Private ruling: Employee share schemes
Date of advice: 2 August 2017
Published: November 2017
Ruling period: Year ending 31 March 2017 | Year ending 31 March 2018 | Year ending 31 March 2019 | Year ending 31 March 2020 | Year ending 31 March 2021 | Year ending 31 March 2022
Date scheme commenced: 2016

Ruling: Q1: Will the Company as head entity of the Company’s tax consolidated group obtain an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the irretrievable contributions made by the Company, or any subsidiary member of the Company’s tax consolidated group, to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, the shares in the Company by the Trust? | A1: Yes | Q2: Will the Company as head entity of the Company’s tax consolidated group be entitled to deduct an amount under section 8-1 of the ITAA 1997 for costs incurred by the Company, or any subsidiary member of the tax consolidated group, in relation to the implementation and on-going administration of the Trust? | A2: Yes | Q3: Will irretrievable contributions made by the Company, or any subsidiary member of the Company’s income tax consolidated group, to the Trustee, to fund the subscription for, or acquisition on-market of, shares in the Company by the Trust be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997 if the payments in question are made before the acquisition of the relevant ESS interest ? | A3: Yes | Q4: If the Trust satisfies its obligation under the Employee Plan, the Executive Plan or the Former Employee Plans by subscribing for new shares in the Company, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 20-20 of the ITAA 1997 or trigger a 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 as head entity of the Company’s tax consolidated group in respect of the irretrievable payments made by the Company, or any subsidiary member of the income tax consolidated group, to the Trustee to fund the subscription for or acquisition on-market of shares in the Company by the Trust? | A5: No

Relevant facts and circumstances: Background The Company is an Australian tax resident company. The Company is listed on the Australian Securities Exchange (ASX) and is the 'head company’ of a 'consolidated group’ for the purposes of Part 3-90 of the ITAA 1997 (tax consolidated group). The Company has wholly-owned subsidiary entities who are employers of the Company’s personnel. Employee share plans Each employee share plan (Plan) broadly operates to provide eligible employees with the opportunity to receive rights for generally nil consideration (Rights). In order to receive shares, the participating employee (Participant) must satisfy the vesting criteria outlined in the relevant plan’s rules (Plan Rules). The Rights are exercised automatically on vesting in some of the plans and in others plans the Company’s board determines whether Rights held will vest or lapse. On exercise of the Rights, the Participant will be entitled to one share in the Company for generally nil consideration. Employee share trust The Trust is an independent legal entity and not a part of the Company’s income tax consolidated group. It was established as a sole purpose trust to administer and maintain the Plans. The Company cannot be a beneficiary of the Trust and cannot receive any income or capital from the Trust. The Trust’s deed (Trust Deed) allows the Trustee to subscribe for, purchase or otherwise acquire shares of the Company for the purposes of administering the Plans and to do things incidental to this activity. The Trust Deed does not allow the Trustee to provide any additional benefits other than those that arise from the Plan Rules. The Trust is funded by contributions from the Company, including the acquisitions of shares in the Company at market value either on-market or by a subscription for new shares. Shares will be held by the Trust on trust for the benefit of the participating employees (Participants) generally until they are allocated or transferred to an employee (on vesting and/or exercise of the Rights). The Trust cannot exercise voting rights in relation to unallocated shares. Contributions to the Trust The Company does not intend to make cash contributions to the Trust prior to the issue of the Rights to the Participants. The Company will make contributions to the Trust when the Rights vest or where it makes commercial sense to do so. For example, it may make cash contributions to the Trust prior to the vesting and/or exercise of the Rights to ensure the Trust has the cash necessary to acquire shares in the Company to satisfy the acquisition or subscription of shares related to the Rights.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 66 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 section 177A | Income Tax Assessment Act 1936 section 177D | Income Tax Assessment Act 1936 section 177F | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 8-1(1) | Income Tax Assessment Act 1997 subsection 8-1(2) | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 Subdivision 83A-C | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 section 83A-340 | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 section 701-1

Reasons for decision: Summary: Note: all legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated. | Detailed Reasoning - Issue 1 Question 1: Subsection 8-1(1) is a general deduction provision. Broadly, it provides an entitlement to a deduction from your assessable income for any loss or outgoing to the extent that it is: ● incurred in gaining or producing your assessable income, or ● necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, subsection 8-1(2) prevents such a deduction to the extent that the outgoing is: ● capital or of a capital nature, or ● of a private or domestic nature, or ● incurred in gaining or producing exempt income, or ● prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936. | Detailed Reasoning - Loss or outgoing incurred: To be entitled to a deduction under section 8-1, a contribution made to the Trustee by the Company must be irretrievable and non-refundable – that is, it must be a permanent loss or outgoing to which the Company has definitely committed itself ( FCT v. James Flood Pty Ltd (1953) 88 CLR 492; (1953) 5 AITR 579; (1953) 10 ATD 240). A payment made to a trustee of an employee share trust is incurred only when the ownership of that payment passes from an employer to that trustee and there is no circumstance in which the employer can retrieve any of the payment (see Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339; 2005 ATC 4001; Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650; 2004 ATC 4674; 55 ATR 745). In this case, the Trust Deed provides that a contribution to the Trust must: ● be provided by the Company to the Trust, ● be used exclusively to purchase shares in the Company for the Participants, ● form part of the assets (ie corpus) of the Trust pending acquisition of shares in the Company, ● not be repaid to the Company unless the funds are provided by way of loan, and ● not be distributed to the Company in the event of a winding up of the Trust. When read together, the terms of the Trust Deed demonstrate the irretrievable and non-refundable nature of an employer contribution made by the Company to the Trustee in accordance with the Trust Deed and the Plans. Accordingly, such a contribution will be incurred at the time it is made for the purposes of subsection 8-1(1). | Detailed Reasoning - Sufficient nexus: For a loss or outgoing to be deductible under section 8-1, it must either be incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. A number of cases have established various principles to be applied in determining whether there will be a sufficient nexus between a loss or outgoing and the derivation of the assessable income of the business. See, for example: ● The Herald and Weekly Times Limited v. The Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 2 ATD 169, ● Amalgamated Zinc (De Bavay’s) Limited v. The Federal Commissioner of Taxation (1935) 54 CLR 295; (1935) 3 ATD 288, ● W. Nevill And Company Limited v. The Federal Commissioner of Taxation (1937) 56 CLR 290; 4 ATD 187; (1937) 1 AITR 67, ● Ronbipon Tin N.L. and Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; 4 AITR 236; (1949) 8 ATD 431, and ● Charles Moore & Co. (W.A.) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 6 AITR 379; (1956) 11 ATD 147. In this case, under the Trust Deed, the Trust was established for the sole purpose of acquiring, holding and transferring shares in the Company for the Plans for the benefit of the Participants. Furthermore, under the Trust Deed, the Trustee will manage and administer the Trust so that it satisfies the definition of 'employee share trust’ in subsection 130-85(4). The benefits provided to participating employees under the Plans are intended to reward, retain and motivate those employees and to encourage participation by employees of the Company through share ownership. In addition, the Rights issued to participating employees under the Executive Plan form part of that employees remuneration. In this regard, an employer contribution made by the Company to the Trustee will form part of the overall employee remuneration costs of the Company which have a sufficient nexus with the business for the purposes of subsection 8-1(1). This conclusion is consistent with the position taken in ATO Interpretative Decision ATO ID 2002/1074 Income Tax - deductibility - irretrievable employer contributions paid to the Trustee of its employee share scheme to acquire a share or right under the employee share scheme . | Detailed Reasoning - Is the amount capital or revenue in nature?: Notwithstanding that the positive limbs of subsection 8-1(1) are satisfied, a deduction will not be allowable if the relevant payment to the Trust is capital or capital in nature under subsection 8-1(2). The leading authority on the distinction between revenue and capital expenditure is Sun Newspapers Ltd and Associated Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337; (1938) 5 ATD 23; (1938) 1 AITR 403, where Dixon J (at CLR 363) identified three main factors to be considered when deciding whether expenditure incurred is revenue or capital in nature. These are: ● the character of the advantage sought by the outgoing, ● the manner in which the advantage is to be used, relied upon or enjoyed by the taxpayer, and ● the means adopted to obtain the advantage, eg the recurring nature of payments. Generally, a contribution made by an employer company to an employee share trust, which was established to provide incentive payments to participating employees, will generally be on revenue account and is not capital nor of a capital nature ( Spotlight Stores Pty Ltd v. Federal Commissioner of Taxation [2004] FCA 650; 2004 ATC 4674; (2004) 55 ATR 745 ( Spotlight Stores ) which was affirmed by the Full Federal Court in Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339; 2005 ATC 4001; (2004) 58 ATR 210). | Detailed Reasoning - What is the contribution for?: In this case, each contribution goes to funding the facilitation of the Plans, the purpose of which is to reward, retain and motivate participating employee and to encourage participation by employees of the Company through share ownership (ie by aligning the employee’s interests with the Company’s to provide value for its shareholders). Incentivising employees is intended to improve the profitability of the Company in the same way as remunerating employees through other means. The advantage obtain by the Company is a more loyal and contented workforce. This suggests that such a contribution to the Trust is not capital or capital in nature. | Detailed Reasoning - Is the contribution of a lasting quality?: The advantage provided by each payment to the Trustee does not have a lasting quality because it forms part of the overall remuneration of the Company’s employees. To use the words of the Federal Court in Spotlight Stores [2004] FCA 650 (at paragraph 71), 'the advantage to be obtained was giving staff an incentive to greater effort from year to year and was thereby related to the profitability of the taxpayer from year to year’. | Detailed Reasoning - Are the contributions regular, recurrent or periodic?: In addition, the Company will make regular and recurrent contributions to the Trustee for the acquisition of, and subscription for, shares in the Company under the Plans. This supports the view that the contributions are not capital or capital in nature. | Detailed Reasoning - Conclusion: Accordingly, the payments made by the Company to the Trustee for the purposes of administering the Plans are outgoings incurred by the Company in carrying on its business and are not capital or of a capital nature where the payments are used to acquire shares in the Company. | Detailed Reasoning - Apportionment: The combined operation of subsections 8-1(1) and 8-1(2) may require apportionment of a loss or outgoing into deductible and non-deductible components, where a single loss or outgoing is incurred for more than one purpose or on items of a different nature. This is relevant where the Trustee uses a payment made by the Company to subscribe for shares in the Company. Generally, where the trustee of an employee share trust, ultimately and in substance, uses a payment from the employer to subscribe for equity interests (eg shares) in the employer, the employer has also acquired an asset or advantage of an enduring nature. Notwithstanding this, apportionment may not be required where a payment secures for the employer advantages of both a revenue nature and a capital nature, provided that the expected advantages of a capital nature are very small or trifling by comparison. A capital advantage is only small or trifling (and therefore disregarded) when, within a relatively short period of the contribution (which secures the capital advantage) being made, so much of the trust fund as comprises that contribution is permanently and entirely dissipated in remunerating employees (paragraph 16 of Draft Taxation Ruling TR 2017/D5 Income tax: employee remuneration trusts ). In this case, there are no facts indicating that the shares will be immediately disposed of. The fact that an individual employee may choose to do so based on their personal circumstances would not amount to an advantage of a capital nature (for the Company) requiring apportionment because there is no indication of such capital advantage being obtained at the time that the contribution is made (ie when incurred). Accordingly, it is considered that any capital advantage obtained by the Company from the acquisition of shares in the Company by the Trustee for the purposes of implementing and facilitating the Plans will be small or trifling and therefore may be disregarded. | Detailed Reasoning - Private or domestic in nature: Nothing in the facts of this case suggest that contributions made by the Company to the Trustee are private or domestic in nature, incurred in gaining or producing exempt income, or are otherwise prevented from being deductible under a specific provision of the ITAA 1936 or ITAA 1997. | Detailed Reasoning - Conclusion: A contribution made by the Company to the Trustee to fund the acquisition of shares in the Company in accordance with the Trust Deed and the Plans will be deductible to the Company under section 8-1. | Detailed Reasoning - Issue 1 Question 2: The Company will incur costs associated with the services provided by the Trustee for the implementation, on-going administration and management of the Trust including but not limited to: ● employee plan record keeping, ● production and dispatch of holding statements to participating employees, ● provision of annual income tax return information to participating employees, ● management of employee termination, ● costs incurred in the acquisition of shares on-market (eg brokerage costs and the allocation of shares to Participants), and ● other Trustee expenses, including accounting and legal fees, the annual audit of the financial statements and the annual income tax return of the Trust. In addition to the services to be provided by the Trustee, the Company has incurred and will incur various costs, including the services provided by the Company’s accounting and legal advisors. Consistent with the reasoning in Question 1 above, costs incurred by the Company for the implementation and on-going administration of the Trust are revenue in nature and will be deductible under section 8-1 as part of its ordinary employee remuneration costs. This conclusion is consistent with ATO Interpretative Decision ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible . | Detailed Reasoning - Issue 1 Question 3: A deduction under section 8-1 for a contribution will generally be allowable in the income year in which the Company incurs the relevant outgoing. However, under certain circumstances, the timing of the deduction is specifically determined under section 83A-210. If a contribution is made to the Trust prior to the acquisition of an ESS interest by eligible employees, the timing of the income tax deductions for that contribution will be modified to occur at the time the employee acquires (ie is granted) the relevant ESS interest (pursuant to section 83A-210). Section 83A-210 states: If: (a) at a particular time, you provide another entity with money or other property: (i) under an arrangement; and (ii) for the purposes 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 applies under an arrangement where there is a relevant connection between a contribution provided to the Trustee and the acquisition of ESS interests (directly or indirectly) by a participating employee under an ESS in relation to the employee’s employment, and the contribution is made before the acquisition of the ESS interests. | Detailed Reasoning - Arrangement: Section 83-A210 only applies where the contribution is made 'under an arrangement’ (paragraph 83A-210(a)(i)). 'Arrangement’ is defined broadly to mean any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings (subsection 995-1(1)). Accordingly, the implementation of each of the Plans, the establishments of the Trust and the provision of money by the Company to the Trustee are considered to constitute an 'arrangement’ for the purposes of subparagraph 83A-210(1)(i). Relevant connection between employer contribution and acquisition of ESS interest In addition, section 83A-210 can only apply if there is an arrangement where there is a relevant connection between the irretrievable payment made by the Company to the Trustee and the acquisition of an 'ESS interest’ by an employee under an 'employee share scheme’ (paragraph 83A-210(a)(ii)). | Detailed Reasoning - ESS Interest: An 'ESS interest’ in a company is defined as a beneficial interest in: ● a share in the company, or ● a right to acquire a beneficial interest in a share in the company (subsection 83A-10(1)). In this case, each Right provided to a Participant when an offer is made under the Plans is an 'ESS interest’ as it is a right to acquire a beneficial interest in a share in the Company. | Detailed Reasoning - Employee share scheme: Subsection 83A-10(2) states: An employee share scheme is a scheme under which ESS interests in a company are provided to employees, or associates of employees, (including past or prospective employees) of: (a) the company; or (b) subsidiaries of the company; in relation to the employees’ employment. For the purposes of subsection 83A-10(2), 'scheme’ is defined in subsection 995-1(1) as: (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. In this case, each of the Plans is an 'employee share scheme’ for the purposes of Division 83A as it is an arrangement under which ESS interests (being the Rights) are provided to employees of the Company in relation to their employment. | Detailed Reasoning - Relevant connection: In this case, the granting of Rights, the provision of contributions to the Trustee by the Company, the acquisition and holding of shares by the Trustee and the allocation of shares to participating employees are all inter-related components of the Plans. All the components of the scheme, including the provision of contributions to the Trustee, must be carried out so that the scheme can operate as intended. As one of those components, contributions made by the Company to the Trustee are necessary for the scheme to proceed. Accordingly, the provision of money to the Trustee to acquire shares in the Company is considered to be for the purpose of enabling employees to acquire the ESS interests. In addition, a share of the Company acquired by the Trustee to satisfy a Right provided under the Plans to an employee in relation to the employee’s employment, is itself acquired under the same Plan (ie under an employee share scheme). Accordingly, the acquisition of the share would also satisfy the condition in paragraph 83A-210(a)(ii). | Detailed Reasoning - Conclusion: If a contribution is provided by the Company to the Trustee before the relevant ESS interest is acquired by a participating employee, section 83A-210 applies to determine the timing of a deduction for the contribution. Where section 83A-210 applies, the contribution will only be deductible in the income year in which the relevant ESS interest is acquired by a participating employee. | Detailed Reasoning - Ordinary income: Assessable income includes income according to ordinary concepts, known as ordinary income (section 6-5). In G.P. International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation (1990) 170 CLR 124; 90 ATC 4413; (1990) 21 ATR 1, 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. Periodicity, recurrence and regularity are regarded the most visible indicators of ordinary income. Generally, amounts received as a result of carrying on a business should also represent ordinary income. However, receipts of a capital nature do not constitute income according to ordinary concepts, whether or not received in carrying on a business. In this case, in accordance with the Trust Deed, the contributions will be used by the Trustee to acquire the shares in the Company either on-market or via a subscription for new shares in the Company, based on the written instructions from the Company. The character of the right or thing disposed of in exchange for the receipt can determine the character of the payment of share capital received by the Company from the Trustee. Under this arrangement, the Company may issue the Trustee with new shares in itself. The character of the newly-issued shares is one of capital. The receipt (being the subscription proceeds) takes the character of share capital and, accordingly, is of a capital nature. Accordingly, subscription proceeds received by the Company from the Trustee will not be treated as ordinary income in the hands of the Company. | Detailed Reasoning - Assessable recoupment: An amount that you receive as a recoupment of a loss or outgoing will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current income year or a previous income year (subsection 20-20(2)). In this case, the Company will receive an amount for the subscription of shares by the Trust. As there is no insurance contract involved, the amount is not an amount received by way of insurance. Furthermore, the receipt does not arise under a statutory or contractual right of indemnity and the receipt is not in the nature of compensation. Accordingly, the amount is not an indemnity. In addition, a loss or outgoing is also an assessable recoupment if it is deductible in the current income year, or has been deductible or deducted in a previous income year, where the deduction was claimed under a provision listed in the table in section 20-30 (subsection 20-20(3)). A 'recoupment’ is defined as including any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of the loss or outgoing (subsection 20-25(1)). In this case, the receipt of subscription proceeds by the Company is in return for issuing shares to the Trustee, not as a recoupment of previously deducted expenditure under any of the provisions listed in the table in section 20-30. Whilst the Company will be eligible for deductions under section 8-1 for irretrievable contributions to the Trust to acquire shares for participating employees and for costs associated with the administration of the Trust, such deductions do not fall within the provisions listed in the table in section 20-30. Accordingly, subscription proceeds received by the Company from the Trustee will not be an assessable recoupment under section 20-20. Capital gains tax (CGT) Relevantly, CGT event D1 (creating a contractual or other rights) and CGT event H2 (receipt for event relating to a CGT asset) may happen when the Company receives subscription proceeds from the Trustee. However, CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company (paragraph 104-35(5)(c)). Similarly, CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company (paragraph 104-155(5)(c)). In this case, shares issued by the Company to the Trust are 'equity interests’ as defined in section 974-75. Accordingly, CGT event D1 and CGT event H2 will not happen when the Trustee subscribes for shares in the Company. | Detailed Reasoning - Issue 1 Question 5: Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936. Before the Commissioner can exercise his discretion to make a determination in respect of Part IVA under subsection 177F(1) of the ITAA 1936, three requirements must be met: ● there must be a 'scheme’ within the meaning of section 177A of the ITAA 1936, ● a 'tax benefit’ must arise based on whether a tax effect would have occurred, or might reasonably be expected to have occurred, if the scheme had not been entered into or carried out, and ● having regard to the matters in subsection 177D(2) of the ITAA 1936, the scheme is one to which Part IVA of the ITAA 1936 applies (dominant purpose). Based on an analysis of the facts in this case, we do not consider that any party to the scheme has a dominant purpose of enabling the Company to obtain deductions for its contributions to the Trust. There are clear commercial reasons for implementing and operating the Plans through a trust structure. Accordingly, the Commissioner will not seek to make a determination that Part IVA applies to deny, in part or in full, any deduction claimed by the Company in respect of contributions that the Company makes to the Trustee to fund the subscription for, or acquisition on-market of, shares in the Company by the Trust. | Detailed Reasoning - Issue 2 Question 1: An employer’s liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA, which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. The fringe benefits taxable amount is calculated under the FBTAA by reference to the taxable value of each fringe benefit provided. No amount will be subject to FBT unless a 'fringe benefit’ is provided. Relevantly, 'fringe benefit’ is defined as a benefit provided to an employee, or an associate of an employee, in respect of the employment of the employee (subsection 136(1) of the FBTAA). The provision of Performance Rights under the Plans Certain benefits are excluded from the definition of 'fringe benefit’ (paragraphs (f) to (s) of the 'fringe benefit’ definition in subsection 136(1) of the FBTAA). Relevantly, the definition of 'fringe benefit’ excludes, among other things: (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997) to which Subdivision 83A-B or 83A-C of that Act applies; … | Detailed Reasoning - ESS interest: An 'ESS interest’ is defined as a beneficial interest in: ● a share in a company, or ● a right to acquire a beneficial interest in a share in a company (subsection 83A-10(1)). In this case, each Right provided to a Participant when an offer is made under the Plans is an ESS interest because it is (or may later become) a right to acquire a beneficial interest in a share in the Company. These ESS interests are offered to Participants at a discount and in connection with the relevant Participant’s employment. | Detailed Reasoning - Application of Subdivision 83A-B or 83A-C: Subdivision 83A-B applies to an ESS interest if it is acquired by a participating employee under an ESS at a discount (subsection 83A-20(1)). As established above, each of the Plans is an employee share scheme within the meaning of subsection 83A-10(2) as it is part of a scheme that provides rights (ie the Rights) to acquire beneficial interests in shares in the Company to employees in relation to the employee’s employment. Generally, each Right is acquired for no cost under the Plan Rules – that is, at a discount. Accordingly, under subsection 83A-20(1), Subdivision 83A-B will prima facie apply to each Right provided under each of the Plans, unless the conditions in subsection 83A-105(1) are satisfied, in which case Subdivision 83A-C applies. Whether a Participant is ultimately taxed upfront on some or all of any discount received (under Subdivision 83A-B), or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C), will depend on whether the additional requirements in Subdivision 83A-B or Subdivision 83A-C have been satisfied. | Detailed Reasoning - Conclusion: Each Right provided under the Plans is an ESS interest to which Subdivision 83A-B or Subdivision 83A-C applies. It follows that the provision of a Right under the Plans will not be subject to FBT on the basis that it is excluded from the definition of 'fringe benefit’ by virtue of paragraph (h) of the definition of 'fringe benefit’ in subsection 136(1) of the FBTAA. | Detailed Reasoning - Issue 2 Question 2: Relevantly, the definition of 'fringe benefit’ in paragraph 136(1)(ha) of the FBTAA excludes, among other things: (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 ); … 'Employee share trust’, in turn, is defined in subsection 130-85(4) as follows: An employee share trust , for an employee share scheme, is a trust whose sole activities are: (a) obtaining shares or rights in a company; and (b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of: (i) the company; or (ii) a subsidiary of the company; and (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). The Company has established the Trust to acquire shares in the Company and to allocate those shares to Participants in order to satisfy ESS interests acquired by those employees under the Plans. Accordingly, paragraphs 130-85(4)(a) and 130-85(4)(b) are satisfied because: ● the Trust acquires shares in a company (the Company), and ● the Trust ensures that ESS interests as defined in subsection 83A-10(1) (being the rights to acquire beneficial interests in the shares of the Company) are provided under an 'employee share scheme’ as defined in subsection 83A-10(2) to Participants in accordance with the Trust Deed and the Plans. Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) will also require that the Trustee undertake incidental activities that are a function of managing the Plans. Undertaking such activities will not cause a trust to fall outside the definition of 'employee share trust’ for the purposes of subsection 130-85(4) (paragraph 130-85(4)(c)). In this case, the Trust Deed does not provide for the Trustee to participate in any other activities, if such activities are not merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b). In addition, the Trust Deed provides that the Trust will be managed and administered so that it satisfies the definition of 'employee share trust’ for the purposes of section 130-85(4). Accordingly, provided the Trustee administers the Trust according to the terms of the Trust Deed, the activities of the Trustee will not cause the Trust to fall outside the definition of 'employee share trust’ for the purposes of 130-85(4). | Detailed Reasoning - Conclusion: The definition of 'fringe benefit’ in paragraph 136(1)(ha) of the FBTAA will exclude the Company’s contributions to the Trustee from being fringe benefits. The irretrievable contributions made by the Company, or any subsidiary of the Company, to the Trustee to fund the subscription for, or acquisition on-market of, shares in the Company will not constitute fringe benefits within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Issue 2 Question 3: Section 67 of the FBTAA is a general anti-avoidance provision in the FBTAA. The operation of section 67 is comparable to Part IVA of the ITAA 1936 as it: ● requires identification of an arrangement, ● requires a tax benefit obtained by the employer that was the sole or dominant purpose for a person entering into the arrangement, and ● is activated by the Commissioner making a determination. The Commissioner would only make a determination under section 67 of the FBTAA if the arrangement results in the payment of less FBT than would be payable but for entering into the arrangement. Paragraph 151 of PS LA 2005/24 states: 151. The approach outlined in this practice statement (refer to paragraphs 69 to 113) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA 1986. The provision of benefits to the Trustee as irretrievable contributions to the Trust and to Participants as Rights under the Plans is excluded from the definition of 'fringe benefit’ for the reasons given above. In addition, shares in the Company received by Participants on the vesting and exercise of Performance Rights or Share Rights are not 'fringe benefits’ because they are received for the exercise of the relevant ESS interest, rather than 'in respect of’ employment (ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). As these benefits have been excluded from the definition of 'fringe benefit’, no fringe benefit arises and consequently no FBT will be payable under the Trust arrangement. In addition, as no FBT is payable without the use of the Trust (and FBT is unlikely to be payable under alternative remuneration plans), the FBT liability is not any less than it would have been but for the arrangement. | Detailed Reasoning - Conclusion: The Commissioner will not make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of the Company, or any subsidiary member of the tax consolidated group, by the amount of the tax benefit gained from the irretrievable contributions made to the Trustee to fund the subscription for, or acquisition on-market of, shares in the Company.

Will the provision by the Company or the Company’s subsidiaries to participating employees of Rights (under the Plans), be a 'fringe benefit’ within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | Will the irretrievable payments made by the Company, or any subsidiary of the Company, to the Trustee, to fund the subscription for, or acquisition of, shares in the Company by the Trust be treated as a 'fringe benefit’ within the meaning of subsection 136(1) of the FBTAA? | 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, or any subsidiary of the Company, by the amount of tax benefit gained from irretrievable payments made by the Company to the Trustee to fund the subscription for or acquisition of shares in the Company by the Trust? | This ruling applies for the following periods: Income tax year ending 30 June 2017 | Income tax year ending 30 June 2018 | Income tax year ending 30 June 2019 | Income tax year ending 30 June 2020 | Income tax year ending 30 June 2021 | Income tax year ending 30 June 2022