Private ruling: Employee share scheme
Date of advice: 25 September 2025
Published: 17 November 2025
Ruling period: From a particular date to a particular date.
Date scheme commenced: In a particular year

Ruling: Q1: Will Company X as head entity of Company X's income tax consolidated group ( Group ), be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 ( ITAA 1997 ) in respect of the cash contributions made by it (or a subsidiary of the Group) to ABC Pty Ltd ( Trustee ) as trustee for the Company X Employee Share Trust ( Trust ) to fund the subscription for, or acquisition of, ordinary shares in Company X ( Shares ) for the purposes of share plan A ( Plan A ) and share plan B ( Plan B ) (collectively, the Plans )? | A1: Yes Question 2a Will the cash contributions made by Company X (or a subsidiary member of the Group) to the Trustee of the Trust, to fund the subscription for, or acquisition of, Shares be deductible to Company X at a time determined by section 83A-210 of the ITAA 1997, if those contributions are made before the acquisition of the relevant employee share scheme ( ESS) interests issued under the Plans? Answer 2a Yes Question 2b Will the cash contributions made by Company X (or a subsidiary member of the Group) to the Trustee of the Trust, to fund the subscription for, or acquisition of, Shares be deductible to Company X in the income year when the contributions are made, if those contributions are made after the acquisition of the relevant ESS interests issued under the Plans? Answer 2b Yes | Q2: 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 X in respect of the cash contributions made by Company X to the Trustee of the Trust to fund the subscription for, or acquisition of, Shares pursuant to the Plans? | A2: No | Q3: Will the provision of ESS interests issued under the Plans to employees of Company X (or a subsidiary of the Group) constitute a 'fringe benefit' within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ( FBTAA )? | A3: No Question 5a Will the cash contributions made by Company X (or a subsidiary of the Group) to the Trustee of the Trust pursuant to the Trust Deed executed on XX XX XX and amended by Deeds of Amendment dated XX XX XX ( Trust Deed ), to fund the subscription for, or acquisition of, Shares constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA? Answer 5a No Question 5b Will the cash contributions made by Company X (or a subsidiary of the Group) to the Trustee of the Trust pursuant to the Trust Deed as amended by the Deed of Variation dated XX XX XX ( Amended Trust Deed ), to fund the subscription for, or acquisition of, Shares constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA? Answer 5b No

Relevant facts and circumstances: 1. Company X carries on a business in Australia. 2. Company X is the head company of an income tax consolidated group. 3. Company X and a number of entities within the Group (Employing Entities) employ staff and/or make cash contributions to the Trust in relation to their employees who participate in the Plans. The Plans 4. Company X established and operates the Plans for employees of the Group. 5. For the purposes of this Ruling, shares in Company X are referred to as ' Shares '. 6. For the purposes of this Ruling: • Plan A Rights and Plan B Rights (as described below) will be referred to collectively as the ' Awards' , and • an eligible employee who has been granted one or more Awards under the Plans is referred to as a 'Participant' . 7. The Plans provide for the use of a trust for the purposes of acquiring and holding Shares on behalf of and delivering those Shares to Participants Plan A 8. Under the terms of Plan A, eligible employees may be granted rights to acquire Shares for no consideration or rights to acquire Shares as part of its salary sacrifice arrangement ( Plan A Rights ). 9. Plan A Rights will only vest once the Board, in its discretion, determines any relevant conditions have been satisfied. 10. Subject to any trading restrictions, Company X must allocate or procure the transfer of one Share to, or for the benefit of, the Participant for each vested Plan A Right that is exercised. 11. Plan A Rights do not carry voting rights or dividend entitlements until the underlying Shares are allocated to the Participant following vesting and exercise of the Plan A Rights. Plan B 12. Under the terms of Plan B, eligible employees are invited to participate and elect to make post-tax salary contributions to acquire Shares at market value ( Acquired Shares ). 13. For a pre-determined number of Acquired Shares, Participants are granted conditional rights ( Plan B Rights ) to acquire a Share at no cost at the end of the vesting period ( Matched Shares ). 14. Upon satisfaction of the vesting conditions, Plan B Rights automatically vest and convert to Shares and a Participant becomes absolutely entitled to the Shares. 15. Unless the Board determines otherwise, a Participant is not legally or beneficially entitled to a Matched Share, prior to satisfaction of the vesting conditions and will only become entitled to vote, receive dividends and participate in any corporate actions affecting the Matched Shares after the vesting conditions have been satisfied. The Trust and the Trust Deed 16. The Trust operated in accordance with the terms of the Trust Deed. 17. The Trust Deed contains certain clauses which permits the Trustee to undertake activities which may have resulted in the Trust not satisfying definition of an 'employee share trust' in subsection 130-85(4) of the ITAA 1997. Amended Trust Deed 18. The Trust Deed was amended by a Deed of Variation and executed by Company X and the Trustee on XX XX XX ( Amended Trust Deed ). 19. Under the Amended Trust Deed, certain clauses were amended to ensure that the Trust satisfied the definition of an 'employee share trust' in subsection 130-85(4) of the ITAA 1997. 20. Company X has confirmed that the Trustee has not undertaken any of the activities of the Trust Deed that may have resulted in the Trust not satisfying the definition of an 'employee share trust' in subsection 130-85(4) of the ITAA 1997 and these activities are no longer provided for in the Amended Trust Deed. Other matters 21. Awards under the Plans are granted to employees of Company X (or a subsidiary of the Group) who engage in activities that derive income for Company X which is assessable in Australia. 22. Company X has confirmed that Awards under the Plans are only granted to Australian-based employees and that no cash equivalent alternative has been or will be offered to the Australian-based employees. 23. Company X is not entitled to any deductions under the ITAA 1936 or ITAA 1997 in relation to the contributions made by Participants to purchase Acquired Shares.

Relevant legislative provisions: Part IVA of the ITAA 1936 | Subsection 177D(2) of the ITAA 1936 | Section 8-1 of the ITAA 1997 | Paragraph 8-1(1)(b) of the ITAA 1997 | Paragraph 8-1(2)(a) of the ITAA 1997 | Section 83A-10 of the ITAA 1997 | Subsection 83A-10(1) of the ITAA 1997 | Subsection 83A-10(2) of the ITAA 1997 | Subsection 83A-20(1) of the ITAA 1997 | Subsection 83A-105(1) of the ITAA 1997 | Subdivision 83A-B of the ITAA 1997 | Subdivision 83A-C of the ITAA 1997 | Subsection 130-85(4) of the ITAA 1997 | Paragraph 130-85(4)(a) of the ITAA 1997 | Paragraph 130-85(4)(b) of the ITAA 1997 | Paragraph 130-85(4)(c) of the ITAA 1997 | Section 83A-210 of the ITAA 1997 | Section 701-1 of the ITAA 1997 | Subsection 136(1)of the of the FBTAA

Reasons for decision: Summary: Paragraph 8-1(1)(b) allows you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to paragraph 8-1(2)(a), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Necessarily incurred For a deduction to be allowable under paragraph 8-1(1)(b), a nexus must exist between the outgoing and a business carried on for the purpose of gaining or producing of assessable income. In Magna Alloys & Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180, the Full Federal Court stated that an outgoing is necessarily incurred in carrying on a business where, viewed objectively, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income. Company X carries on a business in Australia for the purpose of gaining or producing assessable income and operates the Plans as part of its remuneration strategy. The Plans provide for the use of a trust for the purposes of acquiring and holding Shares on behalf of and delivering those Shares to Participants. Company X must provide the Trustee with any funds required by the Trustee in order to purchase, subscribe for and allocate Shares under the Plans. The Trustee is not obliged to act unless it receives sufficient payment from Company X. Therefore, there is sufficient nexus between the cash contributions made by Company X to the Trustee to acquire Shares and Company X's remuneration arrangements with its employees under the Plans, which directly relate to the business carried on by Company X for the purpose of producing Company X's assessable income. However, for the cash contribution to be deductible under section 8-1, the contribution must be a permanent loss or outgoing to which Company X has definitely committed itself and there should be no circumstance in which Company X can retrieve any of the contributions (Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339 and Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650 ( Spotlight )). The cash contributions made by Company X to the Trustee are irretrievable and non-refundable to Company X as the Trust Deed and the Amended Trust Deed do not contain any clauses which allow any trust funds to be returned to Company X (or any members of the Group) from the Trust for purposes other than acquiring Shares to implement the Plans. Therefore, the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition of, Shares for the purposes of the Plans are necessarily incurred by Company X in carrying on its business. The advantage provided by each irretrievable cash contribution to the Trustee does not have a lasting quality because it forms part of the overall remuneration of Company X's employees, Furthermore, the irretrievable cash contributions are a recurring outlay (rather than a once-off payment). Therefore, it can be concluded that the cash contributions are not capital, or of a capital nature ( Sun Newspapers Limited v Federal Commissioner of Taxation [1938] HCA 73 and Spotlig ht at paragraph 71). Based on the above analysis, Company X will be entitled to a deduction under section 8-1 in respect of the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition, of Shares for the purposes of the Plans, are not capital, or of a capital nature are deductible under section 8-1. | Detailed Reasoning - Question 2a: Section 83A-210 applies to determine the timing of the deduction of contributions provided under an ESS arrangement, but only if the contribution is made before the ESS interest is acquired by the ultimate beneficiary under the 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. An 'employee share scheme' is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees of a company, or a subsidiary of the company, in relation to the employee's employment. An 'ESS interest' in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. Awards granted under the Plans are beneficial interests in a right to acquire a Share. Therefore, those Awards are ESS interests for the purposes of subsection 83A-10(1) at the time they are granted to the relevant employee. The Plans are ESS for the purposes of subsection 83A-10(2) because they are schemes under which ESS interests in Company X are provided to employees of Company X or any members of the Group, in relation to their employment. Therefore, in respect of any irretrievable cash contributions that are made (or will be made) by Company X to the Trustee before the Participant acquires those Awards under the Plans, section 83A-210 will apply to modify the timing of deductions to be claimed by Company X to the income year in which those Awards are acquired by the Participants. | Detailed Reasoning - Question 2b: As discussed in question 1 above, irretrievable cash contributions to fund the subscription for, or acquisition of, Shares for the purposes of the Plans, are not capital, or of a capital nature are deductible under section 8-1. Further, as discussed in question 2a above, section 83A-210 applies to determine the timing of the deduction of contributions provided under an ESS arrangement, but only if the contributions are made before the ESS interest is acquired by the ultimate beneficiary under the ESS. Therefore, for irretrievable contributions made on or after a Participant acquires the relevant ESS interests, section 83A-210 will not apply for the purpose of determining the income year in which Company X can deduct those irretrievable contributions. This is because the contributions are not made before the 'acquisition time' as required by section 83A-210. Accordingly, such contributions will be deductible in the income year in which they are incurred under section 8-1. | Detailed Reasoning - Question 3: Part IVA of the 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, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. We generally accepts that a general deduction may be available where an employer provides money or other property to an EST 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 EST arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, we have concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company X to obtain a tax benefit. | Detailed Reasoning - Question 4: Fringe benefit 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' under paragraphs (f) to (s) of the 'fringe benefit' definition. Relevantly, paragraph 136(1)(h) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA excludes the following from being a fringe benefit: ...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... Employee shares schemes (ESS) An ESS is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees of a company, or a subsidiary of the company, in relation to the employee's employment. An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. As discussed earlier, the Plans are ESS within the meaning of subsection 83A-10(2) because they are schemes under which ESS interests are provided to the employees of Company X (or any members of the Group), in relation to their employment. Subsection 83A-20(1) states that Subdivision 83A-B applies to an ESS interest if you acquire the interest under an ESS at a discount. Plan A Under Plan A, Plan A Rights may be granted to the Participants for nil consideration (i.e. they are acquired at a discount). Furthermore, Participants are also provided with an opportunity to sacrifice a portion of their pre-tax salary or wages in return for a grant of Plan A Rights, where the Plan A Rights are rights to acquire a beneficial interest in a Share. Therefore, the Plan A Rights are ESS interests to which Subdivision 83A-B will apply, unless the conditions in subsection 83A-105(1) are satisfied, in which case Subdivision 83A-C will apply Accordingly, the provision of Plan A Rights will be excluded from being fringe benefits by paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. Plan B Under Plan B, Plan B Rights are granted to the Participants for nil consideration (i.e. they are acquired at a discount) and therefore are ESS interests to which Subdivision 83A-B will apply at the time they are granted, unless the conditions in subsection 83A-105(1) are satisfied, in which case Subdivision 83A-C will apply. Accordingly, the grant of Plan B Rights under Plan B will be excluded from being a fringe benefit by paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. Other matters For completeness, at the time the Plan A Rights or Plan B Rights are vested, it will not give rise to a 'fringe benefit' as any benefits received by the Participants would be in relation to the exercise of those Plan A Rights or Plan B Right and not in respect of their employment (refer to 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 ). | Detailed Reasoning - Question 5a: Paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA excludes from the definition of 'fringe benefit': (ha) 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 ); An employee share trust ( EST ) is defined in subsection 130-85(4) as 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 (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). Paragraphs 130-85(4)(a) and (b) are satisfied because the Trust: • acquires shares in a company, namely Company X; and • ensures that ESS interests as defined in subsection 83A-10(1) (being the Awards) are provided under the ESS (established by the Plans) to Participants (by allocating Shares in accordance with the Trust Deed and the Plans). 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 Commissioner's view on the types of activities that are and are not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? Whether a trust is an 'employee share trust' for the purposes of subsection 130-85(4) requires an analysis of what the trustee actually does, not only the powers and duties that are prescribed in the trust's deed. Company X has confirmed that the Trustee has not undertaken any of the activities of the Trust Deed that may have resulted in the Trust not satisfying the definition of an 'employee share trust' in subsection 130-85(4) of the ITAA 1997. Therefore, while the Trust Deed permitted the Trustee to undertake activities which may not be merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b), it is our view that the Trust does satisfy the definition of an EST on the basis that the Trustee has not in fact acted in a way which may have caused the Trust to breach the requirements to be an EST in subsection 130-85(4). Therefore, the irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed to fund subscription for, or on-market acquisition of, Shares by the Trust will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA, as the exclusion in paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will apply. | Detailed Reasoning - Question 5b: Certain clauses in the Trust Deed were amended pursuant to the Amended Trust Deed to ensure that the Trust satisfied the definition of an 'employee share trust' in subsection 130-85(4). Accordingly, the Amended Trust Deed contains only powers and/or duties which permit the Trustee to carry on activities merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b), as required by subsection 130-85(4)(c). Therefore, the irretrievable cash contributions made by Company X (or a subsidiary of the Group) to the Trustee of the Trust pursuant to the Amended Trust Deed, to fund the subscription for, or acquisition of, Shares will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA, as the exclusion in paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will apply.