Private ruling: Employee share trust
Date of advice: 5 March 2020
Published: April 2020
Ruling period: Income tax years: | 1 July 20XX to 30 June 20XX | 1 July 20XX to 30 June 20XX | 1 July 20XX to 30 June 20XX | 1 July 20XX to 30 June 20XX | 1 July 20XX to 30 June 20XX | Fringe benefits tax years: | 1 April 20XX to 31 March 20XX | 1 April 20XX to 31 March 20XX | 1 April 20XX to 31 March 20XX | 1 April 20XX to 31 March 20XX | 1 April 20XX to 31 March 20XX
Date scheme commenced: 1 April 20XX for fringe benefits tax purposes

Ruling: Q1: Will the Company 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 the Company to the Trustee of the Trust to fund the subscription for or acquisition on-market of the Company shares by the Trust? | A1: Yes. | Q2: Will the Company obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by the Company in relation to the ongoing administration of the Trust? | A2: Yes. | Q3: Will irretrievable cash contributions made by the Company to the Trustee of the Trust, to fund the subscription for or acquisition on-market of the Company shares by the Trust, be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997? | A3: Yes. | Q4: If the Trust satisfies its obligation under the Plans by subscribing for new shares in the Company, will the subscription proceeds be included in the assessable income of the Company under sections 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 full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the subscription for or acquisition on-market of the Company shares by the Trust? | A5: No. | Q6: Will the provision of rights, options or shares by the Company to employees under the Plans be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A6: No. | Q7: Will the irretrievable cash contributions made by the Company to the Trustee of the Trust, to fund the subscription for or acquisition on-market of the Company shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A7: No. | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to the Company and other employer entities within the Company group by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition on-market of the Company shares? | A8: No.

Relevant facts and circumstances: 1. The Company is an Australian publicly listed company and the head company of the income tax consolidated group. 2. The Company operates employee share plans (collectively referred to as the Plans). 3. Apart from resident employees, it is intended that offers will be made under the Plans to foreign employees. Plan A 4. Plan A has been designed to allow the Company to issue both short term and long term incentive awards to employees. 5. The purpose of Plan A is to assist with attracting, motivating and retaining employees; delivering rewards to employees for individual and Company performance, and; aligning the interests of employees with those of shareholders. 6. Eligible employees may receive a grant of awards, which may be a short term incentive or a long term incentive or both. Operation of Plan A 7. The Rules for Plan A outline the operation of Plan A. 8. Both long term incentives and short term incentives may be subject to vesting conditions. 9. The Rules for Plan A provide for the shareholder entitlements on Unvested Awards. 10. Plan A allows equity awards to be settled in cash at the discretion of the Board, where such ability has been provided for in the invitation letter to the relevant employee. 11. The short term incentive offered under Plan A may be in the form of restricted shares or cash bonuses. Cash payment to the employee and do not form part of the Trust. 12. The Rules for Plan A provide for the vesting of Short Term Incentives. 13. Long term incentives may be in the form of performance rights or options which represent rights to acquire shares in the Company. 14. The Rules for Plan A provide for the vesting of Long Term Incentives. 15. The Rules for Plan A provide for the allocation of, and shareholder entitlements to, Shares and Restricted Shares. 16. The Rules for Plan A provide for the use of an Employee Share Trust to facilitate the allocation of shares to a participant. Plan B 17. Plan B was designed to provide participants with shares that are eligible for either tax deferral or tax exemption. 18. The purpose of Plan B is to increase employee incentive and motivation by providing employees with the opportunity to participate in the growth of the Company through tax effective means. 19. Plan B is a share scheme that enables an eligible employee to purchase shares in the Company by salary sacrificing a portion of their salary. 20. The Board will issue an offer to participate in Plan B on behalf of the Company to eligible employees, being a full-time or permanent part-time employee of the Company. 21. The plans offered under Plan B are the Tax Deferred Plan and the Tax Exempt Plan. Tax Deferred Plan 22. The Rules for Plan B set out rules under which shares in the Company can be acquired by employees in a manner that qualifies for income tax deferral under Australian income tax laws. 23. The shares offered under the Tax Deferred Plan to eligible employees are Deferred Shares. 24. The Deferred Shares to be acquired by a participant are to be registered in the name of the participant and are held subject to the Rules for Plan B. 25. Subject to the Rules for Plan B all rights in respect of the Deferred Shares held by a participant (including, without limitation, voting rights and rights to receive dividends and bonus shares and to participate in rights issues) vest with the participant from the date the Deferred Shares are registered in the participant's name. 26. The Deferred Shares are subject to disposal restrictions set out in the Rules for Plan B. These restrictions include that a participant may not dispose of or grant any security interest over the Deferred Shares until the date specified in the relevant offer. Tax Exempt Plan 27. The Rules for Plan B set out rules under which shares in the Company can be acquired by employees in a manner that qualifies for income tax exemption under Australian income tax laws. 28. The shares offered under the Tax Exempt Plan to eligible employees are Exempt Shares. 29. The Exempt Shares to be acquired by a participant are to be registered in the name of the participant and are held subject to the Rules for Plan B. 30. Shares that are eligible for tax exemption must not have any conditions that could result in the participant forfeiting or losing ownership of those shares. 31. Subject to the Rules for Plan B, all rights in respect of the Exempt Shares held by a participant (including, without limitation, voting rights and rights to receive dividends and bonus shares and to participate in rights issues) vest with the participant from the date the Exempt Shares are registered in the participant's name. 32. The Exempt Shares are subject to disposal restrictions set out in the Rules for Plan B. These restrictions include that a participant is not able to dispose of or grant any security interest over the Exempt Shares until the earlier of: a. the end of the one, two, or three year period commencing on the date the Exempt Share is acquired by the participant, or b. the date on which the participant ceases to be employed by the Company. Employee Share Trust 33. The Trust was established as a sole purpose trust for the purpose of acquiring, holding and transferring shares in connection with equity incentive plans established by the Company for the benefit of participants in those plans. 34. An independent third party is the Trustee of the Trust, and will operate the Trust in accordance with the Trust Deed (Trust Deed). 35. The Company must provide the Trustee with the funds required for the purchase of shares in accordance with the Plans. These funds are used by the Trustee to acquire shares in the Company either on-market or via a subscription for new shares. 36. Broadly, the Trust operates as follows: · The Company must provide the Trustee with the funds required for the purchase of shares in accordance with the Plans. · These funds are used by the Trustee to acquire shares in the Company either on-market or via a subscription for new shares. · Where the Plan Rules stipulate that the shares are to be held by the Trustee on behalf of Participants, the Trustee will hold the Company shares as shares in respect of a Participant(s) (i.e. on an allocated basis). · Where the Plan Rules include that the shares may be held by the Trustee on behalf of Participants or employees, the Trustee will hold the Company shares as unallocated shares for Participants generally, also the proceeds from a sale by the Trustee of rights under a rights issue relating to the allocated shares, and; all other benefits and privileges related to the Participant's allocated shares. · The Trust is precluded from exercising voting rights in relation to the unallocated plan shares. · Irretrievable cash contributions are made regularly and progressively to the Trust in accordance with the rules of the Plans and the Trust Deed. · After a disposal restriction period lapses, the Trustee must transfer the relevant number of shares into the name of the relevant employee or any third party as directed by the relevant employee (i.e. legal title) upon a withdrawal notice being submitted to the Trustee. · The Trustee can sell shares on behalf of a Participant where permitted to do so by the Participant. 37. The Company incurs various costs in the ongoing administration of the Trust. For example, The Company incurs costs associated with the services provided by the Trustee of the Trust, including but not limited to: · Employee plan record keeping. · Production and dispatch of holding statements to employees. · Costs incurred in the acquisition of shares on-market, such as brokerage costs and the allocation of such shares to Participants. · Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. Trustee's Powers and Management of The Trust 38. The general powers of the Trustee are provided in the Trust Deed. 39. The powers of the Trustee are limited as outlined in the Trust Deed. 40. The Trust Deed outlines the fees, commission and remuneration of the Trustee. 41. The Trust Deed provides for the sole activities test, that the Company and the Trustee agree that the Trust will be managed and administered so that it satisfies the definition of 'employee share trust' for the purposes of subsection 130-85(4) of the ITAA 1997. 42. The Trust Deed provides for Dealing Notices. 43. The Trust Deed outlines the requirements of the Trustee upon receiving a Dealing Notice. Contributions to the Trust 44. Funding of the Trust is provided for in the Trust Deed. 45. The Company does not and will not pay cash contributions to the Trust prior to the issue of Rights under the Plans to participants. 46. Where possible, The Company will wait until the Rights vest, and to receive the exercise notice from Participants where relevant, before providing the Trust with the cash necessary to acquire shares to satisfy the acquisition or subscription of shares related to those Awards. 47. Where it makes commercial sense to do so, The Company may make cash contributions to the Trust prior to the Awards vesting and, where relevant, Rights being exercised by the Participants: · The Company will contribute to the Trust enough funding to enable the purchase of shares up to 6 months in advance of when rights are likely to be exercised. · This allows the Trustee to have enough shares in the Trust ahead of the time they need to be allocated to Participants. This also avoids delays in times such as blackout trading periods. 48. The Company may make cash contributions to the Trust prior to the issue or grant of shares under the Plans to Participants, where it makes commercial sense to do so to ensure that there are enough shares in the Trust when the Shares need to be granted to Participants: · The Company will contribute to the Trust enough funding to enable the purchase of shares up to 6 months in advance of the grant date of the Shares. 49. The arrangement was not established with a large upfront payment intended to provide for the Trust's operation for several years into the future (such as in relation to Awards which have not yet been issued). 50. The Company is not a beneficiary of the Trust and its contributions cannot be returned to it in any form except where the Trustee acquires shares from The Company by subscribing for newly issued shares at market value. 51. The amount of the contributions will be equal to the fair market value of shares that will be acquired for employees (i.e. the contributions are arm's length in amount). Trust Assets 52. The allocated shares and trust assets are provided for in the Trust Deed. 53. The Trust Deed does not confer on the Company any legal right or beneficial interest in the Trust Assets. 54. Unallocated shares are provided for in the Trust Deed. 55. Distributions of the Trust are provided for in the Trust Deed. 56. The income entitlement of participants and capital distributions are provided for the Trust Deed. 57. The Trust Deed provides for the transfer of allocated shares. 58. Under the Trust Deed, the Trustee is required to establish and maintain a separate Trust Share Account for each participant. 59. The Company has provided commercial reasons for using an employee share trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 Division 104 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Income Tax Assessment Act 1936 Part IVA

Reasons for decision: Detailed Reasoning - Detailed Reasoning: Subsection 8-1(1) of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, subsection 8-1(2) of the ITAA 1997 states that you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. | Detailed Reasoning - Contribution must be incurred: To qualify for a deduction under section 8-1 of the ITAA 1997, a contribution to the Trustee must be incurred. Broadly, a taxpayer incurs an outgoing at the time the taxpayer owes a present money debt that they cannot escape. This must be read subject to the propositions developed by the courts, which are discussed in more detail in Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions and Taxation Ruling TR 94/26 Income tax: subsection 51(1) - meaning of incurred - implications of the High Court decision in Coles Myer Finance . A contribution is incurred only when the ownership of that contribution passes from the employer to the trustee and there is no circumstance in which the employer can retrieve any of the contributions ( Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339 at [38] and Spotlight Stores Pty Ltd & Anor v. FC of T [2004] FCA 650 at [77] [116]). The Company has established the Trust for the purposes of facilitating the operation of the Plans. Under the Trust Deed, the Company is required to provide sufficient funds to the Trustee of the Trust to acquire shares in the Company for the benefit of participants. The Trust Deed provides that all funds received by the Trustee of the Trust from the Company will constitute accretions to the corpus of the Trust and will not be repayable to the Company. Accordingly, the contributions made by the Company to the Trust will be irretrievable and non-refundable to the Company. Therefore, it is considered that the irretrievable contributions made by the Company to the Trustee of the Trust are incurred for the purposes of section 8-1 of the ITAA 1997. | Detailed Reasoning - Relevant connection between the contribution and the employer's business: In order for the contributions to be deductible under section 8-1 of the ITAA 1997, there must be a relevant connection between the outgoing and the business. An outgoing has the relevant connection to the business when it is 'desirable or appropriate in the pursuit of the business ends of the business' (Ronpibon Tin NL and Tongkah Compound NL v. FC of T (1949) 78 CLR 47 (Ronpibon); Magna Alloys & Research Pty Ltd v. Federal Commission of Taxation (1980) FCA 150 (Magna Alloys). A contribution will be 'desirable or appropriate in the pursuit of the business ends of the business' where the employer reasonably expects the business of the employer to benefit in the form of improved employee performance, morale, efficiency or loyalty. The Company is carrying on an income producing business and engages employees in the ordinary course of business. The Plans are part of The Company's Remuneration Policy to ensure employee reward is aligned with the achievement of the company's overall strategic objectives, outcomes and creation of value for shareholders. Pursuant to the rules of the Plans and the terms of the Trust Deed, the Trust was established by the Company for the sole purpose of acquiring, holding and transferring shares in connection with equity incentive plans established by the Company for the benefit of participants in those plans. It is considered that the contributions made by the Company to the Trust under the Plans are to be applied to the direct provision of remuneration of the Participants in the form of the Company shares and rights to acquire shares. It is a demonstrated business need and intention to provide incentives or encourage loyalty and goodwill of its employees, linked directly to their employments. Accordingly, the irretrievable cash contributions made by the Company to the Trustee of the Trust for remunerating participants under the Plans is an outgoing incurred in carrying on the Company's business for the purposes of subsection 8-1(1) of the ITAA 1997. | Detailed Reasoning - Contribution must not be capital or of a capital nature: Where a contribution satisfies the requirements of subsection 8-1(1) of the ITAA 1997, it may still be capital or of a capital nature. The nature of an outgoing as either capital or revenue can generally be determined by examining the character of the advantage sought, the manner in which it is to be used, relied upon or enjoyed and the means adopted to obtain it ( Sun Newspapers Ltd and Associated Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337 at 363; [1938] HCA 73; (1938) 1 AITR 403 at 413; (1938) 5 ATD 87 at 96). On weighting up the facts and circumstances in this case we consider: · the contributions by the Company to the Trustee of the Trust are for the purpose of acquiring the Company shares to meet the Company's commitments arising under the Plans. They are primarily outgoings incurred in the ordinary course of carrying on its business · the contributions will be applied within a relatively short period of time to enable the purchase of shares up to 6 months in advance of when rights are likely to be exercised, or up to 6 months in advance of the grant date of the shares · the amount of the contribution provided by the Company is sufficient for the Trustee of the Trust to acquire the requisite number of the Company shares under the terms of the Plans and the Trust Deed · Participants will receive absolute entitlement to the Company shares once the shares have been allocated to the participant following vesting (if relevant), and · the Plans provide participants with an opportunity to receive an equity interest in the Company linked to the performance and retention of participants. Therefore, the contributions made by the Company are not considered capital in nature, or any capital advantage is considered to be small or trifling and therefore disregarded. Nothing in the facts suggest that the irretrievable cash contributions made by the Company to the Trustee of the Trust are of a private or domestic nature or are incurred in relation to gaining or producing exempt income or non-assessable non-exempt income. No other provision of the ITAA 1936 or ITAA 1997 prevents the Company from obtaining a deduction for the contributions. | Detailed Reasoning - Conclusion: Therefore, the irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the acquisition of the Company shares will be an allowable deduction to the Company under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 2: Will the Company obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by the Company in relation to the ongoing administration of the Trust? | Detailed Reasoning - Detailed Reasoning: As discussed in Question 1, the Company is entitled to a deduction under section 8-1 of the ITAA 1997 for any loss or outgoing necessarily incurred in carrying on its business for the purpose of gaining or producing its assessable income to the extent the expenditure is not capital or of a capital nature. The Company has implemented the Trust for the purpose of facilitating the operation of the Plans and has appointed the Trustee to administer the Trust. Pursuant to the Trust Deed, the Trustee is not entitled to receive any fees, commission or remuneration from the Trust for performing its obligations. The Company may reimburse any expenses incurred by the Trustee from its own account. Accordingly, the Company has incurred various costs in relation to the ongoing administration of the Trust performed by the Trustee including: · Employee plan record keeping. · Production and dispatch of holding statements to employees. · Costs incurred in the acquisition of shares on-market, such as brokerage costs and the allocation of such shares to participants. · Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. The Plans are part of the Company's remuneration strategy linked to the long-term performance of employees. The operating costs incurred for the purpose of implementing and administering the Trust form part of the ordinary employee remuneration costs. They are costs necessarily incurred by the Company in carrying on its business for the purpose of gaining or producing its assessable income. The costs are revenue and not capital or capital in nature on the basis that they are regular and recurrent employment expenses. | Detailed Reasoning - Conclusion: Therefore, the costs incurred in relation to the implementation and ongoing administration of the Trust are deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 3: Will irretrievable cash contributions made by the Company to the Trustee of the Trust, to fund the subscription for or acquisition on-market of the Company shares by the Trust, be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997? | Detailed Reasoning - Detailed Reasoning: As outlined in the reasoning to Question 1 of this Ruling, the contributions made by the Company to the Trustee of the Trust for the purpose of remunerating its employees under the Plans are an allowable deduction under section 8-1 of the ITAA 1997. The deduction under section 8-1 of the ITAA 1997 would generally be allowable in the income year in which the Company incurred the loss or outgoing, but under certain circumstances, the timing of the deduction is specifically determined under section 83A-210 of the ITAA 1997. Section 83A-210 of the ITAA 1997 provides that if: (a) at a particular time, you provide another entity with money or other property: i. under an arrangement; and ii. for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest; then, for the purposes of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. Section 83A-210 of the ITAA 1997 only applies if there is a relevant connection between the money provided to the Trustee and the acquisition of an ESS interest (directly or indirectly) by a participant under the Plans in relation to the participant's employment. | Detailed Reasoning - Arrangement: An 'arrangement' is defined broadly in subsection 995-1(1) of the ITAA 1997 as any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings. The implementation of the Plans, establishment of the employee share trust and the provision of cash contributions to the Trustee to fund the acquisition of shares in the Company constitutes an arrangement for the purposes of subparagraph 83A-210(a)(i) of ITAA 1997. | Detailed Reasoning - ESS interest: An 'ESS interest' in a company is defined in subsection 83A-10(1) of the ITAA 1997 as a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. A beneficial interest in shares or rights to acquire shares granted to a participant under the Plans will be an ESS interest, within the meaning of subsection 83A-10(1) of the ITAA 1997. This is because the beneficial interest in this case is the Company shares or rights to acquire the Company shares under the Plans for participants in relation to their employment. | Detailed Reasoning - Employee share scheme: An 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees, (including past or prospective employees) of the company or subsidiaries of the company in relation to the employees' employment. The Plans are an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997, under which shares or rights to acquire shares are granted to participants (including foreign resident employees) in relation to their employment with the Company or its subsidiaries. Shares or rights to acquire shares are granted by the Company to participants upon their acceptance of an invitation to participate in the Plans. The granting of shares or rights to acquire shares in the Company, the provision of cash contributions to the Trustee under the Plans, the acquisition and holding of the Company shares by the Trustee and the allocation of the Company shares to the participants are all interrelated components of the Plans. All the components must be carried out so that the Plans can operate as intended. The Company provides irretrievable cash contributions to the Trustee to acquire the Company shares for the purpose of satisfying rights granted to participants under the Plans. Accordingly, the Company provides another entity (the Trust) with money (the irretrievable cash contributions) under an arrangement (the Plans), within the meaning of that term in subsection 995-1(1) of the ITAA 1997, as required in subparagraph 83A-210(a)(i) of the ITAA 1997. | Detailed Reasoning - Relevant connection between contribution and acquisition of ESS interest: It is the Commissioner's view that at the time when participants accept the offer to participate in the Plans, the participants (as the ultimate beneficiaries of the Plans) acquired the shares or rights to acquire shares in the Company. As such, the relevant acquisition time of the ESS interest, for the purposes of section 83A-210 of the ITAA 1997 is when the rights were granted to participants. The Company does not and will not pay cash contributions to the Trust prior to the issue of rights under the Plans to participants. Where possible, the Company will wait until the rights vest, and to receive the exercise notice from participants where relevant, before providing the Trust with the cash necessary to acquire shares to satisfy the acquisition or subscription of shares related to those Awards. However, where it makes commercial sense to do so, the Company may make cash contributions to the Trust prior to the Awards vesting and, where relevant, rights being exercised by the Participants. In this case, the Company will contribute to the Trust enough funding to enable the purchase of shares up to 6 months in advance of when rights are likely to be exercised. The Company may make cash contributions to the Trust prior to the issue or grant of shares under the Plans to Participants, where it makes commercial sense to do so to ensure that there are enough shares in the Trust when the Shares need to be granted to Participants. In this case, the Company will contribute to the Trust enough funding to enable the purchase of shares up to 6 months in advance of the grant date of the Shares. Accordingly, if the Company provides the contributions to the Trust prior to the shares being granted to participants of the Plans, then section 83A-210 of the ITAA 1997 will apply and the contributions made will be deductible to the Company in the income year that the shares are acquired by the participant. For completeness, if the Company provides the contributions to the Trust in the income year in which the rights, options or shares are granted to participants of the Plans, or in a later income year in the case of rights, then section 8-1 of the ITAA 1997 will apply and the contribution will be deductible to the Company in the income year the contribution is made. | Detailed Reasoning - Question 4: If the Trust satisfies its obligation under the Plans by subscribing for new shares in the Company, will the subscription proceeds be included in the assessable income of the Company under sections 6-5 or 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA 1997? | Detailed Reasoning - Ordinary income under section 6-5: Under subsection 6-5(1) of the ITAA 1997, assessable income includes income according to ordinary concepts, which is called ordinary income. In GP International Pipecoaters Proprietary Limited v Federal Commissioner of Taxation (1990) 170 CLR 124; 90 ATC 4413 at 4420; (1990) 21 ATR 1 at 7, the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient. Brennan, Dawson, Toohey, Gaudron and McHugh JJ stated (at CLR 138, ATC 4420, ATR 7): To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. Whether a particular receipt has the character of derivation of income depends upon its quality in the hand of the recipient. The Plans are part of the employee remuneration strategy of the Company and as such are an integral part of the conduct of the Company's business. Under the terms of the Plans, shares or rights to acquire shares will be granted to participants under the Terms of Participation. Under the terms of the Trust Deed, the Trustee will be notified in writing by the Company to acquire shares in the Company either on-market or via a subscription for new shares in the Company. Where the Trustee is required to subscribe for shares in the Company on behalf of the relevant participants, the amount of the contributions will be equal to the fair market value of shares that will be acquired for employees (i.e. the contributions are arm's length in amount). The Trustee can apply the contributions provided by the Company to subscribe for the Company shares in accordance with the Trust Deed and the Rules of the Plans. The character of the proceeds received by the Company from the Trustee of the Trust can be determined by the character of the right or thing disposed of in exchange for the receipt. The Company received the subscription proceeds from the Trustee in exchange for the issue of its shares under the Plans. The character of the newly issued share is one of capital. The subscription is consideration for the issue of shares by the Company to the Trustee of the Trust and should be accounted for as a contribution to the share capital of the Company in its books and records. The subscription proceeds accordingly are of a capital nature. Accordingly, the subscription proceeds received by the Company that are provided by the Trustee of the Trust are considered to be a capital receipt. That is, the contributions will not be on revenue account and will not be assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Assessable income under section 20-20: Division 20 of the ITAA 1997 deals with amounts included to reverse the effect of past deductions. Specifically, section 20-20 of the ITAA 1997 provides rules around when amounts will be considered assessable recoupments. Under subsection 20-20(1) of the ITAA 1997, an amount is not an assessable recoupment to the extent that it is ordinary income, or it is statutory income because of a provision outside of this Subdivision. Subsections 20-20(2) and (3) of the ITAA 1997 refer to recoupment of a loss or outgoing, received by way of insurance, indemnity or other recoupment. The subscription proceeds received by the Company from the Trustee of the Trust are for shares and are integral to the arrangement, whereby the acquisition and holding of the shares by the Trustee and the allocation of shares to the participants are all interrelated components of the Plans. The subscription proceeds are not recoupments of losses or outgoings received by way of insurance, indemnity or other outgoing. Also, the table in section 20-30 of the ITAA 1997, which shows the deductions for which recoupments are assessable, does not include the provision for funding an employee share trust to acquire shares for employees. As established in question 1, the contributions made by the Company to the Trustee of the Trust to fund the subscription of the Company shares is a loss or outgoing incurred by the Company as part of its employee remuneration strategy and is an integral part of the conduct of its business. The contribution will be an allowable deduction to the Company under section 8-1 of the ITAA 1997. The subscription money received by the Company from the Trustee is the receipt in exchange for the issue of the Company shares and is not an amount received by ways of insurance or indemnity. Accordingly, the subscription proceeds received by the Company do not constitute assessable recoupments under subsection 20-20(2) or subsection 20-20(3) of the ITAA 1997. | Detailed Reasoning - CGT events under Division 104: Section 102-20 of the ITAA 1997 states that a taxpayer can make a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the event. The relevant CGT events that may be applicable when the Company received the subscription proceeds in exchange for the issue of its shares under the Plans are: · CGT event D1 (creating contractual or other rights) - section 104-35 of the ITAA 1997, and · CGT event H2 (receipt for event relating to a CGT asset) - section 104-155 of the ITAA 1997. | Detailed Reasoning - CGT event D1: Subsection 104-35(1) of the ITAA 1997 states that CGT event D1 happens if a taxpayer creates a contractual right or other legal or equitable right in another entity. CGT event D1 would apply to the Company in circumstances where the receipt of the subscription proceeds was for the creation by the Company of a contractual, legal or other equitable right in the Trustee of the Trust. Paragraph 104-35(5)(c) of the ITAA 1997 relevantly provides that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. 'Equity interests in a company' is defined in item 1 of the table in subsection 974-75(1) of the ITAA 1997 as an interest in the company as a member or stockholder of the company. In this instance, CGT event D1 will not apply as the legal or other equitable right (being the right of the employee to acquire shares in the Company upon the payment of the subscription proceeds) is created at the time the relevant right was first issued. The subsequent payment of the subscription proceeds is not in connection with the creation of rights; it is consideration for the issue of shares. | Detailed Reasoning - CGT event H2: CGT event H2 happens if an act, transaction or event occurs to a CGT asset owned by a taxpayer and the occurrence does not result in an adjustment to the cost base or reduced cost base (subsection 104-155(1) of the ITAA 1997). However, paragraph 104-155(5)(c) of the ITAA 1997 relevantly provides that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. As discussed earlier, the receipt of the subscription proceeds by the Company from the Trustee of the Trust for the issue of shares is integral to the arrangement whereby the acquisition, holding and the allocation of the shares by the Trustee to participants are interrelated components of the Plans. As part of the Plans, contractual rights of employees are exercised on their behalf to acquire shares in the Company, rather than an act, transaction or event related to a CGT asset owned by the Company. Accordingly, a CGT event under Division 104 of the ITAA 1997 does not arise when the Trustee subscribes for fully paid ordinary shares in the capital of the Company. | Detailed Reasoning - Conclusion: Therefore, when the Trustee satisfies its obligations under the Plans by subscribing for new shares in the Company, the subscription proceeds will not be included in the assessable income of the Company under section 6-5 or section 20-20 of the ITAA 1997, or trigger a CGT event under Division 104 of the ITAA 1997. | Detailed Reasoning - Question 5: Will the Commissioner seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition on-market of the Company shares by the Trust? | Detailed Reasoning - Detailed Reasoning: Part IVA of the ITAA 1936 (Part IVA) is a general anti-avoidance provision. Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules (PS LA 2005/24) provides guidance on the application of the Part IVA and other general anti-avoidance rules (GAARs). Part IVA 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. This power is found in subsection 177F(1) of the ITAA 1936. Before the Commissioner can exercise the power in subsection 177F(1) of the ITAA 1936, the following requirements of Part IVA must be satisfied: · There must be a 'scheme' as defined in section 177A of the ITAA 1936. · A 'tax benefit', as identified in section 177C of the IAA 1936, was or would have been obtained in connection with the scheme but for subsection 177F(1) of the ITAA 1936. · Having regard to section 177D of the ITAA 1936, the scheme is one to which Part IVA applies. Regard must be had to the individual circumstances of each case in making a determination under section 177F of the ITAA 1936 to cancel a tax benefit. | Detailed Reasoning - Scheme - section 177A: 'Scheme' is defined in subsection 177A(1) of the ITAA 1936 as: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct. The Trust arrangement comprises the implementation of the Plans, the establishment and use of the Employee Share Trust and the contributions by the Company to the Trustee of the Trust to acquire the Company shares for the benefits of participants. Therefore, the Trust is considered to be a scheme as defined in subsection 177A(1) of the ITAA 1936. | Detailed Reasoning - Tax benefit - sections 177C and 177CB: 'Tax benefit' is identified in subsection 177C(1) of the ITAA 1936 of which the relevant paragraph is: Subject to this section, a reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to: (a) ... (b) a deduction being allowable to the taxpayer in relation to a year of income where the whole or a part of that deduction would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out; or ... The tax benefit must be determined with reference to section 177CB of the ITAA 1936. Under paragraph 177CB(1)(b) of the ITAA 1936, the relevant tax effects might reasonably be expected to have occurred, if a scheme had not been entered into or carried out, is the whole or part of a deduction not being allowable to the taxpayer. Under subsection 177CB(2) of the ITAA 1936, if the scheme had not been entered into or carried out, a decision that a tax effect would have occurred must be based on a postulate that comprises only the events or circumstances that actually happened or existed (other than those that form part of the scheme). Under subsection 177CB(3) of the ITAA 1936, if the scheme had not been entered into or carried out, a decision that a tax effect might reasonably be expected to have occurred must be based on a postulate that is a reasonable alternative to entering into or carrying out the scheme. In order to determine the tax benefit that would be obtained or might reasonably be expected to have occurred by the Company from the scheme, it is necessary to examine alternatives to the scheme that the Company might reasonably have been expected to enter into to achieve its aims in relation to employee remuneration. If the Company did not enter into the scheme and use an Employee Share Trust arrangement to carry out the Plans, the potential alternative counterfactuals include: · The Company could remunerate participants by way of cash bonuses. Under this alternative, the payment of cash bonuses would likely be deductible under section 8-1 of the ITAA 1997. · The Company could remunerate participants through the purchase of its shares on-market via a broker. Under this alternative, it is likely that the Company would be entitled to a deduction for the costs necessarily incurred in gaining or producing its assessable income. · The Company could remunerate participants by directly issuing them with shares in the Company. Under this alternative, it is unlikely that the Company would be entitled to a deduction for the cost or value of the Company shares issued. If the Company were to issue its new shares directly to participants under the third alternative, it would not be entitled to any deduction for the cost or value of new shares issued. Therefore, by using an Employee Share Trust arrangement, a tax benefit is created through the deduction the Company receives under section 8-1 of the ITAA 1997 for the irretrievable contributions paid to the Trustee. The counterfactuals also form the background against which an objective conclusion as to the purpose of a person occurs in accordance with section 177D of the ITAA 1936. | Detailed Reasoning - Section 177D - Objective Purpose: Section 177D of the ITAA 1936 provides that Part IVA applies to a scheme if it would be concluded, having regard to the matters in subsection (2), that a person who entered into or carried out the scheme, or any part of it, did so for the purpose of enabling the taxpayer to obtain the tax benefit. The matters contained in paragraphs (a) to (h) under subsection 177D(2) of the ITAA 1936 are: a) the manner in which the scheme was entered into or carried out; b) the form and substance of the scheme; c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; f) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; g) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (f), of the scheme having been entered into or carried out h) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (f). Subsection 177A(5) of the ITAA 1936 clarified that the 'purpose' includes the dominant purpose where there are two or more purposes. It is possible for Part IVA to apply notwithstanding that the dominant purpose of obtaining the tax benefit was consistent with the pursuit of commercial gain. The key issue under Part IVA is whether the particular scheme, or any part of it, was entered into or carried out by any person for the relevant purpose having regard to the eight matters specified in subsection 177D(2) of the ITAA 1936 ('the eight factors'). The consideration of purpose or dominant purpose under subsection 177D(2) of the ITAA 1936 requires an objective conclusion to be drawn. The conclusion required is the conclusion of a reasonable person based on all the facts and evidence that are relevant to considering the eight factors. While the eight factors will not be equally relevant in every case, each of the eight factors are taken into account and weighed together in arriving at a conclusion as to dominant purpose. Consideration of the factors will involve a comparison of the scheme with the counterfactuals. Provided the eight factors are each taken into account, it is possible to arrive at the conclusion as to purpose by making a global assessment of purpose. | Detailed Reasoning - (a) the manner in which the scheme was entered into or carried out: The use of the Trust as part of the scheme does give rise to a tax benefit. However, the Company contends that the use of the Trust provides other commercial benefits as follows: · Employee Share Trusts are common commercial vehicles which have been used by taxpayers for many years. Their usage is wide spread amongst ASX listed companies. · The use of an Employee Share Trust has been sanctioned by the tax law in various areas for many years e.g. the exemption from fringe benefits tax (FBT) and CGT for sole purpose trusts. · All dealings between the Company and the Trustee of the Trust are conducted according to rules set out in the Plans and the Trust Deed which are standard rules with arm's length terms. In particular, the Company provides that the wider commercial benefits of using a Trust to manage the operation of the Plan include: · The use of an employee share trust provides the Company with capital management flexibility, such as by allowing for on-market purchases of shares using cash or a new issue of shares. The Trust forms part of the Company's wider capital management policy which takes into account matters such as the need for funding and its dividend policy. · An employee share trust provides an arm's length vehicle for acquiring and holding shares in the Company, either by way of new issue or acquiring on-market, and provides the Company with a convenient and efficient way to undertake on-market acquisitions as compared to if no trust was used. · An employee share trust provides flexibility and an efficient mechanism to accommodate equity incentive arrangements of the Company both now and into the future as the group continues to expand its operations. · An employee share trust assists the Company with meeting its Corporations Law requirements in relation to dealing in its own shares. The Corporations Act generally prohibits a company from acquiring its own shares. The use of the Trust provides a mechanism to allow for the acquisition of the Company shares through the Trust, and the Trust is not prohibited from doing so as a result of the Company having no beneficial interest in any shares held by the Trust or the Trust itself. · An employee share trust assists the Company with managing any insider trading issues as the Trustee, an independent party, is acquiring shares in accordance with a set policy. This is in part because the Corporations Regulations specifically exempt certain activities from some of the insider trading prohibitions in the Corporations Act. In particular, the regulations provide an exemption where there is an acquisition of the financial products of a company by, or by a trustee for, employees of that company or its related companies, under a scheme established solely or primarily for the benefit of employees. · An employee share trust allows the Company to give effect to disposal restrictions after vesting of rights under the Plan A or at grant of shares under the Plans. As the Trustee is the legal owner of the shares, employees, as merely the beneficial owner, have no ability to deal in the shares. Consistent with the Trust Deed, the Company established the Trust for the sole purpose of obtaining shares for the benefit of participants, including subscribing for or acquiring, allocating, holding and delivering shares under the Plans for the benefit of participants. The manner in which the Company has carried out the scheme is consistent with the commercial objectives it seeks to achieve, namely establishing an independent party to acquire, hold and allocate shares in itself to participants in satisfaction of rights, options and shares granted under the Plan in direct remuneration of its employees. | Detailed Reasoning - (b) the form and substance of the scheme: The substance of the scheme is the provision of remuneration in the form of shares to eligible employees who participate in the Plans. It takes the form of contributions made by the Company to the Trustee who acquires the Company shares and transfers them to Participants. While existence of the Trust confers a tax benefit, it cannot be concluded that it is the only benefit provided as outlined above. The Company has argued that the form of the arrangement with the use of the Trust provides the scheme with multiple non-tax benefits and this is accepted. | Detailed Reasoning - (c) the time at which the scheme was entered into and the length of the period duringwhich the scheme was carried out: The Trust was established as a sole purpose trust for the purpose of acquiring, holding and transferring shares in connection with equity incentive plans established by the Company for the benefit of participants in those plans. The Company does not and will not pay cash contributions to the Trust prior to the issue of rights under the Plans to participants. Where possible, the Company will wait until the rights vest, and to receive the exercise notice from participants where relevant, before providing the Trust with the cash necessary to acquire shares to satisfy the acquisition or subscription of shares related to those Awards. Where it makes commercial sense to do so, the Company will make cash contributions to the Trust prior to the Awards vesting and, where relevant, rights being exercised by the participants. The Company will contribute to the Trust enough funding to enable the purchase of shares up to 6 months in advance of when rights are likely to be exercised. This allows the Trustee to have enough shares in the Trust ahead of the time they need to be allocated to participants and avoids delays in times such as blackout trading periods. The arrangement has not been established with a large up-front payment intended to provide for the Trust's operation for several years into the future (such as in relation to Awards which have not yet been issued). | Detailed Reasoning - (d) the result of the scheme: The result of the scheme is to provide the Company with allowable deductions for the cash contributions it makes to the Trust. The contributions are irretrievable and reflect a genuine non-capital outgoing on the part of the Company to achieve a business outcome. The Plans are part of the Company's remuneration strategy which aims to recognise performance by rewarding participants with rights, options and shares which will allow them to share in the growth in value of the Company. Therefore, the Company expects to benefit from the contribution via an improvement in employee performance. | Detailed Reasoning - (e) any change in the financial position of the taxpayer: As noted above, the Company makes irretrievable cash contributions to the Trust and those contributions constitute a real expense with the result that the Company's financial position is changed to that extent. | Detailed Reasoning - (f) any change in the financial position of other persons: The contributions by the Company to the Trustee will form part of the corpus of the Trust and must be dealt with by the Trustee in accordance with the terms of the Trust Deed i.e. for the acquisition of shares in the Company that are ultimately allocated and transferred to participants in accordance with the rules of the Plans and Trust Deed. The Company is not a beneficiary of the Trust and its contributions cannot be returned to it in any form except where the Trustee acquires shares from the Company by subscribing for newly issued shares at market value. Therefore, the contributions made by the Company amount to a real change to the financial position of the Trustee. The financial position of participants in the scheme will also undergo a real change. | Detailed Reasoning - (g) any other consequence: There are no other consequences that are relevant to this scheme. | Detailed Reasoning - (h) nature of any connection between the taxpayer and any other person: The relationship between the Company and the participants in the scheme is one of employer and employee. The Trustee is independent of the Company and is under a fiduciary obligation to act in the interests of eligible employees who participate in the Plans. The contributions made by the Company to the Trustee are commensurate with the Company's stated aim of providing participants with remuneration in a form that aligns their personal financial rewards with long-term success of the Company. There is nothing to suggest that the parties to the Plans are not acting at arm's length to one another. | Detailed Reasoning - Conclusion: A consideration of all the matters referred to in subsection 177D(2) of the ITAA 1936 leads to the conclusion that the dominant purpose of the Plans is to provide remuneration to eligible employees who participate in the scheme in a form that promotes the Company's business objectives rather than to obtain a tax benefit. Accordingly, the Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or in full, any deduction claimed by the Company in respect of the irretrievable cash contributions made to the Trustee of the Trust to acquire the Company shares in accordance with the Plans. | Detailed Reasoning - Question 6: Will the provision of rights, options or shares by the Company to employees under the Plans be a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | Detailed Reasoning - Detailed Reasoning: A 'fringe benefit' will only arise under subsection 136(1) of the FBTAA where benefits are provided by employers to employees or associates of employees. Under the definition of 'fringe benefit', a benefit must also be provided 'in respect of the employment of the employee'. No amount will be subject to FBT unless a 'fringe benefit' is provided. Paragraph 136(1)(h) of the FBTAA states that a fringe benefit does not include: 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 An 'ESS interest' in a company is defined in subsection 83A-10(1) of the ITAA 1997 as a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. An 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees, (including past or prospective employees) of the company or subsidiaries of the company in relation to the employees' employment. As discussed in question 3 above, shares and rights granted to participants under the Plans are ESS interests, within the meaning of subsection 83A-10(1) of the ITAA 1997, as they are the Company shares or rights to acquire the Company shares under the Plans for eligible employees (including foreign resident employees) in relation to their employment. The Plans are an employee share scheme, within the meaning of subsection 83A-10(2) of the ITAA 1997, under which shares and rights are granted to eligible employees (including foreign resident employees) in relation to their employment with the Company or its subsidiaries. | Detailed Reasoning - Conclusion: Accordingly, paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA applies to exclude the provision of rights, options or shares by the Company to the employees (including foreign resident employees) from being a fringe benefit. | Detailed Reasoning - Question 7: Will the irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition on-market of the Company shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | Detailed Reasoning - Detailed Reasoning: A 'fringe benefit' will only arise under subsection 136(1) of the FBTAA where benefits are provided by employers to employees or associates of employees. Under the definition of 'fringe benefit', a benefit must also be provided 'in respect of the employment of the employee'. No amount will be subject to FBT unless a 'fringe benefit' is provided. The term 'fringe benefit' is defined in subsection 136(1) of the FBTAA. Paragraph 136(1)(ha) of the definition of fringe benefit provides that it does not include: 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' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by subsection 130-85(4) of the ITAA 1997. Subsection 130-85(4) of the ITAA 1997 provides that 'an employee share trust' for an employee share scheme, is a trust whose sole activities are: (a) obtaining shares or rights in a company; and (b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employee, 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). Cash contributions made by the Company to the Trust will not be subject to FBT provided that the sole activities of the Trust are to obtain shares or rights to acquire shares in the Company. As discussed in Question 3 above, rights, options and shares granted to participants under the Plans are ESS interests, within the meaning of subsection 83A-10(1) of the ITAA 1997 as they are rights to acquire the Company shares under the Plans for the benefit of participants. The Plans are an employee share scheme, within the meaning of subsection 83A-10(2) of the ITAA 1997 under which rights, options and shares are granted to participants in relation to their employment with the Company or its subsidiaries. Therefore, paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are satisfied. In Taxation Determination TD 2019/13 Income tax: what is an 'employee share trust'? (TD 2019/13) it is considered that the following activities are merely incidental tor the purposes of paragraph 130-85(4)(c): · the opening and operation of a bank account to facilitate the receipt and payment of money · bookkeeping, preparing financial, tax and regulatory statements, and other record-keeping and administrative actions necessary to operate the trust and undertake the activities described in paragraphs 130-85(4)(a), (b) and (c) · the receipt of dividends in respect of shares held by the trustee on behalf of a participating employee and their distribution to the employee · borrowing money for the purpose of acquiring shares or rights in the employer company, where no security is provided over the trust assets and the interest payable on such a loan is not more than arm's length commercial rates · the receipt of dividends in respect of unallocated shares and interest from bank accounts and using those funds to · acquire additional shares for the purposes of the ESS · pay necessary and incidental costs of administering the trust and undertaking the activities described in paragraphs 130-85(4)(a), (b) and (c), for example costs relating to the audit of the trust, fees for professional services provided to the trustee in relation to the trust · pay interest on loans provided for the acquisition of shares or rights in the employer company, where the interest payable does not exceed arm's length commercial rates · paying a dividend equivalent payment to a participating employee under the rules of the ESS, where · the amount paid is equal to or less than the amount of dividends paid to the trustee (net of tax paid by the trustee on the dividends), in relation to the number of shares being received by the participating employee, during the accumulation period, and · the payment is made at or around the time, and because, the shares vest or are transferred to the participating employee (as required by the ESS) · dealing with shares forfeited under an ESS including the sale of forfeited shares and using the proceeds of sale for activities permitted under subsection 130-85(4) · the transfer of shares to participating employees, or the sale of shares on behalf of such employees and the transfer to the employee of the net proceeds of the sale of those shares, when required under the rules of the ESS, and · receiving and immediately distributing shares under a demerger or actions in order to participate in a takeover or restructure covered by section 83A-130.. TD 2019/13 also considers activities that are not merely incidental for the purposes of paragraph 130-85(4)(c): · providing financial assistance, such as providing a loan to an employee to purchase shares or interests in the employer company · payment of income or accrued capital from unallocated shares to any beneficiaries (or to employees who do not hold a beneficial interest in the employer company under the trust) · waiving or relinquishing certain entitlements, such as waiving the right to be paid or credited dividends pursuant to a dividend waiver clause contained in the governing trust documents · exercising a general discretion to make distributions of income or capital to pay a class of participating employees or other beneficiaries of the trust amounts unrelated to their ESS interests or entitlements under the ESS rules · borrowing money - for a purpose other than purchasing shares or rights in the employer company, or - with security provided over any of the trust's assets for the loan, or - where the interest payable on the loan is more than arm's length commercial rates · investing in assets other than shares or rights to shares in the employer company · engaging in trading activities in relation to shares in the employer company, other than purchasing and selling shares to satisfy obligations under the ESS · distributing mainly cash payments to participating employees rather than shares or ESS interests under the ESS · providing additional benefits to participants and/or employees, over and above the delivery of the ESS interests or resulting shares and any dividend equivalent payment that accrues directly from the employee's ESS interest. The Company established the Trust to facilitate the operation of the Plans for the sole purpose of obtaining shares for the benefit of participants, including subscribing for or acquiring, allocating, holding and delivering shares under the Plans for the benefit of participants. Undertaking activities to manage the operation of the Plans necessarily requires the Trustee to undertake activities that are incidental to managing and administering the Plan. Under the terms of the Trust Deed, the Trustee can open and operate any bank account; receive dividends or distributions in relation to the Trust Shares; to sell or otherwise dispose of Trust assets, shares, rights or privileges as authorised by the Trust Deed as directed by participants, and do all acts, matters or things which the Trustee in its discretion considers necessary or expedient to administered and maintain the Trust and the Trust assets. Therefore, it is considered that the Trust is an employee share trust as defined in subsection 995-1(1) of the ITAA 1997. The activities of the Trust in acquiring and allocating shares meet the requirements of paragraphs 130-85(4)(a) and (b) of the ITAA 1997 and other activities are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997. | Detailed Reasoning - Conclusion: Therefore, cash contributions made by the Company to the Trustee to fund the subscription for or acquisition on-market of the Company shares will not be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Question 8: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to the Company and other employer entities within the Company group by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition on-market of the Company shares? | Detailed Reasoning - Detailed Reasoning: Practice Statement Law Administration PS LA 2005/24 Application of General Anti-Avoidance Rules provides guidance on the operation of section 67 of the FBTAA. Section 67 is the general anti-avoidance provision of the FBTAA. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA is virtually identical to the definition of 'scheme' in section 177A of Part IVA (paragraph 55 of PS LA 2005/24) Subsection 67(1) of the FBTAA provides that: Where: (a) an employer (in this subsection referred to as the eligible employer ) has obtained or, but for this section, would obtain, a tax benefit in respect of a year of tax in connection with an arrangement under which a benefit is or was provided to a person, being an arrangement that was entered into, or commenced to be carried out, on or after 19 September 1985; and (b) it would be concluded that the person, or one of the persons, who entered into or carried out the arrangement or any part of the arrangement did so for the sole or dominant purpose of enabling the eligible employer to obtain a tax benefit in connection with the arrangement or of enabling the eligible employer and another employer or other employers each to obtain a tax benefit in connection with the arrangement (whether or not that person who entered into or carried out the arrangement or any part of the arrangement is the eligible employer or is the other employer or one of the other employers); the Commissioner: (c) may determine that the aggregated fringe benefits amount (if any) of the eligible employer of the year of tax be increased by the amount of the tax benefit; and (d) may determine that appropriate adjustments (if any) be made to the aggregate fringe benefits amount of the eligible employer in respect of another year of tax or of another employer in respect of any year of tax, and any such determination has effect accordingly. Subsection 67(2) of the FBTAA states that a reference to the obtaining by an employer of a tax benefit in respect of a year of tax in connection with an arrangement under which a benefit is provided to a person is a reference to an amount not being included in the aggregate fringe benefits amount of the employer of the year of tax in respect of that benefit where the amount would have been included, or could reasonably be expected to have been included, in that aggregate fringe benefits amount if the arrangement had not been entered into or carried out. In Question 7 of this Ruling, it was determined that the cash contributions by the Company to the Trustee of the Trust is excluded from the definition of a fringe benefit under subsection 136(1) of the FBTAA as the contribution is made as part of the remuneration strategy of the Company. Furthermore, in Question 5 of this ruling, it was concluded that the dominant purpose of the Plans is to provide remuneration to eligible employees who participate in the scheme in a form that promotes the Company's business objectives rather than to obtain a tax benefit. Therefore, the fringe benefit liability incurred by the Company and other employer entities is not any less than it would have been but for the existence of the arrangement. | Detailed Reasoning - Conclusion: Therefore, the Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of the Company and other employer entities by the amount of the tax benefit gained from the cash contribution made by the Company to the Trustee of the Trust to fund the subscription for or acquisition on-market of the Company shares.

1 July 20XX for income tax purposes | Will the Company obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of the irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the subscription for or acquisition on-market of the Company shares by the Trust?