Private ruling: Employee share scheme
Date of advice: 19 February 2021
Published: April 2021

Ruling: Q1: Will Company A as head company of a tax consolidated group ('Company A Group' or 'Group') obtain an income tax deduction, pursuant to section 8 - 1 of the Income Tax Assessment Act 1997 ('ITAA 1997') in respect of the irretrievable cash contributions made by Company A or any subsidiary member of the Company A Group to the trustee ('Trustee') of Trust B ('Share Trust' or the 'Trust') to fund the subscription for or acquisition on - market of Company A shares in respect of employees based in Australia? | A1: Yes | Q2: Will COMPANY A as head company of the Company A Group obtain an income tax deduction, pursuant to section 8 - 1 of the ITAA 1997, in respect of costs incurred by Company A or any subsidiary member of the Company A Group in relation to the on - going administration of the Trust including expenses relating to preparation of tax returns and obtaining tax advice for the Trust? | A2: Yes | Q3: Will irretrievable cash contributions made by Company A or any subsidiary member of the Company A Group to the Trustee, to fund the subscription for or acquisition on - market of Company A shares by the Trust, be deductible to Company A under section 8 - 1 of the ITAA 1997 at a time determined by section 83A - 210 of the ITAA 1997 where the contributions are made before the acquisition of the relevant ESS interests? | A3: Yes | Q4: If the Trust satisfies its obligation under the Performance Rights Plans ('PRPs'), Former Performance Rights Plans ('FPRPs') or the Employee Salary Sacrifice Share Plan ('ESSSP') by subscribing for new shares in Company A, will the subscription proceeds be included in the assessable income of Company A under section 6 - 5 or section 20 - 20 of the ITAA 1997 or trigger a capital gains tax ('CGT') event under Division 104 of the ITAA 1997? | A4: No | Q5: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 ('ITAA 1936') applies to deny, in part or full, any deduction claimed by Company A as head company of the Company A Group in respect of the irretrievable cash contributions made by Company A or any subsidiary member of the Company A Group to the Trustee to fund the subscription for or acquisition on - market of Company A shares by the Trust? | A5: No This ruling (for questions 1-5 inclusive) applies for the following periods: Income Tax year ended 30 June 20xx Income Tax year ended 30 June 20xx Income Tax year ended 30 June 20xx Income Tax year ended 30 June 20xx Income Tax year ended 30 June 20xx | Q6: Will the provision of Performance Rights or Salary Sacrificed Shares by Company A or Company A Employer Entities to employees of Company A under the PRPs, FPRPs or the ESSSP be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA 1986')? | A6: No | Q7: Will the irretrievable cash contributions made by Company A or any subsidiary of Company A to the Trustee, to fund the subscription for or acquisition on - market of Company A shares, be treated as a fringe benefit within the meaning of section 136(1) of the FBTAA 1986? | A7: No | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount to Company A or any subsidiary of Company A, by the amount of tax benefit gained from irretrievable cash contributions made by Company A or any subsidiary of Company A to the Trustee, to fund the subscription for or acquisition on - market of Company A shares? | A8: No This ruling (for questions 6-8 inclusive) applies for the following periods: Fringe Benefits Tax year ended 31 March 20xx Fringe Benefits Tax year ended 31 March 20xx Fringe Benefits Tax year ended 31 March 20xx Fringe Benefits Tax year ended 31 March 20xx Fringe Benefits Tax year ended 31 March 20xx

Relevant facts and circumstances: Background Company A is an Australian listed company. Company A forms the head company of an income tax consolidated group ('TCG'). (Company A and its subsidiaries forming the TCG are the 'Company A Group' or the 'Group'). As part of its overall remuneration strategy, in addition to fixed remuneration, Company A offers certain employees and directors payments of both cash and shares upon satisfaction of certain performance conditions. This is implemented through the Performance Rights Plans (the 'PRPs'). Company A also allows eligible employees to participate in a salary sacrifice arrangement to obtain shares in Company A through the Employee Salary Sacrifice Share Plan (the 'ESSSP'). Incentive Plans Trustee B is the trustee of the Trust C Employee Share Trust (the 'Share Trust' or 'Trust') which will be used to acquire shares to satisfy awards of Performance Rights ('Performance Rights' or 'Rights') and Salary Sacrificed Shares issued under the various share plans noted below. Company A (and a number of its subsidiaries) are the employers of individuals that participate in the following PRPs: • the Company A Incentive Plan A (the 'Plan A'); • the Company A Incentive Plan B (the 'Plan B'); and • the Company A Incentive Plan C (the 'Plan C'). The Performance Rights issued under the PRPs are governed by the Performance Rights Plan Rules (the 'PRPR'). In addition to the above, a number of Performance Rights were previously issued. These are collectively referred to as the 'Former Performance Rights Plans' or 'FPRPs'. The Performance Rights issued under the FPRPs are governed by the PRPR. Company A (and a number of its subsidiaries) are also the employers of individuals that participate in the ESSSP. The Rights issued under the ESSSP are governed by the Employee Salary Sacrifice Share Plan Rules (the 'ESSSP Rules'). The key provisions of the PRPR are outlined below. 1. The Company A Performance Rights Plans under the PRPR The PRPR provides the terms and conditions under which the PRPs and FPRPs are governed. Broadly, the PRPR operate as follows: • Eligible participants are issued invitations by the Board, to apply for a grant of Performance Rights which vest according to performance criteria. The invitation will outline the number of Performance Rights offered and the performance conditions. • Once the eligible participant has received the invitation, they may accept the invitation in accordance with the instructions accompanying the invitation, unless the Board determines otherwise. The Board may also treat the conduct of an eligible employee in respect of an invitation as valid acceptance of that invitation. • The Performance Rights will be issued to Participants for nil consideration. • The satisfaction of the performance conditions shall determine the proportion of performance rights which vest to the participant. Satisfaction of the performance conditions will be determined by the Board at the end of the performance period. • The Performance Rights will vest at the end of the performance period, subject to the satisfaction of the performance conditions. If there is a Change of Control Event, or upon retirement, retrenchment or death of the participant, the Board has discretion as to how to deal with the Participant's Performance Rights, regardless of whether vesting and performance conditions have been met. • Performance Rights can lapse in a number of ways: - expiry of the right in accordance with its terms - the receipt of a notice from the Participant to the effect that they have elected to surrender the Performance Right - if the Board determines that the Participant has acted fraudulently, dishonestly or wilfully breached the Participant's duties - vesting conditions are not satisfied or waived within vesting period, or - according to another provision of the PRPR or in accordance with the terms of an invitation. • All shares issued on the exercise of a Performance Right will rank equally with other shares then on issue. • Once the Performance Rights vest and are exercised or following the exercise of a Vested Right, the participant will be entitled to shares in the company (one ordinary share for every right). The shares will be held in the Trust on behalf of the Participant subject to conditions as specified in the PRPR. At the time these conditions are satisfied, the Participant will become eligible to withdraw the shares from the Trust. • Participants are subject to transfer restrictions under the PRPR. A Participant may not deal with a Company A share acquired under the PRPR until the end of any period specified by the Board in the invitation or the end of any other period determined by the Board in accordance with applicable law. • Company A operates a "clawback policy" under the PRPR. Clawback will be initiated where in the opinion of the Board, a Participant: - has acted fraudulently or dishonestly - has engaged in gross misconduct; - has done an act which has brought Company A, or any member of the Company A Group into disrepute - has breached his or her duties or obligations to Company A or a member of the Company A Group, or - is convicted of an offence or has a judgment entered against them in connection with the affairs of the Company A Group. • Clawback will also be initiated where in the opinion of the Board, there is a financial misstatement event. • In the event of clawback, the Board may determine that any Performance Rights held by the Participant will lapse or be deemed to be forfeited. • Company A may provide funds to the Trustee to allow the Trustee to subscribe for and/or acquire Company A shares to be held on behalf of the Participants under the PRP. • Subdivision 83A-C applies to the PRP. 2. Company A Employee Salary Sacrifice Share Plan ('the ESSSP') The ESSSP aims to enable employees to build a vested interest in Company A's longer term performance by providing an opportunity to acquire shares in the company. The key objectives of the ESSSP are to: • align the interests of employees and shareholders; • provide competitive remuneration for the retention of key employees; • support a culture of share ownership by employees; • provide Company A with the ability to attract employees of a high calibre; and • assist with remuneration planning for employees. Under the plan, employees are able to nominate between $1,000 and $5,000 per annum of their pre-tax salary to be salary sacrificed to acquire shares ('Salary Sacrifice Share') in Company A. As part of the acceptance process, a Participant must elect for a tax deferral and non-disposal period ("Holding Condition") of between 3 and 15 years to apply to any shares issued, transferred or allocated to them, or their nominated personal representative. If no Holding Condition is nominated, it will automatically default to 3 years. Within 7 workings days of a Participant's monthly salary deduction, shares in Company A will be acquired on the Participant's behalf by the Trustee. Eligible participants in the ESSSP are all permanent full-time and part-time employees of the Employer Entities, as well as fixed term employees whose term of employment is greater than 12 months, who were employed at the commencement of the invitation period. The ESSSP is governed by the ESSSP Rules. These are broadly as follows: • Eligible Participants are issued invitations by the Board to participate in the ESSSP as specified in the invitation. The invitation allows the employee to acquire shares in Company A on the terms and conditions imposed by the Board. • Once an Eligible Participant has received an invitation, they may accept in accordance with the instructions accompanying the Invitation, unless otherwise determined by the Board. • Where an Invitation is made, the number of shares to be issued, transferred or allocated to the Trustee to be held on behalf of a Participant will be the dollar amount of the salary sacrifice divided by the issue price per share outlined in the Invitation. Such an invitation will be conditional on Company A and the Participant entering into an agreement setting out the terms and conditions of the salary sacrifice arrangement. • Each Participant must elect to make their salary sacrifice contributions by way of regular deductions from the Participant's remuneration during the relevant year or a lump sum deduction from the Participant's remuneration in the first payroll period during the relevant year. • The Trustee will then hold those Company A shares on behalf of that Participant in accordance with the terms of the Trust Deed. • Subject to the Trustee receiving from Company A and its Employer Entities sufficient funds to subscribe for or acquire the Shares, the Board may, in its absolute discretion instruct the Trustee to either subscribe for new shares or acquire shares on market to be held on a Participant's behalf, or instruct the Trustee to use a combination of both alternatives. • All shares issued will rank equally with other shares of the same class on issue at the time, except for any rights attaching to the shares by reference to a record date prior to the date of their allotment, transfer or allocation. • A separate account or record will be opened and maintained by the Trustee in respect of each Participant containing details of the ESSSP contributions, shares issued, shares transferred and any dividends, bonus shares, interest or other earnings. • The ESSP is a scheme to which Subdivision 83A-C of the ITAA 1997 applies. 3. Share Trust The Trust was set up for the sole purpose of obtaining shares for the benefit of employees of Company A Group. The key operating terms of the Trust are outlined as follows: • The Trust was established for the sole purpose of obtaining Shares for the benefit of Participants under employee equity plans including the PRPs, the FPRPs and the ESSSP that are described in this ruling request. • The Trust will be funded by contributions from Company A and Employer Entities (i.e. for the purchase of shares in accordance with the PRPs, the FPRPs and the ESSSP). All funds received by the Trustee from the Company A Group will constitute Accretions to the corpus of the Trust and will not be repaid to Company A and no Participant will be entitled to receive such funds. • Company A and the Employer Entities are likely to contribute funds to the Trust when the Performance Rights vest to the Participant and are subsequently exercised by the Participant or when Performance Rights vest and are converted into Vested Rights. In accordance with the intended operation of the ESSSP, contributions are likely to be regular deductions from the Participant's remuneration during the relevant year. • These funds will be used by the Trustee of the Trust to acquire the shares in Company A either on-market or via a subscription for new shares in Company A, based on written instructions from Company A. • Shares acquired by the Trustee must be allocated to the relevant employees and held on their behalf as soon as reasonably practicable where required to do so, or permitted, by the relevant Plan Rules. • The structure of the Trust and the PRPs, the FPRPs and the ESSSP are such that shares may be dealt with at any time after the Restrictive Period lapses, in the following manner: - Shares allocated to each Participant will generally be transferred into the name of the Participant (i.e. legal title) upon a Withdrawal Notice being lodged with and approved by the Board; or - The Trustee can sell shares on behalf of the Participant, where permitted to do so by the Participant, resulting in a cashless exercise for them. That is, the Participant receives proceeds on sale of shares by the Trust less the exercise price (if any) and any brokerage costs. • Each Participant is the beneficial owner of the Trust Shares (as part of a Rights Issue) held by the Trustee on their behalf and is absolutely entitled to all other benefits and privileges attached to, or resulting from holding, those trust shares. • Company A does not have any charge, lien or other proprietary right or interest in the Company A shares acquired by the Trustee. • At no time will any member of the Company A Group have any beneficial interest in the Trust Assets. • Company A and the Trustee agree that the Trust will be managed and administered so that it satisfies the 'employee share trust' definition in subsection 130-85(4) of the ITAA 1997. • The Trustee is not permitted to carry out activities which result in the Participants being provided with additional benefits. • The Trustee can recover costs, expenses or other liabilities of the Trust from Company A. • The Trustee may pay any fees, costs and expenses incurred in establishment, maintenance or administration of the Trust. Company A must provide to the Trustee, or cause provision to the Trustee of, all necessary funds required by the Trustee for the Trustee to be able to pay such liability, fees, costs and expenses. • The Trustee must not pay any distribution from the Trust Assets to any member of the Company A Group when the Trust is terminated. • No member of the Company A Group is a beneficiary of the Trust. • The Trustee is an external trustee acting in an independent capacity on behalf of the beneficiaries of the Trust. • Company A incurs on-ongoing administration costs for operating the employee share scheme, such as - 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 Company A shares to Participants); - Management of employee termination; and - Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust.


Reasons for decision: Summary: All legislative references are to provisions of the Income Tax Assessment Act 1997 , unless otherwise indicated. | Detailed Reasoning - Questions 1 to 5 - application of the single entity rule in section 701-1: The consolidation provisions of the Income Tax Assessment Act 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 the subsidiary members of an income tax 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 income tax consolidated group with the head company of the group being the only entity recognised for income tax purposes. The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997. As a consequence of the SER, the actions and transactions of the subsidiary members of the Company A Group are treated, for income tax purposes, as having been undertaken by Company A as the head company of the Group. | Detailed Reasoning - Questions 6 to 8: The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986. The Commissioner has therefore provided a ruling to each Employer Entity which is a subsidiary member of the Company A Group in relation to questions 6 to 8. | Detailed Reasoning - Detailed Reasoning: For present purposes, subsection 8-1(1) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Company A carries on a business which produces assessable income. Company A operates an employee share scheme ('ESS') as part of its remuneration strategy. Under the PRPs, Company A grants Performance Rights to employees and makes irretrievable cash contributions to the Share Trust (in accordance with the PRPR) and the Trust Deed which the Trustee will use to acquire Company A shares (on-market or by subscription) for allocation to Participants to satisfy their Performance Rights. | Detailed Reasoning - Incurred in carrying on a business: Company A must provide the Trustee with all the funds required to enable the Trustee to subscribe for or acquire those Company A shares. The contributions made by Company A are irretrievable and non-refundable to Company A in accordance with the Trust Deed as: • All funds received by the Trustee from the Company A Group will not be repaid to Company A • Company A and members of the Group do not have any entitlement to any money or Company A Shares in the Share Trust • Neither Company A nor any member of the Group is a beneficiary of the Share Trust, and • No member of the Company A Group is a beneficiary of the Trust. Company A has granted (and will in the future grant) Performance Rights under the PRPs, FPRPs and the ESSSP as part of its remuneration and reward program for Participants. The costs incurred by Company A for the acquisition of Company A Shares to satisfy the Performance Rights arise as part of these remuneration arrangements, and contributions to the Share Trust are part of an on-going series of payments in the nature of remuneration of its employees. | Detailed Reasoning - Not capital or of a capital nature: The costs will be an outgoing incurred for periodic funding of a bona fide ESS for employees of a member of the Company A Group. Costs incurred are likely to be in relation to more than one grant of Rights (rather than being one-off), and Company A intends to continue satisfying outstanding Rights using Company A shares acquired by the Share Trust. This indicates that the irretrievable contributions to the Share Trust are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the contributions may secure an enduring or lasting benefit for the employer that is independent of the year to year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature. | Detailed Reasoning - Detailed Reasoning: Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. Company A carries on a business which produces assessable income. Company A operates an ESS to the extent that ESS interests are provided to employees and directors of Company A and the Group as part of its remuneration strategy. Company A incurs on-ongoing administration costs for operating the ESS such as • 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 Company A shares to Participants); • Management of employee termination; and • Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income. Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company (ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible) . | Detailed Reasoning - Detailed reasoning: Section 83A-210 applies to determine the timing of the deduction, in respect of the contribution provided to the trust to purchase shares in excess of the number required to grant the relevant Performance Rights to the employees arising in the year of income from the grant of Rights, under an ESS. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income Tax - Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust. ('ATO ID 2010/103'). The PRPs, FPRPs and ESSSP are ESSs for the purposes of subsection 83A-10(2) as they are schemes under which ESS interests (i.e. a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees (i.e., Participants) in relation to their employment with a member of the Company A Group. The PRPs, FPRPs and ESSSP contain a number of interrelated components which include the provision of irretrievable cash contributions by Company A to the Trustee of the Share Trust. These contributions enable the Trustee to acquire Company A Shares for the purpose of enabling each Participant, indirectly as part of the PRPs, FPRPs and ESSSP, to acquire ESS interests. The deduction for the irretrievable cash contribution can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a Performance Right to a beneficial interest in a Share in Company A, is acquired by a Participant under the PRPs, FPRPs and ESSSP. | Detailed Reasoning - Detailed reasoning: Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In an ESS, where the trustee subscribes to the company for an issue of shares and pays the full subscription price for the shares, the company receives a contribution of share capital from the trustee. The character of the contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Here, Company A is issuing the Trustee with new shares in itself. The character of the newly issued share is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income tax: Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee. Accordingly, the subscription proceeds Company A receives from the Share Trust do not form part of the assessable income of Company A as ordinary income under section 6-5. | Detailed Reasoning - Section 20-20: Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it 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 year or earlier income year. Company A will receive an amount for the subscription of shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Subsection 20-20(3) establishes that an amount received by you as 'recoupment' of a loss or outgoing is an 'assessable recoupment' if you can deduct the loss or outgoing for an earlier income year under a provision listed in section 20-30. Recoupment is defined in subsection 20-25(1) to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of a loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. So far as a deduction under section 8-1 allowed for bad debts or rates or taxes is concerned, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. However, the receipt by Company A made in return for issuing Company A shares to the Trustee would not be a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes to which section 20-30 could apply. Therefore, the subscription proceeds will not be an assessable recoupment under section 20-20. | Detailed Reasoning - Capital Gains Tax: The only CGT events which may have possible application to the receipt of the subscription proceeds are: • CGT event D1 (Creating a contractual or other rights), or • CGT event H2 (Receipt for event relating to a CGT asset). For both CGT events D1 and H2, paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that the events do not happen to a company that issues or allots equity interests. As the ordinary shares of Company A will satisfy the test for an equity interest as defined in subsection 974-75(1) (Item 1 of the Table) and subsection 974-70(1), neither CGT events D1 nor H2 will happen as the subscription amounts for new Company A shares provided by the Trustee involves Company A issuing or allotting equity interests. Therefore, the subscription proceeds will not be assessable as a capital gain to Company A. | Detailed Reasoning - Detailed reasoning: Part IVA of the Income Tax Assessment Act 1936 ('ITAA 1936') is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A are met. In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company A to obtain a tax benefit. | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefits tax ('FBT') arises under section 66 of the Frings Benefits Tax Assessment Act 1986 ('FBTAA 1986'), which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA 1986 as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition. One benefit excluded from being a 'fringe benefit', pursuant to paragraph (h) of subsection 136(1) of the FBTAA 1986, 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; The Commissioner accepts that the PRPs, FPRPs and ESSSP are ESSs to the extent that ESS interests are provided to employees and directors of Company A and the Group, the Performance Rights for the Company A shares provided under the PRPs, FPRPs and ESSSP are ESS interests and that Subdivision 83A-C applies to those ESS interests. Accordingly, the provision of ESS interests to employees and directors of Company A and the Group under the PRPs, FPRPs and ESSSP will not be subject to FBT on the basis that they are acquired by Participants under an ESS (to which Subdivision 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA 1986. In addition, when a Performance Right is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the Performance Right and not in respect of employment (refer 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 ). | Detailed Reasoning - Detailed reasoning: One benefit excluded from being a 'fringe benefit', pursuant to paragraph (ha) of subsection 136(1) of the FBTAA 1986, is 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 . In examining whether the requirements of an employee share trust in subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that is relevant. To qualify as an employee share trust, a trustee's activities must be limited to those described in paragraphs 130-85(4)(a), (b) and (c). Paragraph 130-85(4)(a) and (b) are satisfied because: • The Share Trust acquires shares in a company, namely Company A; and • The Share Trust ensures that ESS interests as defined in subsection 83A-10(1) (being Performance Rights in Company A shares according to the PRPs, FPRPs and ESSSP) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those shares to the employees or directors of the Company and the Group in accordance with the Trust Deed and the PRPs, FPRPs and ESSSP. 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. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. 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'? 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 activities that the Trustee is permitted to undertake under the Trust Deed are indicative of those required to administer an employee share trust and are incidental to the primary purposes stated in paragraphs 130-85(4)(a) and (b). This is consistent with Clause x of the Trust Deed, namely the Trust will be managed and administered so that it satisfies the definition of an employee share trust under subsection 130-85(4). Therefore, the cash contribution made by Company A to fund the subscription for or acquisition on-market of Company A shares by the Share Trust will not be a fringe benefit. | Detailed Reasoning - Detailed reasoning: Section 67 of the FBTAA 1986 is a general anti-avoidance provision in the FBTAA 1986. Subsection 67(1) of the FBTAA 1986 is satisfied where a person, or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer, or the eligible employer and another employer, to obtain a tax benefit. PS LA 2005/24 Application of General Anti-Avoidance Rules ('PS LA 2005/24')explains the application of Part IVA or other general anti-avoidance rules to an arrangement, including the operation of section 67 of the FBTAA 1986 (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. Paragraph 191 of PS LA 2005/24 states: 191. The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. The benefits provided to the Trustee by the way of irretrievable contributions to the Trust and to Participants as Performance Rights under the PRPs, FPRPs and ESSSP are excluded from the definition of a fringe benefit. As these benefits have been excluded from the definition of a fringe benefit, the FBT liability is not any less than it would have been but for the arrangement. The Commissioner will not seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount of Company A by the amount of the tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or acquisition on-market of shares.