Private ruling: Employee share scheme
Date of advice: 31 July 2020
Published: September 2020
Ruling period: The rulings for questions 1 to 5 each apply for the following periods: | 1 January 20xx to 31 December 20xx | The rulings for questions 6 to 8 each apply for the following periods: | 1 April 20xx to 31 March 20xx

Ruling: Q1: Will Company A obtain an income tax deduction, pursuant to section 8-1 of the Income Tax Assessment Act 1997 (" ITAA 1997") in respect of the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for or acquisition on-market of Company A shares in respect of employees based in Australia ("Participants")? | A1: Yes | Q2: Will Company A obtain a deduction under section 8-1 of the ITAA 1997 for costs it incurred in relation to the on-going administration of the Trust, including expenses relating to preparation of tax returns and obtaining tax advice for the Trust? | A2: Yes | Q3: Will irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Company A shares by the Trust, be deductible to Company A under section 8-1 of the ITAA 1997 at a time determined by section 83A-210 of the ITAA 1997 where contributions are made before the acquisition of the relevant Employee Share Scheme ("ESS") interests? | A3: Yes | Q4: If the Trust satisfies its obligation under the Employee Incentive Plan ("Existing PRP") and New Employee Incentive Plan ("New PRP") (collectively as performance rights plans ("PRP")) by subscribing for new shares in Company A, will the subscription proceeds be included in the assessable income of Company A under section 6-5 or 20-20 of the ITAA 1997 or trigger a capital gains tax ("CGT") event under Division 104 of the ITAA 1997? | A4: No | Q5: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 ("ITAA 1936") applies to deny, in part or in full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Company A shares by the Trust? | A5: No | Q6: Will the provision of Performance Rights by Company A to its employees under the PRP be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA 1986")? | A6: No | Q7: Will the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Company A shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | A7: No | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount to Company A, by the amount of tax benefit gained from irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Company A shares? | A8: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below, including the following documents, or relevant parts of them, which are to be read with the description: · Trust Deed · Amended Trust Deed · Incentive Plans · Invitation letter templates. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Company A is an Australian listed company and is the head company of the Company A tax consolidated group ("GCG"). Company A's overall remuneration strategy adopts the use of fixed remuneration and variable remuneration comprising short term incentives ("STIP") (such as cash bonuses and performance rights) and long-term incentives of performance rights ("LTIP"). The STIP is delivered by the New PRP. The LTIP is delivered by Existing PRP. The establishment of the Trust provides Company A greater flexibility to accommodate its incentive arrangements. Incentive Plans The objective of Company A's executive remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. Additionally, in its ongoing efforts to maintain a productive and motivated work environment, the Board believes that the implementation of incentive plans will serve a number of purposes, including: · To act as a key retention tool; and · To focus attention on future shareholder value generation. Company A's overall remuneration strategy adopts the use of fixed remuneration and variable remuneration comprising short term incentives (such as cash bonuses and performance rights) and long-term incentives of performance rights. The PRP is a key part of Company A's executive remuneration framework for key management personnel in Australia. The grant of Incentives does not automatically entitle an Incentiveholder to a Share. The actual number of Shares to which the Incentiveholder may become entitled will depend on the satisfaction of one or more of the Vesting Conditions (as determined by the Board), during the relevant performance period and the operation of the PRP rules. 1. Existing PRP Rules The Existing PRP was approved by Shareholders and then amended by resolution of the Board. The Existing PRP Rules provide the terms and conditions under which the Performance Rights are governed. Broadly, the Existing PRP Rules operate as follows: · Unless the Board otherwise determines, no payment is required for a grant of the Incentives. Incentive means the right to receive shares. · Incentiveholders (as defined as an Eligible Employee of the Company A Group or their nominee to whom Incentives have been granted under the PRP) are issued Invitations by the Board (at their absolute discretion), to apply for up to a specified number of Incentives with Exercise Price of zero. If the Board grants Incentives with exercise price of $0, then those Incentives may be referred to as 'Performance Rights'. These Performance Rights vest according to performance criteria (also referred to as "Vesting Conditions") · The satisfaction of the Vesting Conditions shall determine the proportion of Incentives which vest and become exercisable to the Incentiveholder. An Incentive will vest when a Vesting Notice in respect of that Incentive is given or is deemed to be given to the Incentiveholder. Thereafter, in the case of manual exercise, the Participant must deliver an exercise notice to the Company, specifying the number of vested Incentives being exercised and this exercise notice must be accompanied by payment of the Exercise Price (if any). In the case of automatic exercise of an Incentive, that Incentive will be deemed to be automatically exercised on the first Business Day following the date of provision of the Vesting Notice (subject to the prior payment of the Exercise Price, if any). · As soon as practicable after an Incentive under the PRP has been exercised, the Company must allot and issue to the Incentiveholder or their personal representative (as the case may be) the number of Shares in respect of which the Incentive has been exercised. · All Shares allotted will rank equally with the other shares then on issue. · If there is a Change of Control event, a winding-up of the Company, or upon an Incentiveholder having their employment terminated by consent, redundancy or death, the PRP rules dictate how to deal with the Incentiveholders' Incentives, regardless of whether Vesting Conditions have been met. · Incentives can lapse in a number of ways. Lapsing can occur by the Incentive not being exercised by its Expiry Date, or by the Incentiveholders failure to meet the Vesting Conditions in the prescribed period. The Incentives could also lapse according to another provision of the Existing PRP Rules. · Invitations may provide that Shares issued, allocated or transferred on exercise of Incentives are subject to restrictions as to the disposal or other dealing by an Incentiveholder. In this situation, and even if there are no restrictions, all Incentiveholders must comply with the securities trading policy of the Company at all times. · An Incentive (other than a Performance Right) is only transferrable in certain circumstances. · Incentives acquired under the terms of the Existing PRP are under a scheme to which Subdivision 83A-C of the ITAA 1997 applies. 2. New PRP The terms and conditions of the New PRP are the same as the Existing PRP except for the following: · Incentive means the right to receive Shares or cash. The Board may determine that the exercise of an Incentive will be satisfied by Company A making a cash payment instead of allocating Shares. · The terms and conditions of an Invitation will prevail over any New PRP Rules. · Where Incentives held by or on behalf of an Eligible Employee who is a Director, exercised Incentives must be satisfied by Company A shares that have been purchased on market, unless no shareholder approval is required or shareholders have approved the Director's participation in the New PRP under the Listing Rules. · Where an Exercise Price is payable for an Incentive, an Invitation may specify that an Incentiveholder may elect to pay the Exercise Price per Incentive by setting off the total Exercise Price against the number of Shares (or cash payment) they are entitled to receive upon exercise ("Cashless Exercise Facility"). · Incentives can lapse in a number of ways. Lapsing can occur by the Incentive not being exercised by its Expiry Date, or by the Incentiveholders failure to meet the Vesting Conditions in the prescribed period. The Incentives could also lapse according to another provision of the New PRP rules. Contributions will not be made prior to any offer of rights albeit they may be at a time when they still constitute "indeterminate rights". If the granted rights vest over a period of 1 - 4 years, funds may be contributed progressively over that 1-4 year period to acquire shares on market or subscribe for shares, having regard to specific circumstances of the company and the broader economy at points in time. However, Company A will not make large upfront payments to the Trust prior to Performance Rights being granted. All performance rights issued after the 2020 AGM will be under the New PRP. The Trust Company A established the Trust for the sole purpose of obtaining shares for the benefit of employees of Company A. Company B is an external trustee acting in an independent capacity on behalf of the beneficiaries of the Trust. If there is any inconsistency between the Trust Deed and the PRP Rules, the Trust Deed prevails. The Trust operates as follows: · The Trust will be managed and administered so that is satisfies the definition of "employee share trust" for the purposes of subsection 130-85(4) of the ITAA 1997. The powers of the Trustee are listed in the Trust Deed. · Subject to the PRP Rules, neither Trustee nor any company in the Group may grant an Encumbrance over any Shares. · The Trust will be funded by contributions from the Company (i.e. for the purchase of shares in accordance with the PRP). All funds received by the Trustee from Company A will constitute Accretions to the corpus of the Trust and will not be repaid to Company A (or any other company in the Group) and no Participant will be entitled to receive such funds. · These funds will be used by the Plan Trustee to acquire the shares in Company A either on-market, off-market or via a subscription for new shares in Company A based on directions of the Board. · Immediately following exercise of a Share Right, a Participant will have an absolute vested and indefeasible entitlement to receive from the Plan Trustee any Cash Dividends (defined in the Trust Deed) paid subsequently in respect of that Share Right. · On termination of the Trust, the Allocated Plan Shares are transferred to the relevant Participant and there will be no payment of any balance to a company in the Company A Group. · Company A is not a beneficiary of the Trust. · The Trust Deed does not confer on Company A any Encumbrance, proprietary right or proprietary interest in the Shares acquired by the Trustee. · The balance of the Net Income of the Trust for a Year of Income to which no Participant is presently entitled may be accumulated by the Trustee as an Accretion to the Trust. · The Plan Trustee may only distribute income or capital to the Participant where it is properly attributable to the Participant's Allocated Plan Shares · The structure of the Trust and the PRP is such that Shares may be dealt with in the following manner: - Shares allocated to each Participant will generally be transferred into the name of the Participant or to a nominated associate by the Board (i.e. legal title) on receipt of a direction by the Board to do so; - The Plan Trustee can sell shares on behalf of the Participant, where permitted to do so by the Participant and with the approval of the Board, resulting in a Cashless Exercise for the Participant. That is, the Participant receives proceeds on the sale of the shares by the Trust less any brokerage costs; or - In the case of a Forfeited Share, if directed by the Board, a Forfeited Share should be reallocated to one or more other Participants or to, or for the benefit of any PRP as directed by Company A. · The Trustee may pay Trust Expenses from dividends received for Unallocated Shares and interest earned on funds held in the Trust. · On-going administration costs of the Trust that will be reimbursed by Company A include: - Employee plan record keeping; - Production and dispatch of holding statements to employees; - Provision of annual income tax return information for employees; - Costs incurred in the acquisition of shares on market (for example, brokerage costs and the allocation of such shares to participants); - Procedural and administrate activities in relation to Employee Share Scheme ("ESS") interests held in the trust where employee ceases employment with Company A; and - Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. In summary, the commercial benefits of using the Trust for Company A include: · Greater flexibility for Company A to accommodate the incentive arrangements both now and into the future as Company A continues to expand operations and therefore employee numbers. · Capital management flexibility for Company A, in that the Trust can use the contributions made by Company A either to acquire shares in Company A on market, or alternatively to subscribe for new shares in Company A. · Providing an arm's-length vehicle through which shares in Company A can be acquired and held on behalf of the relevant employee. This assists Company A to satisfy Corporations Act requirements relating to a company dealing in its own shares.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 66 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 paragraph 136(1)(h) | Fringe Benefits Tax Assessment Act 1986 paragraph 136(1)(ha) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 subsection 177F(1) | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 8-1(1) | Income Tax Assessment Act 1997 subsection 8-1(2) | Income Tax Assessment Act 1997 paragraph 8-1(2)(a) | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 paragraph 83A-210(a)(i) | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 paragraph 130-85(4)(a) | Income Tax Assessment Act 1997 paragraph 130-85(4)(b) | Income Tax Assessment Act 1997 paragraph 130-85(4)(c) | Income Tax Assessment Act 1997 section 701-1 and | Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision: Summary: For present purposes, subsection 8-1(1) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Company A carries on a business which produces assessable income. Company A operates an employee share scheme ("ESS") as part of its remuneration strategy. Under the PRP, Company A grants Performance Rights to employees and makes irretrievable contributions to the Trust (in accordance with the PRP Rules and the Trust Deed) which the Trustee will use to acquire shares for allocation to Participants to satisfy their allocation of shares. | Detailed Reasoning - Incurred in carrying on a business: Company A must provide the Trustee with all the funds required to enable the Trustee to subscribe for or acquire those Company A shares. The contributions made by Company A are irretrievable and non-refundable to Company A in accordance with the Trust Deed as: · On termination of the Trust, the Trustee must not pay any Trust Fund to Company A and any member of the Company A Group; · All funds received by the Trustee from Company A will not be repaid to Company A (or any company in the Company A Group); and · The Trust Deed does not confer any Encumbrance, proprietary right or proprietary interest in the Shares acquired by the Plan Trustee. Company A has granted (and will in the future grant) Performance Rights under the PRP as part of its remuneration and reward program for Participants. The costs incurred by Company A for the acquisition of shares to satisfy this arise as part of these remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of its employees. | Detailed Reasoning - Not capital or of a capital nature: The costs will be an outgoing incurred for periodic funding of a bona fide ESS for employees of Company A. Costs incurred are likely to be in relation to more than one grant of Performance Rights (rather than being one-off), and Company A intends to continue satisfying outstanding Performance Rights using shares acquired by the Trust. This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the contributions may secure an enduring or lasting benefit for the employer that is independent of the year to year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature. | Detailed Reasoning - Question 2: Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. Company A carries on a business which produces assessable income. Company A operates an ESS as part of its remuneration strategy. Company A incurs on-ongoing administration costs for operating the ESS such as · Employee plan record keeping; · Production and dispatch of holding statements to employees; · Provision of annual income tax return information for employees; · Costs incurred in the acquisition of shares on market (for example, brokerage costs and the allocation of such shares to participants); · Procedural and administrate activities in relation to ESS interests held in the trust where employee ceases employment with Company A; and · Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income. Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company. (ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible) . | Detailed Reasoning - Question 3: Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contribution provided to the trust to purchase shares in excess of the number required to grant the relevant Performance Rights to the employees arising in the year of income from the grant of Performance Rights, under an ESS. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income Tax- Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . The PRP is an ESS for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (i.e. 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 (i.e. Participants) in relation to their employment with Company A Group. The PRP contains a number of interrelated components which includes the provision of irretrievable cash contributions by Company A to the Trustee of the Trust. These contributions enable the Trustee to acquire Company A shares for the purpose of enabling each Participant, indirectly as part of the PRP, to acquire ESS interests. The irretrievable cash contribution can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a share in Company A, or beneficial interest in a Performance Right to a beneficial interest in a share in Company A, is acquired by a Participant under the PRP. | Detailed Reasoning - Indeterminate rights: Performance Rights granted under the New PRP are indeterminate rights for the purposes of section 83A-340. That is because the Board has the discretion to satisfy the Performance Right by either a Company A share or making a payment of a cash equivalent amount. In this circumstance, the Performance Right is not a right to acquire a beneficial interest in a share unless and until the time when the Board determines it will be satisfied by the provision of a Company A share. Once determined, section 83A-340 operates to treat these Performance Rights as though they had always been rights to acquire beneficial interests in shares. If irretrievable contributions are provided to the Trustee before these Performance Rights are acquired (and they do subsequently become ESS interests), then section 83A-340 operates to deem the Performance Rights to always have been ESS interests. Where this occurs, section 83A-210 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1. In such a case, a deduction for the contribution to fund the Performance Rights would be available to Company A in the income year in which Participants acquire the Performance Rights. Where the contribution is made after the acquisition of the relevant ESS interests, irretrievable contributions made by Company A to the Trustee of the Trust to fund the subscription for or acquisition on-market of shares by the Trust to satisfy the ESS interests granted to Participants, it will be deductible in the income year in which the contribution is made by Company A. | Detailed Reasoning - Note: Where the Performance Rights do not become ESS interests because they are ultimately satisfied in cash, the outgoing cannot flow through the Trust. This is because the Trust would not be satisfying the sole activities test for the purposes of subsection 130-85(4) in those circumstances. | Detailed Reasoning - Ordinary Income: Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In an ESS, where the trustee subscribes to the company for an issue of shares and pays the full subscription price for the shares, the company receives a contribution of share capital from the trustee. The character of the contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Here, Company A is issuing the Trustee with new shares in itself. The character of the newly issued share is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee. Accordingly, when Company A receives subscription proceeds from the Trustee where the Trustee has subscribed for new shares in Company A to satisfy obligations to Participants, that subscription proceeds received by Company A is a capital receipt. That is, it will not be on revenue account, and will not be ordinary income under section 6-5. | Detailed Reasoning - Section 20-20: Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year. Company A will receive an amount for the subscription of shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Subsection 20-20(3) establishes that an amount received by you as 'recoupment' of a loss or outgoing is an 'assessable recoupment' if you can deduct the loss or outgoing for an earlier income year under a provision listed in section 20-30. Recoupment is defined in subsection 20-25(1) to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of a loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. So far as a deduction under section 8-1 allowed for bad debts or rates or taxes is concerned, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. However, the receipt by Company A made in return for issuing shares to the Trustee would not be a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes to which section 20-30 could apply. Therefore, the subscription proceeds will not be an assessable recoupment under section 20-20. | Detailed Reasoning - Capital Gains Tax: Section 102-20 states that you make a capital gain or loss if and only if a CGT event happens. No CGT events occur when the Trust satisfies its obligations by subscribing for new shares in Company A. The relevant CGT events that may be applicable when the subscription proceeds are received by Company A are CGT events D1 (creating a contractual or other rights) and H2 (receipt for event relating to a CGT asset). However, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case, Company A is issuing shares, being equity interests as defined in section 974-75, to the Trustee, therefore CGT event D1 does not happen. In relation to CGT event H2, paragraph 104-155(5)(c) also states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. Therefore, CGT event H2 does not occur. Since no CGT event occurs, there is no amount that will be assessable as a capital gain to Company A. Therefore, when the Trust satisfies its obligations under the PRP by subscribing for new shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5 or section 20-20, nor trigger a CGT event under Division 104. | Detailed Reasoning - Question 5: Part IVA of the Income Tax Assessment Act 1936 ("ITAA 1936") is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, 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 where the conditions of Division 83A are met. In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company A to obtain a tax benefit. | Detailed Reasoning - Question 6: An employer's liability to fringe benefits tax ("FBT") arises under section 66 of the Frings Benefits Tax Assessment Act 1986 ("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. Relevantly, paragraph (h) of subsection 136(1) of the FBTAA 1986 excludes the following from being a 'fringe benefit': (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997 ) to which Subdivision 83A-B or 83A-C of that Act applies; The Commissioner accepts that the PRP is an ESS, the Performance Rights provided under the PRP are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests. Accordingly, the provision of Performance Rights under the PRP will not be subject to FBT 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 fringe benefit in subsection 136(1) of the FBTAA. In addition, when a Performance Right is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the Performance Right and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). | Detailed Reasoning - Question 7: One benefit excluded from being a 'fringe benefit', pursuant to paragraph (ha) of subsection 136(1) of the FBTAA 1986, is a benefit constituted by the acquisition of money or property by an employee share trust within the meaning of the Income Tax Assessment Act 1997 . 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 is relevant. To qualify as an employee share trust, a trustee's activities must be limited to those described in paragraphs 130-85(4)(a), (b) and (c). Paragraph 130-85(4)(a) and (b) are satisfied because: · The Trust acquires shares in a company, namely Company A; and · The Trust ensures that ESS interests as defined in subsection 83A-10(1) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Trust Deed and the PRP. 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 'merely incidental' 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 Trust Deed states that the Trust must be managed and administered so that it satisfies the definition of an employee share trust under section 130-85(4). The powers and duties of the Trustee in the Trust Deed can fall within a trustee's activities that are considered to be merely incidental to managing an employee share trust. Therefore, the cash contribution made by Company A to fund the subscription for or acquisition on-market of Company A shares by the Trust will not be a fringe benefit. | Detailed Reasoning - Question 8: PS LA 2005/24 Application of General Anti-Avoidance Rules explains the application of Part IVA or other general anti-avoidance rules to an arrangement, including the operation of section 67 of the FBTAA 1986 (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA 1986 if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. Paragraph 191 of PS LA 2005/24 states: 191. The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. Irretrievable cash contributions made by Company A to the Trust will not be a fringe benefit defined in subsection 136(1) of the FBTAA 1986 as explained in the reasons for question 7. As a result, the FBT liability of Company A is not any less than it would have been but for the existence of the arrangement. The Commissioner will not make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount of Company A by the amount of the tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares.