disposal restrictions and able to be sold subject to ACo's share trading policy. Participants were eligible to receive any dividends paid on the shares and able to vote as a shareholder at ACo's annual general meeting. Before 30 June 20XX: • the ACo TCG made irretrievable cash contributions to the Trust to fund the acquisition on-market of shares by the Trustee to satisfy the award under the X Plan • shares were granted to participants. Shares granted to a participant were held on behalf of the participant. The Trust The Trust was established under the trust deed. The Trustee will hold the trust fund on trust for trust participants in accordance with the trust deed and terms and conditions, including any rules, of the relevant plan. In addition, the Trustee has power to do all acts and things which the Trustee is required to do or may do under the rules of the relevant plan or under the Trust Deed, including power to: • subscribe for, purchase or otherwise acquire, and to transfer, sell or otherwise dispose of ACo shares • sell ACo shares and apply the proceeds of sale in accordance with the Trust Deed and the rules of the Plan • receive dividends and distributions paid on ACo shares and apply those amounts in accordance with the Trust Deed and the rules of the Plan • enter into and execute contracts, deeds and documents and do all things which it considers expedient for the purpose of giving effect to and carrying out the trusts, authorities, powers and discretions conferred on the Trustee • appoint and remove or suspend custodians, trustees, managers, servants and other agents • institute, conduct, defend, compound or abandon any legal proceeding concerning the Trust • make and give receipts, releases and other discharges for money payable to the Trustee in respect of the Trust • open bank accounts and to retain, on current or deposit account at any bank, money it considers proper • take and act upon the advice or opinion of any legal practitioner or any other professional person • generally do all other acts and things which the Trustee considers necessary or expedient for the administration, maintenance and preservation of the Trust and in performance of the Trustee's obligations under the Trust Deed and Rules of the Plan. 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). Each ACo group company is prohibited from benefitting from the trust fund. The Trustee is not entitled to any benefit from the trust fund at any time and is prohibited from being or becoming a trust participant. Any moneys held by the Trustee but which are not currently required for the Plan may be placed on deposit with any bank or financial institution but the Trustee has no other powers of investment other than those necessary for the Plan. The Trustee must not, and does not have the power to, mortgage, charge, pledge or otherwise encumber any ACo shares or other property held by it under the Plan. The Trustee is not entitled to receive from the Trust or trust participants any charges, fees, commissions or other remuneration in respect of its office or in respect of operating or administering the Trust. ACo must pay to the Trustee from its own funds such charges, fees, commissioners or other remuneration as the Trustee and ACo may agree from time to time. Acquisition and transfer of shares The Trustee will apply the trust fund to acquire ACo shares as required for the purposes of the Plan. On receipt of a direction by ACo, following assessment of vesting conditions, the Trustee must allocate to any trust participant nominated by ACo the number of ACo shares specified and, on the date, specified, in accordance with the rules of the Plan and any other conditions imposed (Plan Shares). Upon Plan Shares being allocated to a trust participant, the relevant trust participant becomes beneficially entitled to such Plan Shares and is entitled to receive dividends, bonus shares received by the Trustee, rights issues, accretions and voting rights in respect to Plan Shares. The Trustee must, as soon as reasonably practicable, do all things necessary to transfer legal title in the relevant Plan Shares of a trust participant to that trust participant (or their nominee): • where required to do so, or permitted, by the rules of the Plan • if the Trust is terminated in accordance with the Trust Deed • in any other case, where the ACo board in its absolute discretion determines. Unallocated Shares Shares held by the Trustee which have not been allocated to a trust participant (unallocated shares) are held on trust for the benefit of trust participants generally in accordance with the terms and conditions of the Trust Deed. The Trustee may apply any capital, dividends or other distributions received in respect of unallocated shares to purchase further ACo shares to be held on trust for the purposes of any relevant Plan. The balance of net income of the Trust for a year of income to which no participant is presently entitled must be accumulated by the Trustee as an accretion to the property of the Trust. Funding ACo will keep the Trustee in funds necessary to do any act requested by the ACo board. ACo will pay all costs and expenses in administering the provisions of the Trust Deed or incurred in connection with the acquisition, registration, disposal of or other dealing with ACo shares and otherwise incurred by the Trustee in properly and diligently administering the Trust and carrying out its duties. ACo may, from time to time and in its absolute discretion, do one or a combination of the following: • provide funds to the Trustee, or procure the provision to the Trustee of funds for the Plan, with contributions being made by either ACo or BCo (depending on the commercial position of the ACo Group at the time) • issue or otherwise transfer ACo shares to the Trustee without payment by the Trustee for the purposes of the Plan, in circumstances where restricted shares which were held by a participant are forfeited • notify the Trustee that a trust participant has become entitled to receive Plan Shares under the Plan and request that the Trustee administer the Plan on that basis. Inconsistency with the Plan Rules If the Trust Deed is inconsistent with the rules of the Plan, the rules of the Plan prevail to the extent of the inconsistency.


Reasons for decision: Summary: ACo, as head company of the ACo TCG, will be entitled to deduct an amount under section 8-1 for the irretrievable cash contributions made by ACo or BCo to the Trustee to fund the subscription for, or acquisition on-market of, shares by the Trustee to the extent that irretrievable cash contributions made are in respect of awards granted under the Plan to participants that are directly employed by members of the ACo TCG. | Detailed Reasoning - Detailed reasoning: Section 8-1 Subsection 8-1(1) allows you to deduct from your assessable income any loss or outgoing to the extent that either: (a) it is incurred in gaining or producing your assessable income (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, under 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. ACo carries on a business. ACo operates an employee share scheme (ESS) as part of its remuneration strategy. Under the Plan, ACo grants options, rights and shares 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. | Detailed Reasoning - Incurred in carrying on a business: Under the Trust Deed, ACo will keep the Trustee in funds necessary to do any act requested by the board. The cash contributions made by ACo or BCo to the Trustee are irretrievable as: • each ACo group company is prohibited from benefitting from the trust fund • the Trustee is not entitled to any benefit from the trust fund at any time and is prohibited from being or becoming a Trust Participant • any moneys held by the Trustee but which are not currently required for the purposes of the Plan may be placed on deposit with any bank or financial institution but the Trustee has no other powers of investment other than those necessary for the Plan • the Trustee must not, and does not have the power to, mortgage, charge, pledge or otherwise encumber any Shares or other property held by it under the Plan. Under the Plan, ACo has granted, and will in the future grant, 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) as part of its remuneration and reward program for Participants. The costs incurred by ACo or BCo for the acquisition of shares to satisfy grants of ESS interests under the Plan 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. | Detailed Reasoning - Not capital or of a capital nature: The costs will be an outgoing incurred for the periodic funding of an ESS for employees of subsidiary members of the ACo TCG, which are taken to be parts of ACo for the purposes of subsections 701-1(2) and (3). Costs incurred under the Plan are likely to be in relation to more than one grant of awards to employees of subsidiary members of the ACo TCG, and ACo intends to satisfy the awards 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 the ACo TCG. While the irretrievable cash contributions may secure an enduring or lasting benefit for the ACo TCG 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, ACo will be entitled to deduct an amount under section 8-1 for the irretrievable cash contributions made to the Trustee to acquire shares to satisfy ESS interests issued under the Plan to the extent they relate to employees of subsidiary members of the ACo TCG. | Detailed Reasoning - Question 2: Will ACo, as head company of the ACo TCG, be entitled to deduct an amount under section 8-1, in respect of costs incurred by ACo or BCo in relation to the on-going administration of the Trust? | Summary: ACo, as head company of the ACo TCG, will be entitled to deduct an amount under section 8-1, in respect of costs incurred by ACo or BCo in relation to the ongoing administration of the Trust to the extent that they relate to employees that are directly employed by members of the ACo TCG. | Detailed Reasoning - Detailed reasoning: In addition to the reasoning provided in Question 1, ACo TCG incurs on-going administration costs for operating the Trust and has appointed the Trustee to administer the Trust. Under the plan rules, ACo will meet the ongoing administration expenses of the Plan. Under the Trust Deed: • ACo will keep the Trustee in funds necessary to do any act requested by the board • ACo will pay all costs and expenses in administering the provisions of the Trust Deed or incurred in connection with the acquisition, registration, disposal of or other dealing with shares and otherwise incurred by the Trustee in administering the Trust and carrying out its duties • the Trustee is not entitled to receive from the Trust or Trust Participants any charges, fees, commissions or other remuneration in respect of its office or in respect of operating or administering the Trust • ACo must pay to the Trustee from ACo's own funds such charges, fees, commissions or other remuneration incurred by the Trustee as ACo and the Trustee agree from time to time. 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 administering an ESS. Ongoing expenses associated with the administration of an ESS (including brokerage fees, audit fees, bank charges, making new offers to employees under an existing ESS, and other ongoing administrative expenses) are deductible under section 8-1. Therefore, costs incurred in relation to the ongoing administration of the Trust, to the extent they relate to employees that are directly employed by members of the ACo TCG, are deductible under section 8-1 as they are: • regular and recurrent • a part of the ACo TCG's broader employee remuneration program • do not add to the business structure of ACo • not one-off in nature. | Detailed Reasoning - Question 3: Will irretrievable cash contributions made by ACo or BCo to the Trustee, to fund the subscription for, or acquisition on-market of, shares by the Trustee under the Plan, in respect of participants that are directly employed by members of the ACo TCG, be deductible to ACo under section 8-1 at a time determined by section 83A-210 if the contributions are made before the acquisition of the relevant ESS interests? | Summary: Irretrievable cash contributions made by ACo or BCo to the Trustee, to fund the subscription for, or acquisition on-market of, shares by the Trustee in respect of awards of shares, options and rights under the Plan, in respect of participants that are directly employed by members of the ACo TCG, will be deductible to ACo under section 8-1 at a time determined by section 83A-210 if the contributions are made before the acquisition of the relevant ESS interests. | Detailed Reasoning - Detailed reasoning: It is often the case that an outgoing will be both incurred and paid in the same year of income, and as such, the amount is deductible in that income year for the purposes of section 8-1. However, section 83A-210 modifies this rule in certain circumstances in respect of contributions provided by an employer to a trust to purchase shares under an ESS. The effect of section 83A-210 is to deem the time an employer incurred the outgoing to be the time the ESS interest is acquired by a beneficiary, rather than the time the employer makes the contribution to the trust, if the contribution was made before the ESS interests are acquired. 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 ACo TCG. The ESS contains a number of interrelated components which include the provision of irretrievable cash contributions by ACo or BCo 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 made in respect of a share can only be deducted from the assessable income of ACo 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. Shares that are purchased by the Trustee to satisfy its obligations under the Plan, and subsequently allocated to participants pursuant to the Plan, are ESS interests for the purposes of section 83A-210. | Detailed Reasoning - Indeterminate rights under the Plan: A share, a share to which it is intended that section 83A-35 of the ITAA 1997 applies, an option or a right, including a right under the FYXX award provided under the Plan are indeterminate rights for the purposes of section 83A-340. That is because the shares, rights and options can be settled by either shares or by making a payment of a cash equivalent amount in lieu of a share, to be determined at a future time at the discretion of the employer. Therefore, an award of shares is not a beneficial interest in shares and an award of rights or options under the Plan is not a right to acquire a beneficial interest in shares unless and until the time it is determined by the board that they will be satisfied by the provision of shares. 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, under 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, that employee becomes the 'ultimate beneficiary' and the deduction is available in the income year that participating employee acquired that ESS interest. Once it is determined that they will be satisfied by provision of shares, section 83A-340 operates to treat these rights as though they had always been rights to acquire beneficial interests in shares (therefore, an ESS interest) for the purposes of section 83A-210. If irretrievable contributions are provided to the Trustee before these rights are acquired (and they do subsequently become ESS interests by virtue of section 83A-340), section 83A-210 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1 to be the income year in which participants originally acquired the shares, rights or options under the Plan. | Detailed Reasoning - Question 4: Will the Commissioner seek to make a determination that Part IVA applies to deny, in part or full, a deduction claimed by ACo for costs incurred by ACo or BCo in relation to the on-going administration of the Trust or irretrievable cash contributions made by ACo or BCo to the Trustee to fund the subscription for, or acquisition on-market of, shares under the Plan in respect of participants that are directly employed by members of the ACo TCG? | Summary: The Commissioner will not seek to make a determination that Part IVA applies to deny, in part or full, a deduction claimed by ACo for costs incurred by ACo or BCo in relation to the on-going administration of the Trust or irretrievable cash contributions made by ACo or BCo to the Trustee to fund the subscription for, or acquisition on-market of, shares under the Plan in respect of participants that are directly employed by members of the ACo TCG. | 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 the case of awards of shares, options and rights under the Plan to participants that are directly employed by members of the ACo TCG, 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 ACo to obtain a tax benefit. | Detailed Reasoning - Question 5: Will the provision of awards to employees of BCo under the Plan and the X Plan be a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | Summary: The provision of awards under the Plan and the X Plan to employees of BCo will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA. | 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 excludes 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. | Detailed Reasoning - X Plan: The Commissioner accepts that the X Plan is an ESS as a share granted under the X Plan is an ESS interest under paragraph 83A-10(1), being a beneficial interest in a either a share in a company or a right to acquire a share in a company. The shares are ESS interests to which Subdivision 83A-B applied because a Participant acquired the ESS interests under an ESS for nil consideration, which is at a discount. The grant of shares under the X Plan are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. | Detailed Reasoning - Indeterminate rights: As discussed above, in response to Question 3, a share, an shares to which it is intended that section 83A-35 of the ITAA 1997 applies, an option or a right granted under the Plan that may be satisfied in cash instead of shares are indeterminate rights. At the time that awards are granted under the Plan, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because those awards may be satisfied in cash instead of shares. Hence, they may not be ESS interests within the meaning of subsection 83A-10(1). Where the awards are ultimately satisfied with shares instead of cash, section 83A-340 will operate to treat those awards to have always been ESS interests within the meaning of subsection 83A-10(1). In these circumstances, the Plan will constitute an ESS within the meaning of subsection 83A-10(2) because it is a scheme under which ESS interests are provided to employees of ACo or BCo in relation to their employment. Subsection 83A-20(1) is the key condition that an ESS interest must meet for Subdivision 83A-B or 83A-C to apply. Subsection 83A-20(1) states: This Subdivision applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. Under the Plan, awards may be acquired for no consideration or at a discount. Awards involving the sacrifice of an amount of pre-tax salary or fees, are acquired at a discount as part of a salary sacrificing arrangement in which the employee foregoes an expected entitlement to future salary and wages (Taxation Ruling TR 2001/10: Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements) . As Participants may acquire shares, options or rights under the Plan at a discount or, as in the case of the performance rights granted under the FYXX Award, for nil consideration (i.e. at a discount), Subdivision 83A-B will apply to those shares, options, rights or performance rights (unless Subdivision 83A-C applies instead). Accordingly, the provision of awards under the Plan will not be subject to fringe benefits taxes on the basis that they are acquired by participants 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 definition of a fringe benefit in subsection 136(1) of the FBTAA. When options or rights granted under the Plan are exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the option or 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 the exercise of rights granted under an employee share scheme ). For completeness, where the award granted under the Plan is ultimately satisfied with cash instead of shares, the granting of the share, option or right under the Plan will be viewed as a series of steps in the payment of salary or wages, and not a separate benefit to the payment of salary or wages which are excluded from the definition of a fringe benefit by paragraph 136(1)(f) of the FBTAA. This outcome is consistent with ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee share scheme: indeterminate rights not fringe benefits . | Detailed Reasoning - Question 6: Will the irretrievable cash contributions made by ACo or BCo to fund the subscription for, or acquisition on-market of, shares under the Plan and the X Plan in respect of employees of BCo or to fund the administration of the Trust, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | Summary: The irretrievable cash contributions made by ACo or BCo to fund the subscription for, or acquisition on-market of, shares, under the Plan and the X Plan in respect of employees of BCo or to fund the administration of the Trust, will not constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: As stated above in response to Question 5, 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, is 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: • 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)). As stated above in the response to Question 5, the Commissioner accepts that the X Plan and the Plan is an ESS and a share granted under the X Plan or a share, option or right granted under the Plan, that is ultimately settled in shares, is an ESS interest under subsection 83A-10(1), 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: • the Trust acquires shares in a company, namely ACo • 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 employees of ACo, or a subsidiary of ACo, in accordance with the Trust Deed, the X Plan and the Plan. 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 relevant plan in accordance with the Trust Deed and rules of the plan. Therefore, the irretrievable cash contributions made by ACo or BCo to fund the subscription for, or acquisition on-market of, shares by the Trust, pursuant to the Plan, will not be a fringe benefit.

Reasons for decision: All legislative references are to provisions of the ITAA 1936 or to provisions of the ITAA 1997, unless otherwise indicated. | Questions 1 to 4 - application of the single entity rule | The consolidation provisions allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1, the subsidiary members of a consolidated group are taken to be parts of the head company. Therefore, the subsidiary members cease to be recognised as separate entities during the period they are members of the consolidated group, with the head company of the group being the only entity recognised for income tax purposes. | The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997 . | As a consequence of the SER, the actions and transactions of the subsidiary members of the ACo TCG are treated, for income tax purposes, as having been undertaken by ACo as the head company of the ACo TCG. | The SER in section 701-1 has no application to the or FBTAA. The Commissioner has therefore provided a ruling to ACo and BCo in relation to Questions 5 and 6. | Will ACo, as head company of the ACo TCG, be entitled to deduct an amount under section 8-1 for the irretrievable cash contributions made by ACo or BCo to the Trustee as trustee of the Trust to fund the subscription for, or acquisition on-market of, shares by the Trustee under the Plan, in respect of participants that are directly employed by members of the ACo TCG?