Private ruling: Employee share scheme
Date of advice: 18 August 2023
Published: 3 October 2023

Ruling: Q1: Is Company A (the Company) as head company of the income tax consolidated group (TCG) entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 ( ITAA 1997) for the irrevocable cash contributions made by the Company to the trustee of the Company A Employee Share Plan Trust (theTrustee) to fund the subscription for, or the acquisition of fully paid ordinary shares (Shares) in the Company in respect of employees and directors of the Company or wholly-owned foreign subsidiaries of the Company (Group Companies)? | A1: Yes. | Q2: Will the Commissioner of Taxation make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, a deduction claimed by the Company for the irretrievable cash contributions it makes to the Trustee to fund the subscription for, or acquisition of, Shares by the Trustee? | A2: No. | Q3: Will the irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for, or acquisition of, Shares result in a fringe benefit being provided by Company A to employees of the Company, or Group Companies (Participants) within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A3: No. | Q4: Will the provision of Shares by the Trustee to Participants constitute a fringe benefit being provided by Company A within the meaning of subsection 136(1) of the FBTAA? | A4: No. This private ruling applies for the following periods: Questions 1 and 2 Income tax year ending 30 June 2022 Income tax year ending 30 June 2023 Income tax year ending 30 June 2024 Income tax year ending 30 June 2025 Income tax year ending 30 June 2026 Questions 3 and 4 FBT years ending 31 March 2022 FBT years ending 31 March 2023 FBT years ending 31 March 2024 FBT years ending 31 March 2025 FBT years ending 31 March 2026

Relevant facts and circumstances: This private ruling is based on the facts stated in the description of the scheme that is set out below, including the following documents, or relevant parts of them, which are to be read with the description: Company A Company A (theCompany) is an Australian public company whose shares are listed for trading on the Australian Securities Exchange (ASX). It has one class of shares on issue, namely ordinary shares. The Company is the head company of the income tax consolidated group (TCG) and it also has a number of wholly-owned foreign subsidiaries (collectively referred to herein as Group Companies). Any reference to the Group or Company A Group includes Company A, members of the TCG and any wholly-owned incorporated bodies who are a corporation as defined in the Corporations Act 2001. The Company develops and sells products worldwide. Neither the Company, nor any Group Company is involved predominantly in the business of acquiring, selling or holding share securities of other investments. Company A Long Term Incentive Plan (the Plan) The Plan forms a part of the Company's global remuneration framework. The Plan is designed to attract, retain, motivate and reward high performance individuals with the key skills required by the Company and its related bodies corporate to undertake their daily activities and to align the interests of these persons with the interests of the Company and its shareholders. The Company A Long Term Incentive Plan Rules (Rules) are used to stipulate the terms under which the various Awards are made to the Participants. The Board may determine that an employee is eligible to participate in the Plan. The Board will then issue an invitation to the employee to participate in the Plan. The employee can then choose whether to accept the invitation. Under the Plan a person can be provided with any one (or any number) of the following: • Options; • Performance Rights; or • Shares. The meaning of these terms are set out in Rule XX of the Plan. The terms are defined as follows: Option means an option granted under this Plan to subscribe for, acquire and/or be allocated (as determined by the Board in its sole and absolute discretion) one Plan Share subject to the satisfaction of any Vesting Conditions and/or Performance Hurdles, and payment of the relevant Exercise Price (if any). Performance Rights means an entitlement of a Participant granted under this Plan to subscribe for, acquire and/or be allocated (as determined by the Board in its sole and absolute discretion) one Plan Share subject to the satisfaction of any Vesting Conditions and/or Performance Hurdles. For the avoidance of doubt, a Performance Right has a nil Exercise Price. Share means a fully paid ordinary share in the capital of the Company. Collectively (and individually) these are referred to as Awards granted under the Plan and operate in relation to ordinary shares (Shares) in the Company. The Company A Employee Share Plan Trust (Trust) will be used to provide Shares to satisfy the Award. Awards under the Plan are made to Eligible Employees. Eligible Employee is defined in Rule XX as: Any Director or Employee who is declared by the Board in its sole and absolute discretion to be eligible to receive grants of Awards under the Plan; or Any other natural person providing services to the Group and who is declared by the Board in its sole and absolute discretion to be eligible to receive grants of Awards under the Plan. The Company administers the Plan on behalf of its subsidiaries. It provides administrative services to Group Companies and monitors contributions made by Group Companies on behalf of their employees. The Company undertakes these activities for other Group Companies to assist in the efficient running of its global enterprise. In relation to foreign employees who receive an Award, the Company has a transfer pricing policy under which the Company charges the Group Company a fee for the provision of services relating to the Plan. The Company administers the Plan through the Trust. The Trust issues the Shares to the Eligible Employees including foreign employees of Group Companies. The Company invoices the Group Company for the amount of the contribution made to the Trust in relation to the eligible foreign employee's award plus a mark-up. The mark-up represents an amount to compensate the Company for managing the Plan. The Company then receives the funds from the Group Company. The funds are transferred; there is no set-off of obligations between the Company and the Group Company. Where the Awards are issued subject to performance hurdles, the Participant cannot exercise the Award until the conditions are met (Rule XX). Performance Hurdles are defined in Rule XX as 'any ongoing minimum performance requirements (as specified in the Invitation Letter and determined by the Board in its sole and absolute discretion) that are to apply to Awards granted to a Participant. Where a Participant receives an Option, the Board retains a discretion to determine an exercise price (if any) (Rule XX). The Expiry Date in respect of Options and Performance Rights is detailed in the Invitation made to a Participant. Rule xx sets out the circumstances in which Options or Performance Rights may lapse. The Company advises that in its view any Shares, Options or Performance Rights issued under the Plan could be taxed as ESS interests under either Subdivision 83A-B or 83A-C of the ITAA 1997. The Company envisages that it will have implementation and ongoing administration costs with respect to the Plan. The Trust Company A established the Trust with XX Custodians as the initial trustee (Trustee). The Trust was not in existence at the time the Plan was established, however, Rule X of the Plan allows for the creation of a Trust to assist in the administration of the Plan. The earlier employee share plans established by the Company did not have provision for a Trust to administer the Plans in the respective Plan Rules. For this reason, any interests issued under the earlier Plans will not be satisfied via the Trust. The Trust has been established for the sole purpose of obtaining Shares for the benefit of Participants under the Plan, and for any future equity incentive plans that the Company may adopt (Company A Employee Share Plan Trust Deed (Trust Deed) Recital X). The Trust may acquire Shares in advance of allocating those Shares to Participants and these may be held by the Trust on an unallocated basis or as Plan Shares on behalf of a Participant at any particular time (Trust Deed Recital X). Once the Trust is funded, the Company will arrange for the Trustee of the Trust to subscribe for newly issued Shares or to purchase Shares from existing shareholders so that the Shares can be provided to Participants on grant of Shares or on exercise of the Options or Rights in accordance with the Plan (Clause XX of the Trust Deed). The Trust Deed The Trustee is to deal with any Shares held in the Trust as set out in the Trust Deed and the Rules. The Trustee has been granted powers in respect of the Trust to the maximum extent permitted by law, including but not limited to the powers set out in Clause XX of the Trust Deed. Clause XX of the Trust Deed then clarifies these powers. It provides: Without limiting clause XX, 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 Tax Act. The Company is required to make cash contributions to the Trust for the price of the Shares (Clauses X, X, X of theTrust Deed). The contributions by the Company or any Group Company to the corpus of the Trust shall be an irrevocable contribution to the Trust and will not be repaid to the Company (Clause X of the Trust Deed). Neither the Company nor any member of the Group (including the Trustee) are entitled to obtain any beneficial interest in the Trust Assets (Clause X and X of theTrust Deed). Upon exercise of Options or Performance Rights by Participants, Shares are issued to the Trustee. The Shares may continue to be held by the Trustee post exercise on behalf of the Participant or they may be delivered by the Trustee to the Participant upon their request and approval by the Company (Clause X, Clause X and Clause X of the Trust Deed).


Reasons for decision: Detailed Reasoning - Questions 1 and 2 - application of the single entity rule in section 701-1 of the ITAA 1997: The consolidation provisions of the ITAA 1997 allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1 of the ITAA 1997, the subsidiary members of a consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period that they are members of the consolidated group with the head company of the group being the only entity recognised for income tax purposes. As a consequence of the SER, the actions and transactions of the subsidiary members of the consolidated group are treated, for income tax purposes, as having been undertaken by the Company as the head company of the consolidated group. | Detailed Reasoning - Questions 3 and 4: The SER in section 701-1 of the ITAA 1997 has no application to the FBTAA . The Commissioner has therefore provided a ruling to Company A in its capacity as the employer providing benefits to employees in relation to questions 3 and 4. | Detailed Reasoning - Note: This ruling does not apply to the Group Companies. | Summary: The Company is entitled to a deduction under section 8-1 of the ITAA 1997 for the irrevocable cash contributions made by the Company to the Trustee to fund the subscription for, or the acquisition of Shares in the Company in respect of employees of the Company or Group Companies. | Detailed Reasoning - Detailed reasoning: A deduction is allowable under subsection 8-1(1) of the ITAA 1997 for 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, paragraph 8-1(2)(a) of the ITAA 1997 provides that you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. The two positive limbs in subsection 8-1(1) apply Was the loss or outgoing incurred? To qualify for a deduction under section 8-1, a contribution to the trustee of the Trust must be incurred. Generally, a taxpayer incurs an outgoing at the time they owe a present money debt that they cannot escape. Contributions to the Trustee by the Company are made by way of transfer of funds. The funds will be applied for the subscription of shares in Company A and are irrecoverable. Therefore, the outgoings in question (being the contributions) have been incurred by the Company for the purposes of both paragraph 8-1(1)(a) and (b) of the ITAA 1997. | Detailed Reasoning - Was the outgoing incurred in gaining or producing assessable income under paragraph 8-1(1)(a)?: Incurred in gaining or producing assessable income - occasion of the expense In considering whether the irrevocable cash contributions made by the Company to the Trustee were incurred in gaining or producing the company's assessable income, the High Court in Commissioner of Taxation v Payne said the question that requires consideration is: '... is the occasion of the outgoing found in whatever is productive of actual or expected income?' [1] In Healy v FC of T , the AAT suggested that the following may assist in determining whether a loss or outgoing was incurred 'in the course of' gaining or producing actual or expected income: [2] 'What is required is an objective: (i) identification of the "occasion" for the loss or outgoing; (ii) identification of the "activity" that is "productive" of the assessable income in question; and (iii) a determination whether the loss or outgoing can be properly regarded as having been incurred in the course of that activity: see Federal Commissioner of Taxation v Anstis [2010] HCA 40; (2010) 241 CLR 443 and Federal Commissioner of Taxation v Visy Industries USA Pty Ltd [2012] FCAFC 106; (2012) 205 FCR 317. What makes the outgoing deductible under s 8-1 of the ITAA 1997 is the existence of a sufficient connection, a "link" or "nexus", between the loss or outgoing and the production of assessable income. A taxpayer's subjective purpose in incurring a loss or outgoing is not normally relevant to whether a sufficient connection exists.' In Watson as Trustee for the Murrindini Bushfire Class Action Settlement Fund v Commissioner of Taxation , the Full Federal Court held: [3] 'While the connection with activities which more directly gained or produced the assessable income need not be direct (Day at [21]), the occasion of the outgoing must be found in what is productive of the assessable income; there must be a sufficient nexus between the outgoing and "the activities which more directly gain or produce the assessable income":' In Clough Limited v Commissioner of Taxation ( Clough ) , the Full Federal Court observed: '[t]he " occasion of the loss or outgoing " ... is to be found after an examination of all relevant circumstances giving rise to the outgoing. ..... it is relevant to ask what the outgoing is calculated to effect from a practical or business point of view....' [4] The occasion is not limited to the immediate causes for the payment, although contemporaneous events will be directly relevant and significant, and may in some circumstances, be decisive. While questions of causation (would a payment have been made were it not for the existence of a particular circumstance?) and purpose are relevant, it is necessary to identify and understand the characterisation question having regard to all relevant circumstances. [5] After determining this, whether the outgoing is 'incidental and relevant' to the activity or occasion must be considered. [6] | Detailed Reasoning - Australian employees: The nexus between the Company's assessable income and the contribution to the trust is established in this case as the contribution relates to the remuneration of its employees in Australia. Therefore, the occasion of the outgoing of the expenses incurred (being the contributions) is productive of the Company's assessable income. | Detailed Reasoning - Foreign employees: It is also satisfied in relation to contributions paid to the Company to the Trustee in relation to the foreign employees of the Group Companies. The Company administers the Plan on behalf of the Group Companies and it invoices the relevant Group Company for the full amount of the contribution plus a mark-up. The invoiced amount (including the mark-up) forms part of the Company's assessable income. Therefore, the nexus is established between the Company's assessable income and the contributions made by the Company to the Trustee on behalf of the Group Companies. This is because the occasion of the outgoing, being the ongoing administration of the Plan for the employees of the Group Companies, is productive of assessable income, being the invoiced amount to the Group Companies. | Detailed Reasoning - Was the outgoing necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income under paragraph 8-1(1)(b)?: Under paragraph 8-1(1)(b) of the ITAA 1997, there is a need to establish that the expense was necessarily incurred in carrying on a business, and that the carrying on of the business was for the purposes of gaining or producing assessable income. The expense does not need to be unavoidable or essentially necessary. What is required is that the expenditure be appropriate and adapted for the ends of the business carried on. [7] That is, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business. [8] If the expense meets this definition, it will not be denied deductibility if it was not strictly necessary. [9] To understand whether the expense is appropriate and adapted involves an examination of the business operations carried on over time and the whole course of events relevant to the particular expenditure.. [10] The Commissioner considered what was meant by paragraph 8-1(1)(b) in Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 at paragraph 73: 73. In contrast, for expenditure to be deducted under the second positive limb of section 8-1, it must be incurred in carrying on a business. To satisfy this requirement, the outgoing must have the character of a working or operating expense of the entity's business or be an essential part of the cost of its business operations. In John Fairfax & Sons Pty Ltd v. FC of T (1958 9) 101 CLR 30 Menzies J stated at page 49: ...there must, if an outgoing is going to fall within its terms, be found (i) that it was necessarily incurred in carrying on a business; and (ii) that the carrying on of the business was for the purpose of gaining assessable income. The element that I think is necessary to emphasise here is that the outlay must have been incurred in the carrying on of a business, that is, it must be part of the cost of trading operations. The Commissioner considered the treatment of payments to a third party in a remuneration context in Taxation Ruling TR 2018/7 Income Tax: Employee Remuneration Trusts , which states: 9. A contribution an employer makes to an ERT [employee remuneration trust] is deductible to the employer under section 8-1 of the ITAA 199712 where all of the following apply: • it is an irrevocable 13 payment of cash 14 , made at a time when the employer carries on a business for the purpose of gaining or producing assessable income • it is made because the employer reasonably expects their business to benefit 15 from the contribution via an improvement in employee performance, morale, efficiency or loyalty, and • it is intended to be permanently and entirely dissipated in remunerating employees of that business 16 within a relatively short period 17 of the contribution being made (other than employees who are engaged in affairs of capital of the business18). 10. The following considerations are relevant to establishing a sufficient connection between a contribution and the benefit to the employer's business such that the expenditure may be deductible: • the nature and timing of the benefits to be derived by the employer and the employees 19 • employee awareness of the scheme 20 , and • whether the scheme and the contribution addresses (or has the capacity to address) the business-related need, function or complaint. 21 | Detailed Reasoning - Australian employees: The contributions be the Company to the Trustee on behalf of the Company's Australian employees are considered to be necessarily incurred in carrying on the Company's business as they are part of the remuneration costs for those employees and therefore part of the cost of its trading operations. They are irrevocable contributions of cash applied for the subscription and acquisition of the Shares for those employees. | Detailed Reasoning - Foreign employees: There is a question as to whether the contributions by the Company to the Trustee on behalf of the employees of the Group Companies are also considered to be necessarily incurred in carrying on the Company's business. The Company is responsible for administering the Plan for the entire Group and it invoices the Group Companies for the contribution as well as a mark-up. The invoiced amount (including the mark-up) is included in the Company's assessable income. However, these contributions are part of the remuneration costs of the foreign employees of the Group Companies. The respective businesses carried on by the Group Companies do not form part of the trading operations of the Company. Arguably, the administration of the Plan for the benefit of the foreign employees of the Group Companies also do not form part of the trading operations of the Company. In any event, it has been determined that these contributions satisfy paragraph 8-1(1)(a). | Detailed Reasoning - Capital or of a capital nature: the negative limb under paragraph 8-1(2)(a): Because subsection 8-1(1) is satisfied, it is necessary to consider the relevant negative limbs in subsection 8-1(2). [11] In particular, paragraph 8-1(2)(a) provides that you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Whether expenditure is capital or of a capital nature depends on the characterisation of the expense. [12] Three matters should be considered: (a) the character of the advantage sought, and in this its lasting qualities may play a part; (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part; (c) the means adopted to obtain it - that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment. [13] Whether the expense is capital depends upon what the expenditure was calculated to effect from a practical and business point of view, rather than on a juristic classification of legal rights. [14] Examination of the legal rights remains relevant and important as it is a part of the circumstances relevant to the characterisation of the expense. [15] In FC of T v Sharpcan Pty Ltd [16] the High Court cited Sun Newspapers [17] as support for the proposition that in identifying the advantage sought, it is ordinarily necessary to consider: '...the manner in which it is to be used, and whether the means of acquisition is a once-and-for-all outgoing for the acquisition of something of enduring advantage or a periodical outlay to cover the use and enjoyment of something for periods commensurate with those payments.' These principles have been summarised in Origin Energy Ltd v Federal Commissioner of Taxation by Thawley J: [18] '85. In AusNet, the majority emphasised the importance of the "advantage sought by the taxpayer by making the payments"...Fullagar J [19] identified the questions commonly arising as (emphasis in original): What is the money really paid for?: - and (2) is what it is really paid for, in truth and in substance, a capital asset? 86. The answer to the question what the money is "for" is not necessarily answered solely by reference to a "juristic classification of legal rights": Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 at 648. The answer "depends on what the outgoing is calculated to effect from a practical and business point of view": Sharpcan at [18]; Hallstroms at 648. The primary question is the character of the advantage sought by the taxpayer in incurring the expenditure:...' The question of characterisation must be approached from the perspective of the entity incurring the expense. A remuneration expense need not be an amount paid directly to employees in the form of salary or wages. It may be, in certain circumstances, an amount paid to a third party, and still retain its character as a remuneration expense. In Foxwood (Tolga) , the High Court observed that [20] the fact that the payment in respect of holiday pay was not made directly to the persons entitled to receive it does not necessarily mean that the payment assumes a different character In the recent decision of Clough Limited v Federal Commissioner of Taxation (No 2) , payments were made directly to employees to end their rights that had not vested under an Employee Share Scheme. These payments were made because the rights of the employees were perceived to be an impediment to the sale of all the remaining shares in the company to the majority shareholder, and the employees needed to surrender their rights before the share sale could be completed. The Full Federal Court agreed with the primary judge, Colvin J, that the expense was not deductible under section 8-1 because it failed the positive limbs or was capital in nature. The Full Federal Court concluded that the takeover was the proximate causal event requiring that the payments to employees be made. The payments would not have been made but for the takeover. The Court also recognised that the options and rights nevertheless existed prior to the takeover and would have, at some stage, had to be addressed. The Court observed that 'The payments would not have been made but for the fact that Clough had granted options and rights to its employees in the course of its business with a view to attracting and incentivising employees.' [21] The Court concluded that both positive limbs were not satisfied in these circumstances. Further, the court also concluded that the payment made to the employees was on capital account. This is because the payments were made to bring the various options and rights to an end permanently. [22] The Court thought it significant that the amounts were calculated by reference to the share price not by reference to time served by particular employees. Payment of the amounts was conditional on the scheme of arrangement proceeding and the payments were unusual and not in the nature of an ordinary working expense. [23] When all of the circumstances of the case were considered as a whole, it was determined that the payments were on capital account. | Detailed Reasoning - Australian employees: The contributions made by the Company to the Trustee are not considered to be capital or of a capital nature when the circumstances of the case are considered as a whole. The contributions were made as part of the Company's remuneration of its Australian employees. This expenditure is ongoing and incurred in the ordinary course of the Company's business to enable it to earn assessable income. | Detailed Reasoning - Foreign employees: For the contributions made by the Company to the Trustee on behalf of the Group Companies for the foreign employees, it is also considered that these expenses are not capital or of a capital nature. Whilst these contributions form part of the remuneration costs of the foreign employees, they are an ongoing and recurrent expense incurred as part of the administration of the Plan. They are not intended to secure any lasting advantage. Rather, the character of the advantage sought in making these contributions is the derivation of assessable income in the form of the invoiced amounts to the Group Companies. | Detailed Reasoning - Conclusion - application of section 8-1 of the ITAA 1997: The irrevocable cash contributions by the Company to the Trustee are deductible under section 8-1 of the ITAA 1997. | Summary: The Commissioner of Taxation will not make a determination that Part IVA of the Income Tax 1936 (ITAA 1936) applies to deny, in part or in full, a deduction claimed by the Company for the irrevocable cash contributions it makes to the Trustee to fund the subscription for, or acquisition of, Shares by the Trustee. | Detailed Reasoning - Detailed reasoning: Part IVA of the ITAA 1936 is a general anti-avoidance provision that 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. Section 177D of the ITAA 1936 states that Part IVA applies to a scheme in connection with which the taxpayer has obtained a tax benefit if after having regard to eight specific factors, it would be concluded 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 purposes must be the dominant purpose where there are two or more purposes. The dominant purpose is the ruling, prevailing or most influential purpose. The conclusion to be arrived at under section 177D is the conclusion of a reasonable person. In this case, and based on the information provided, the Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny the deduction for the irrevocable cash contributions made by the Company to the Trustee. The Commissioner does not consider that there is a scheme, the dominant purpose of which enabled the Company to obtain the tax benefit. When viewed objectively, the contributions made by the Company to the Trustee in relation to both employees of the Company and the Group Companies are not made for the dominant purpose of obtaining a deduction for those contributions. | Summary: The irrevocable cash contributions made by the Company to the Trustee, to fund the subscription for, or acquisition of, Shares will not result in a fringe benefit being provided by the Company to Participants within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee by an employer, an associate of an employer or a third party under an arrangement, and the benefit is provided 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the definition of a fringe benefit. Paragraph 136(1)(ha) of the FBTAA 1986 excludes from the definition of 'fringe benefit': (ha) a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997); The Commissioner therefore needs to determine whether the contributions (being the acquisition of money) have been made to an employee share trust. 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) provides that an employee share trust, for an employee share scheme (which has 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: (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). 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) in relation to the employees' employment. An ESS interest in a company is defined in subsection 83A-10(1) as a beneficial interest in: (a) a share in the company or (b) a right to acquire a beneficial interest in a share in the company. The Plan is an employee share scheme within the meaning of subsection 83A-10(2) as it is a scheme under which beneficial interests or the right to acquire a beneficial interest in a share in the company are provided to employees in relation to their employment. The Trust was established for the sole purpose of obtaining shares for the benefit of participants in the Plan. Further, the Trust Deed provides that the Company and 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. The powers outlined in Clause XX of the Trust Deed, when read in the context of the Deed as a whole, do not extent the powers beyond what is permissible under subsection 130-85(4) of the ITAA 1997. As all of the requirements in subsection 130-85(4) of the ITAA 1997 are satisfied, the Trust is therefore considered to be an employee share trust. This means that the irrevocable contributions made by the Company to the Trustee are excluded from the definition of 'fringe benefit' in subsection 136(1) as the exclusion in paragraph (ha) of the FBTAA is satisfied. | Summary: The provision of Shares by the Trustee to Participants will not constitute a fringe benefit being provided by the Company within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: Another benefit excluded from being a 'fringe benefit', under paragraph (h) of subsection 136(1) of the FBTAA is: (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; As outlined above, the Commissioner considers that in these circumstances the Awards acquired by the employees under the Plan are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests as they are provided at a discount. Accordingly, the provision of ESS interests under the Plan will not be subject to FBT as they are excluded from being a fringe benefit under paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA. [1] (2001) 202 CLR 93 at 99; Federal Commissioner of Taxation v Day (2008) 236 CLR 163 at 179 [31] per Gummow, Hayne, Heydon and Keifel JJ. [2] [2013] AATA 281 at [92] to [95]. [3] [2020] FCAFC 92 at [33]. [4] [2021] FCAFC 197 at [50]. [5] Per Thawley J in Clough at [51]. [6] Watson as Trustee for the Murrindini Bushfire Class Action Settlement Fund v Commissioner of Taxation [2020] FCAFC 92 at [34]. [7] Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47 at 55 to 56. [8] Magna Alloys & Research Pty Ltd v Federal Commissioner of Taxation (1980) 11 ATR 276 at 295-296; 33 ALR 213 at 235 per Deane and Fisher JJ. [9] Clough at [62]. [10] Clough at [59] applying Federal Commissioner of Taxation v Day [2008] HCA 53; (2008) 236 CLR 163 at [33]. [11] Steele v. Deputy Commissioner of Taxation [1999] HCA 7 at [24]. [12] Clough at [65]. [13] Sun Newspapers Limited v Federal Commissioner of Taxation (1938) 61 CLR 337 at 363. [14] Hallstroms Pty Ltd v Commissioner of Taxation (1946) 72 CLR 634 at 648 per Dixon J. [15] Clough at [68]. [16] [2019] HCA 36 [at 18]; (2019) 269 CLR 370. See also Origin Energy Ltd v Federal Commissioner of Taxation [2020] FCA 409 at [84] per Thawley J. [17] Sun Newspapers Limited v Federal Commissioner of Taxation (1938) 61 CLR 337. [18] [2020] FCA 409 at [85] and [86]; Commissioner of Taxation v Healius Ltd [2020] FCAFC 173 at [58]. [19] Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1953) 89 CLR 428 at 454. [20] per Gibbs CJ at 4264. [21] Clough at [74]. [22] Clough at [87]. [23] Clough at [91].

Reasons for Decision: These reasons for decision accompany the Notice of private ruling for Company A. | This is to explain how we reached our decision. This is not part of the private ruling.