Private ruling: Employee share scheme
Date of advice: 23 August 2024
Published: 8 October 2024
Ruling period: Income year ended 30 June 2024 | Income year ended 30 June 2025 | Income year ended 30 June 2026 | Income year ended 30 June 2027 | Income year ended 30 June 2028
Date scheme commenced: 5 August 2024

Ruling: Q1: Will the irretrievable cash contributions made by Company A, to the trustee (Trustee) of the Company A Employee Share Trust (Trust) to fund the subscription for, or acquisition on-market of, shares in Company A (Shares) for the purposes of the plans listed below (Plans), be assessable income of the Trust under section 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? • The Rights Plan (RP) • The Option Plan (OP) • The Equity Incentive Plan (EIP) • The Tax Exempt Share Plan (TESP) • Options granted to Managing Director (MDO). | A3: Yes. | Q2: Will CGT event E7 happen in respect of Shares held by the Trustee of the Trust? | A4: No - the scheme does not include any facts that gives rise to CGT event E7 happening.

Relevant facts and circumstances: Company A is a company incorporated in and tax resident of Australia. It is listed on the Australian Stock Exchange. It carries on a business for the purpose of gaining or producing assessable income. Company A formed a tax consolidated group (TCG) with its eligible subsidiaries, including company B. Company A and Company B are employing entities with employees in the TCG. As part of its overall remuneration strategy, Company A offers certain employees and executives payments of both cash and shares in Company A (Shares) upon satisfaction of certain performance conditions or exercise of options. These are implemented through the following plans hereinafter referred to as the Plans: • RP which offers eligible participants rights to Shares • OP which offers eligible participants options to Shares • EIP which offers eligible participants awards in the form of either rights or options to shares • TESP which offers eligible participants Shares, and • options granted to Managing Director of Company A (MDO), terms of which are governed by the relevant offer letter. It is noted that: • Rights under the RP and awards under the EIP are granted for nil cash consideration and can be settled by cash at the discretion of the board of Company A (Board) instead of issuance of Shares when they are vested. • Vested options under the MDO are granted for nil consideration and can be settled by cash at the discretion of the Board instead of issuance of Shares. • Options under the OP are granted for no more than nominal cash consideration (i.e. at a discount) and can only be settled by issuance of Shares. Company A will incur various costs in relation to the establishment and implementation of the Trust, including but not limited to: • legal advice obtained in respect of the implications which may arise for both Company A and its employees in respect of the employee share trust structure and the Plans; • legal documents required in respect of the employee share trust and the Plans; and • professional fees associated with the establishment of the employee share trust including costs associated with the creation and registration of the employee share trust with various authorities. Company A will also incur various costs in relation to the on-going administration of the Trust. For example, Company A will incur costs associated with the services provided by the Trustee as trustee of the Trust, including but not limited to: • Employee plan record keeping; • Production and dispatch of holding statements to employees; • Provision of annual income tax return information for employees; • Costs incurred in the acquisition of Shares on market (e.g. brokerage costs and the allocation of such Shares to Employees); • Management of employee termination (i.e. facilitating the payment under relevant plans when an employee is terminated to the extent they have vested interests); and • Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. The Plans RP The RP's purpose is to assist in the reward, retention and motivation of eligible participants, and link reward of these people to performance and creation of shareholder value. Under the RP, the board of Company A (Board) may at any time establish a trust for the sole purpose of acquiring and holding Shares in respect of which eligible participants to whom rights have been granted under this plan may exercise or have exercised vested rights. The Board may, from time to time, in its discretion, make written invitation to eligible participants to apply for rights upon the terms set out in the RP. These offers are not assignable, and each right will entitle the holder to be issued one Share (or paid a cash payment in lieu of the issue of one Share). The rights are granted for nil cash consideration. An eligible participant can accept an offer for rights by signing and returning an application form. Once the Board receives and approves a duly signed and completed application form, it must promptly grant the rights, upon terms as set out in the offer, the application form and the RP and any additional terms as the Board determines, and issue a certificate evidencing the grant of those rights. Rights granted under the RP vest in accordance with the vesting conditions attached to the rights, and the Board must notify the holder of the rights within 10 business days of becoming aware of any vesting conditions being satisfied. The Board in its absolute discretion can waive any vesting conditions applying to the performance rights. On vesting, the holder of the rights under the RP can submit a notice to exercise these rights together with the certificate of the rights. The Board will issue Shares, within 10 business days of being provided with a valid notice of exercise for vested rights and the certificate, or alternatively pay the holder a cash payment for the rights exercise. From the date of issuance of the Shares under the RP, the holder becomes the legal owner of the Shares and will be entitled to dividends and exercise voting rights attached to the Shares. The Board may, in its absolute discretion, determine at any time up to exercise of the rights, that a restriction period applies to some or all of the Shares issued upon exercise of vested rights, up to a maximum of seven years from the grant date of the rights. The Board may in its discretion decide to waive a restriction period. The holder must not dispose or otherwise deal with any Shares that are subject to a restriction period during that period. OP The OP's purpose is to assist in the reward, retention and motivation of eligible participants, and link the reward of these people to performance and the creation of shareholder value. Under the OP, the Board may at any time establish a trust for the sole purpose of acquiring and holding Shares in respect of which eligible participants to whom options have been granted under this plan may exercise or have exercised vested options. The Board may, from time to time, in its discretion, make written offer to eligible participants to apply for options upon the terms set out in the OP. These offers are not assignable, and each option will entitle the holder to subscribe for and be allotted one Share. The options are granted for no more than nominal cash consideration. The Board will determine the option exercise price in its absolute discretion. An eligible participant can accept an offer for options by signing and returning an acceptance form. Once the Board receives and accepts a duly signed and completed acceptance form, it must promptly grant options, upon terms as set out in the offer, the acceptance form and the OP and any additional terms as the Board determines as well as issuing a certificate evidencing the grant of the options. Options granted under the OP vest in accordance with the vesting conditions attached to these options, and the Board must notify the holder of the options within 10 business days of becoming aware of any vesting conditions being satisfied. The Board in its absolute discretion can waive any vesting conditions applying to the options. On vesting, the holder of the options under the OP can submit a notice to exercise the options together with the certificate and make payment in respect of the option exercise price (unless utilising the cashless exercise facility. A holder of vested options can choose to exercise their vested options using the cashless exercise facility, which allows them to set-off the exercise price against the number of Shares which they are entitled to receive upon exercise of those options, and receive Shares to the value of the surplus after the exercise price has been set off. The Board will issue Shares, within 10 business days of being provided with a valid notice of exercise for vested rights and the certificate. From the date of issuance of the Shares under the OP, the holder becomes the legal owner of the Shares and will be entitled to dividends and exercise voting rights attached to the Shares. The Board may, in its discretion, determine at any time up to exercise of the options, that a restriction period applies to some or all of the Shares issued upon exercise of vested options, up to a maximum of seven years from the option grant date. The Board may decide to waive a restriction period. The holder must not dispose or otherwise deal with any Shares that are subject to a restriction period during that period. EIP The EIP's purpose is to assist in the reward, retention and motivation of eligible participants, and link the reward of these people to performance and the creation of shareholder value. Under the EIP, the Board may at any time establish a trust for the sole purpose of acquiring and holding Shares in respect of which eligible participants to whom awards have been granted under this plan may exercise or have exercised vested awards. The Board may, from time to time, in its absolute discretion, make written invitation to eligible participants to apply for awards upon the terms set out in the EIP. These offers are not assignable, and each award will entitle the holder to be issued one Share. The awards are granted for nil cash consideration unless otherwise required in the offer document. An eligible participant can accept an offer for awards by signing and returning an application form. Once the Board receives and approves a duly signed and completed application form, it must promptly grant awards, upon terms as set out in the offer, the application form and the EIP and any additional terms as the Board determines as well as issuing a certificate evidencing the grant of the awards. Awards granted under the EIP vest in accordance with the vesting conditions attached to these awards, and the Board must notify the holder of the awards within 10 business days of becoming aware of any vesting conditions being satisfied. The Board in its absolute discretion can waive any vesting conditions applying to the awards. On vesting, the holder of the awards under the EIP can submit a notice to exercise the awards together with the certificate and make payment in respect of the award exercise price (unless utilising the cashless exercise facility or where there is no exercise price payable). A holder of vested awards can choose to exercise their vested awards using the cashless exercise facility, which allows them to set-off the exercise price against the number of Shares which they are entitled to receive upon exercise of those awards, and receive Shares to the value of the surplus after the exercise price has been set off. The Board will issue Shares, within 10 business days of being provided with a valid notice of exercise for vested awards and the certificate, or alternatively make a cash payment for the awards exercised if permitted in the relevant offer document. From the date of issuance of the Shares under the EIP, the holder becomes the legal owner of the Shares and will be entitled to dividends and exercise voting rights attached to the Shares. The Board may, in its absolute discretion, determine at any time up to exercise of the awards, that a restriction period applies to some or all of the Shares issued upon exercise of vested awards, up to a maximum of five years from the award grant date. The Board may decide to waive a restriction period. The holder must not dispose or otherwise deal with any Shares that are subject to a restriction period during that period. TESP The TESP's purpose is to assist in the reward, retention and motivation of participants who have been granted Shares under the plan, and align the interests of these people with shareholders of Company A by providing an opportunity to them to receive an equity interest in Company A. Under the TESP, the Board may, in its discretion, use an employee share trust or other custodial or trust mechanism for the purposes of holding and/or delivering any Shares under the plan rules. The Board may make an invitation to an eligible participant on any number of occasions in such form and on terms as the Board decides from time to time. The offer of Shares under this plan is made under section 1100P ('Offers for no monetary consideration') under Division 1A of Part 7.12 (Employee shares schemes) of the Corporations Act. An eligible participant can accept an offer for Shares under this plan by applying for the Shares in the manner set out in the invitation or be deemed to have accepted the grant of Shares by not opting out of participating in the plan. The Board, in its absolute discretion, may accept an application from an eligible participant for grant of Shares, and following receipt (or deemed receipt) of the application (and ancillary documentation if required) issue Shares to the eligible participant. Company A can require such Shares be held on an allocated basis in an employee share trust or such other custodian or trust arrangement at the company's election. A participant who has been granted Shares under this plan is absolutely entitled to dividends declared and paid or payable on these Shares held by them or on behalf of them. A participant who has been granted Shares cannot transfer, encumber or otherwise dispose of their Shares or take any action or permit another person to take any action to remove or circumvent the disposal restrictions during the holding lock period. The holding lock period is the period from the grant date until the earlier of (a) the date three years after the grant date of that Share or such date as determined by the Board or (b) the day after the date on which the relevant participant ceases to be an employee of Company A or Company A's group companies MDO Company A granted vested options to the managing director (or their nominee) which are governed by the terms set out in the offer letter (summarised broadly below): • Each Option entitles the holder to subscribe for and be issued one fully paid ordinary share in the capital of the Company. • Options will vest immediately on the date of issue. • Each Option had an exercise price, payable in cash. • The Options had a set expiry date. • Options may be exercised, in whole or in part, at any time after the Vesting Date by lodging a Notice of Exercise with Company A, and paying Company A the exercise price in respect of the Options specified in the Notice of Exercise, with exercise only being valid once the funds were cleared. • When granted the Options were indeterminate rights as they were settleable, at the election of the Board, by either cash or shares as follows: o Company A will arrange for the holder to receive the number of Shares to which the holder is entitled for the exercised Option (Equity Settled); or o Company A will pay the holder a cash payment per exercised Option equal to the volume weighted average of the Shares recorded on the ASX over the 20 trading days prior to the day on which the Option is exercised less the exercise price payable for that Option (Cash Settled). • All shares issued upon exercise of the Options will rank equally with other shares which are on issue. Trust Company A wishes to establish an employee share trust for the sole purpose of subscribing for, acquiring, holding and transferring Shares in connection with equity incentive plans established by Company A for the benefit of participants in those plans. Company A has appointed Trustee as the trustee of this employee share trust (Trust) in accordance with the Trust Deed (Deed). The Trustee is an unrelated party to Company A and its wholly owned entities. Company A 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. Company A must not establish any new plan which is to be operated by the Trust without consulting with and obtaining the written consent of the Trustee. The Trustee must, following receipt of a dealing notice, either purchase or subscribe for the requisite number (or a proportion of that number determined by the Board) of Shares on behalf of the relevant participant, subject to the relevant plan rules and the relevant terms of participation. Company A must provide funds required by the Trustee to purchase or subscribe for Shares, and all funds provided to the Trustee for this purposes will constitute accretions to the corpus of the Trust and will not be repayable by the Trustee and may be paid to Company A as consideration for the subscription of Shares provided such Shares are held under the terms of the Deed. The Trustee must, if directed by the Board in a dealing notice, reallocate any forfeited shares to one or more participants to be held under the Deed as allocated shares. Absent a direction, the trustee must hold these shares as part of other trust asset in accordance with the Deed. The Trustee must hold a participant's allocated shares on trust under the terms of the Deed, the relevant plan rules and the participant's terms of participation. Each participant will be the beneficial ownership of and absolutely entitled to their allocate shares. The Trustee must hold all other assets on trust for the participants who have one or more trust shares credited to their trust share account from time to time and the employees / director of the Company A group of companies. The Trustee and each participant must not assign, transfer, sell or grant encumbrances over or otherwise deal with an interest in the allocated share of the participant during any applicable restriction period. After the restriction period expires, a participant may give the Trustee a withdrawal notice to require the Trustee transfer legal title in some or all of the participant's allocated shares to the participant. A participant is presently entitled to so much of the net income of the Trust attributable to that participant's allocated shares. If an accretion arises in respect of a participant's allocated share other than by way of dividends, distributions, bonus share or rights issue, the Trustee will transfer or provide the benefits of the accretion to that participant. Upon sale of any allocated shares, the Trustee shall apply the proceeds of sale firstly in payment of tax liability incurred and secondly in payment of brokerage and other expenses of the sale that the participant has agreed to be deducted from the distribution and thirdly the balance in payment to the relevant participant. The Trustee must deal with each unallocated share in the manner set out in a dealing notice. If instructed by the Board, the Trustee must dispose of the unallocated share if it is a forfeited share or must participate in any rights issue in respect of the unallocated share. The Trustee may exercise at its discretion and consistent with its fiduciary duties any voting rights in relation to the unallocated share, but only in circumstances where voting is 'merely incidental' to obtaining, holding and providing Shares to the participants. The Trustee must hold any bonus shares issued in respect of the unallocated share on trust and may apply any capital receipts, dividends other distributions received in respect of unallocated shares to purchase further Shares to be held on trust. The Board may from time to time specify that certain unallocated shares are to be held by the Trustee for a particular plan, in which case the Board must identify the specified unallocated share which are to be held for a particular plan and must direct the Trustee in writing to hold those shares for that plan. Trust assets are the assets held by the Trust and include cash, ESS Interest and income of the Trust; Trust share means a Share held by the Trustee subject to the Deed and includes any bonus shares issued in respect of the Share and any Share issued as part of a rights issue; Unallocated share means a Trust share that is not credited to the trust share account of a participant at that time and includes any forfeited shares held by the Trustee. The Trustee is not entitled to be paid from trust assets any fees or charges for administering the Trust, but may recover from trust assets (excluding allocated shares, unallocated shares and dividends from allocated shares) all reasonable disbursements incurred in performing duties pursuant to the Deed. The Trustee can charge Company A fees, charges, commission and other remuneration (which Company A and the Trustee agree from time to time) and may seek reimbursement of reasonable disbursements incurred for managing the Trust, provided these are not paid directly or indirectly from trust assets. Nothing in the Deed confers or is intended to confer on Company A any charge, lien or any other proprietary right or beneficial interest in the trust assets. The rights of Company A under the Deed are purely contractual. Distribution of trust assets on termination of trust, following full repayment of debts and liabilities of the trust, distribution to participants of allocated shares and attributable net income of the trust and application of trust capital, is to either any employee share trust established and maintained for the benefit of employees of the Company A group of companies and any charity with deductible gift recipient status.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 128 | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 Subdivision 83A-C | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 83A-340 | Income Tax Assessment Act 1997 Section 104-75 | Income Tax Assessment Act 1997 Section 104-75 | Income Tax Assessment Act 1997 Section 104-85 | Income Tax Assessment Act 1997 Section 130-90 | Income Tax Assessment Act 1997 Section 701-1 | Income Tax Assessment Act 1997 Subsection 83A-10(1) | Income Tax Assessment Act 1997 Subsection 83A-10(2) | Income Tax Assessment Act 1997 Subsection 83A-20(1) | Income Tax Assessment Act 1997 Subsection 104-75(1) | Income Tax Assessment Act 1997 Subsection 104-75(2) | Income Tax Assessment Act 1997 Subsection 104-75(3) | Income Tax Assessment Act 1997 Subsection 130-85(1) | Income Tax Assessment Act 1997 Subsection 130-85(2) | Income Tax Assessment Act 1997 Subsection 130-85(4) | Income Tax Assessment Act 1997 Subsection 130-90(1A) | Income Tax Assessment Act 1997 Subsection 130-90(1) | Income Tax Assessment Act 1997 Subsection 130-90(2) | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1997 Paragraph 130-85(1)(a) | Income Tax Assessment Act 1997 Paragraph 130-85(1)(b) | Income Tax Assessment Act 1997 Paragraph 130-85(1)(c) | Income Tax Assessment Act 1997 Paragraph 130-85(4)(a) | Income Tax Assessment Act 1997 Paragraph 130-85(4)(b) | Income Tax Assessment Act 1997 Paragraph 130-85(4)(c) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(a) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(b) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(c) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(d) | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1936 Division 6 | Income Tax Assessment Act 1936 Section 95 | Income Tax Assessment Act 1936 Subsection 95(1)

Reasons for decision: Detailed Reasoning - Irretrievable cash contributions: It must be determined as a conclusion of fact whether the contributions made by Company A to the Trustee are irretrievable cash contributions. Company A must provide the Trustee of funds required by the Trustee to purchase or subscribe for Shares, and all funds provided to the Trustee for this purposes will constitute accretions to the corpus of the Trust and will not be repayable by the Trustee and may be paid to Company A as consideration for the subscription of Shares provided such Shares are held under the terms of this Deed. Based on the following, it can be said the contributions to the Trust are irretrievable and non-refundable: • all funds provided to the Trustee will constitute accretions to the corpus of the Trust and are not repayable by the Trustee; • neither Company A nor Company B is a beneficiary of the Trust or has any entitlement to any Shares, trust property forming part of the trust fund, or any returns of contributions made to the Trust; and • nothing in the Deed confers or is intended to confer onto Company A any encumbrance, proprietary right or interest in the Shares acquired by the Trustee. In conclusion, the above terms support the conclusion that the cash contributions made by Company A to the Trustee are irretrievable. | Detailed Reasoning - Assessable income of the Trust under section 6-5 or 6-10: The total assessable income of a trust estate is calculated as if the trustee were a resident taxpayer in respect of that income (subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936)). Subsection 6(1) of the ITAA 1936 states that 'assessable income' has the meaning given by subsection 995-1(1), which relevantly has the meaning given by sections 6-5 and 6-10. The assessable income of a taxpayer includes income under ordinary concepts (section 6-5) or statutory income (section 6-10). Section 10-5 contains a summary list of the provisions for statutory income. None of the provisions listed in section 10-5 are relevant in the present circumstances. Therefore, the irretrievable cash contributions made by Company A to the Trustee of the Trust will not be assessable income under section 6-10. The contributions will only be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936 if they are assessable as income according to ordinary concepts under section 6-5. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. Additionally, in ATO Interpretative Decision ATO ID 2002/965 Income Tax - Trustee not assessable on employer contributions made to it under the employer's employee share scheme , the Commissioner expresses the view that funds provided to the trustee of an employee share scheme (ESS) for the sole purpose of providing shares under an ESS will constitute capital receipts to the trustee, and are not assessable under sections 6-5 or 6-10. The contributions made by Company A to the Trust will constitute accretions to the corpus of the Trust that will be applied for the sole purpose of acquiring, or subscribing for, shares for the benefit of the Participants under the Plans. The cash contributions received by the Trustee are therefore of a capital character. It is irrelevant that, from Company A's perspective, the cash contribution may be deductible under section 8-1 because whether a receipt is income or capital depends on its objective character in the hands of the recipient, rather than the payer. This is made clear in GP International Pipecoaters v. Federal Commissioner of Taxation (1990) 170 CLR 124, where the High Court held that: ...although the amount expended on the construction of the plant was a capital expenditure, it does not follow that the taxpayer's receipt of the establishment costs was a receipt of capital. An ESS is a scheme under which ESS interests in a company are provided to employees of a company, or their associates, in relation to their employment (subsection 83A-10(2)). An ESS interest is 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)). The Commissioner accepts that the Plans meet the requirement of an ESS, and rights, options, awards and shares granted under the Plans are an ESS interest under subsection 83A-10(1), being either a right to acquire a share in Company A or a beneficial interest in a share in Company A. | Detailed Reasoning - Indeterminate rights under the Plans: The Commissioner accepts that the following listed items are indeterminate rights for the purposes of section 83A-340: • Rights under the RP • Award under the EIP • Vested options granted under the MDO The RP and the EIP provides for settlement of vested rights and awards by either Shares or by making payment of a cash equivalent amount in lieu of a Share, to be determined by the Board within 10 business days of receipt of notice of exercise for vested right / award. Accordingly, rights under the RP and non-cash awards under the EIP are not beneficial interest in a right to acquire a beneficial interest in a share unless, and until the time it is determined by the Board that they will be satisfied by the provision of Shares. Vested options granted under the MDO can also be settled by cash payment instead of issuance of Shares, at the discretion of the Board. As such, these options are also not beneficial interest in a right to acquire a beneficial interest in a share unless, and until the time it is determined by the Board that they will be satisfied by the provision of Shares. Although an indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, where the rights, awards and vested options are ultimately satisfied with Shares instead of cash, section 83A-340 will operate to treat them to have always been ESS interests within the meaning of subsection 83A-10(1). In these circumstances, the RP, EIP and MDO will each constitute an ESS within the meaning of subsection 83A-10(2) because they are schemes under which ESS interests are provided to employees of Company A and Company B in relation to their employment. Subsection 83A-20(1) is the key condition that an ESS interest must meet for Subdivision 83A-B or 83A-C to apply. Subsection 83A-20(1) states: This Subdivision applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. As the rights, awards and options are granted for nil consideration, Subdivision 83A-B will apply to these rights, awards and options (unless Subdivision 83A-C applies instead). Given the above, the irretrievable cash contributions made by Company A to the Trustee are neither ordinary nor statutory income under sections 6-5 or 6-10, they will not be included in the net income of the Trust and cannot be assessed to the Trustee under section 95 in Division 6. | Detailed Reasoning - Question 2(a): Under section 102-20, an entity can make a capital gain or loss if, and only if, a CGT event happens. | Detailed Reasoning - Participants become absolutely entitled to a Share under the Plan - CGT event E5: Under subsection 104-75(1), CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee. The time of the event is when a beneficiary becomes absolutely entitled to the asset (subsection 104-75(2)). If CGT event E5 happens, the trustee may make a capital gain or loss if the market value of the asset, at the time of the event, is more than its cost base or less than the asset's reduced cost base respectively (subsection 104-75(3)). In the present case, the Trust is neither a unit trust nor a deceased estate to which Division 128 applies. Subsection 130-85(2) treats a beneficiary as being absolutely entitled to the relevant share from the time of acquisition of the ESS interest until they no longer have the ESS interest in the share. Subsection 130-85(2) only applies if the following requirements under subsection 130-85(1) are satisfied: a) the beneficiary acquires an ESS interest under an ESS b) Subdivision 83A-B or 83A-C applies to the ESS interest, and c) the ESS interest is, or arises because of, an interest the beneficiary holds in an employee share trust (EST) | Detailed Reasoning - Participants acquire ESS interest under an ESS (paragraph 130-85(1)(a)): As stated in response to Question 1, as Participants are granted performance rights, options, awards and shares under the Plans in relation to their employment, which provide them with either a beneficial interest in Shares or the right to acquire a beneficial interest in Shares, they will be taken to have acquired ESS interests under an ESS and paragraph 130-85(1)(a) is satisfied. | Detailed Reasoning - Subdivision 83A-B or 83A-C applies to the ESS interest (paragraph 130-85 (1)(b)): Subsection 83A-20(1) is the key condition that an ESS interest must meet for Subdivision 83A-B or 83A-C to apply. Subsection 83A-20(1) states: | Detailed Reasoning - This Subdivision applies to an ESS interest if you acquire the interest under an employee share scheme at a discount.: Under the Plans, performance rights, options, awards and shares are granted for either no consideration or nominal consideration, Subdivision 83A-B will apply to these rights, options, awards and shares (unless Subdivision 83A-C applies instead). Therefore, paragraph 130-85(1)(b) is satisfied | Detailed Reasoning - The ESS interest arose because of an interest the Participants hold in an EST (paragraph 130-85(1)(c)): Subsection 130-85(4) provides that an EST for an ESS (having the meaning given by subsection 83A-10(2)) 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: • the company; or • a subsidiary of the company; and (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). An 'employee share scheme' is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees or associates of employees (including past or prospective employees) in relation to the employees' employment. As stated in response to Question 1, the Plans are an ESS within the meaning of subsection 83A-10(2) because it is a scheme under which either rights to acquire beneficial interests in Shares or Shares are provided to employees in relation to their employment. Company A has established the Trust to facilitate the Plans by acquiring Shares and allocating those Shares to Participants, in accordance with the Plans. Therefore, paragraph 130-85(4)(a) and (b) of the definition of an EST are satisfied because: • the Trustee will acquire Shares • the Trustee will ensure that performance rights, options, awards and Shares which are ESS interests, are provided under an ESS by allocating those shares to the Participants in accordance with the Deed and the Plans. Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) may also require that the Trustee undertake incidental activities that are a function of managing the Trust. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'?. Whether the Trust is an employee share trust for the purposes of subsection 130-85(4) requires an analysis of what the Trustee actually does, not only the powers and duties that are prescribed in the Deed. Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered to be merely incidental. In the present case, the Deed supports the conclusion that the Trustee may only use cash contributions received from Company to acquire Shares for Participants in accordance with the Plans. All other duties and general powers listed in the Deed are considered to be merely incidental to the functions of the Trustee in relation to its dealing with Shares to be acquired for Participants. As the conditions in subsection 130-85(1) are satisfied, CGT event E5 is the CGT event that will apply under the terms of the Plans at the time that a Participant becomes absolutely entitled to the Shares as against the Trustee. | Detailed Reasoning - Exemptions under section 130-90: Any capital gain or capital loss that the Trustee makes, if CGT event E5 happens, is disregarded if section 130-90 applies. Section 130-90 provides: (1A) Disregard any *capital gain or *capital loss made by an *employee share trust to the extent that it results from a *CGT event, if: (a) immediately before the event happens, an *ESS interest is a *CGT asset of the trust; and (b) either of the following subparagraphs applies: (i) the event is CGT event E5, and the event happens because a beneficiary of the trust becomes absolutely entitled to the ESS interest as against the trustee; (ii) the event is CGT event E7, and the event happens because the trustee *disposes of the ESS interest to a beneficiary of the trust; and (c) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest. (1) Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if: (a) the CGT event is CGT event E5 or E7; and (b) the CGT event happens in relation to a *share; and (c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d) the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. (2) Subsection (1A) or (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens. To qualify for the exemption in section 130-90, there must be an 'employee share trust' and an 'ESS interest'. An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. Shares granted under the TESP, rights granted under the RP, options granted under the OP, vested options granted under the MDO and awards granted under the EIP are all types of ESS interests in Company A as they either provide beneficial interest in shares of Company A or beneficial interest in a right to acquire shares in Company A. An ESS is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees, or associates of employees in relation to the employee's employment. The Plans each constitute an ESS because each are a scheme under which ESS interests in Company A are provided to the employees of Company A and Company B in relation to their employment. Subsection 130-90(1) will apply to the rights granted under the RP, options granted under the OP (including the vested options granted under the MDO) and awards granted under the EIP and all conditions in subsection 130-90(1) are satisfied because of the following: • Paragraph 130-90(1)(a) is satisfied as the Participants are taken to be absolutely entitled to Shares held by the Trustee from the time they were granted the rights, options or awards under the Plans • Paragraph 130-90(1)(b) is satisfied as CGT event E5 happens in relation to a share being a share in the capital of Company A held by the Trustee to which a Participant is absolutely entitled upon vesting (or exercise as appropriate) of the right, option or award granted under the Plans • Paragraph 130-90(1)(c) is satisfied as Participants will have acquired a beneficial interest in a Share on vesting (and exercising if appropriate) of the rights, options and awards under the Plans • Paragraph 130-90(1)(d) is satisfied because as already discussed above, the Plans are each an ESS and Subdivision 83A-B or 83A-C will apply as Participants acquire those rights, options and awards under the Plans at a discount. Subsection 130-90(1A) will apply to Shares granted under the TESP, because of the following: • Shares in Company A are an ESS interest and are provided to Participants in accordance with the TESP which is an ESS as discussed above, and the Shares are CGT assets of the Trust immediately before CGT event E5 happens • The relevant CGT event is E5 • Subdivision 83A-B or Subdivision 83A-C applies to the ESS interest (as discussed above) It is noted that the option granted under the OP may require payment to be exercised, and vest. Similarly, awards granted under the EIP may require payment to be exercised and vest. Provided that the Participants pay no more than what the Trustee pays to acquire the Shares, to exercise the options (including the vested options granted under the MDO) and awards, then subsection 130-90(2) will not prevent the capital gain being disregarded. As all the conditions in section 130-90 are met, any capital gain or capital loss that arises for the Trust at the time when CGT event E5 happens will be disregarded if the Shares are acquired by the Participants for the same or less than the cost base of the Shares in the hands of the Trust. | Detailed Reasoning - Question 3: Under section 104-85, CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital. The timing of the event is when the disposal occurs. If CGT event E7 happens, the trustee may make a capital gain if the market value of the asset, at the time of the disposal, is more than its cost base. The trustee makes a capital loss if that market value is less than the asset's reduced cost base. However, in relation to the scheme as set out in the 'Relevant facts and circumstances' section above, CGT event E7 does not occur. This is because the scheme does not include any facts that gives rise to CGT event E7 happening.

Subject: Employee share scheme: Company A is the head company of the Company A income tax consolidated group (TCG). Further references to actions and transactions undertaken by Company A in these questions include actions and transactions undertaken by subsidiary members of the TCG. | Will Capital Gains Tax (CGT) event E5 in section 104-75 of the ITAA 1997 happen at the time when the employees who are Australian resident (Participants) of Company A and Company B (a member of the TCG) become absolutely entitled to Shares held by the Trustee of the Trust? | Question 2(b): If CGT event E5 does happen, will a capital gain or capital loss made by the Trustee as a result of CGT event E5 happening be disregarded under section 130-90 of the ITAA 1997 if the Participants acquire the Shares for the same or less than the cost base of the Shares in the hands of the Trustee?