Private ruling: Employee share scheme
Date of advice: 30 July 2021
Published: October 2021
Ruling period: In relation to income tax related issues: | Year Ended 30 June 20XX | Year Ended 30 June 20XX | Year Ended 30 June 20XX | Year Ended 30 June 20XX | Year Ended 30 June 20XX | In relation to Fringe benefits tax related issues: | Year Ended 31 March 20XX | Year Ended 31 March 20XX | Year Ended 31 March 20XX | Year Ended 31 March 20XX | Year Ended 31 March 20XX
Date scheme commenced: The scheme commences in the income year ending 30 June 20XX

Ruling: Q1: Will contributions paid by the Employer to the Trust pursuant to the Trust Deed be deductible in accordance with section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: When will contributions paid by the Employer to the Trust pursuant to the Trust Deed be deductible? | A2: In the income year in which the Shares acquired from the contribution are allocated to a Participant. | Q3: Will the contributions paid by the Employer to the Trust constitute a 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A3: No | Q4: Will the general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the scheme described? | A4: No

Relevant facts and circumstances: This scheme description incorporates, and should be read with, the draft Trust Deed (Trust Deed) and Employee Manual. The Company group is an Australian based company group. The Company group (Company Group) consists of the Company (the Employer), who acts as the head company, and XX wholly owned subsidiary companies. The Company Group has decided to introduce an Employee Share Plan (the Plan) as a mechanism for rewarding, retaining and motivating its employees. The Company Group has the following reasons for introducing the Plan: • Provide a mechanism for rewarding staff for their loyalty and effort in a structured, equitable and transparent manner; • Provide benefits for existing employees and attract new employees; • Assist to engender responsibility for the performance of our business throughout our employees and provide a mechanism that rewards staff for our collective and individual contributions. The Company Group will operate the Plan through a Trust (the Trust). Description of the Plan and terms of the Trust Deed The Trust is used to acquire fully paid ordinary shares in the capital of the Employer (Shares) for employees of the Company Group pursuant to the Plan. The Trust provides an arm's-length vehicle through which Shares can be acquired and held on behalf of employees providing the liquidity of employee held Shares in a simple flexible manner compared to the Employer buying back Shares from employees. In effect, this aspect allows the Employer to satisfy corporate law requirements relating to companies dealing in their own shares. The Trust provides the following benefits to the Employer: • Allows key shareholders to keep control over company ownership. • Registration of shares in the Trustee's name provides control over identity of shareholders, preventing a sale to unrelated persons. • If the Employer is sold, it is easier to "mop-up" employee shareholders. • Enables the Disqualification Event and Redemption and Disqualification Discount provisions (as defined) to be enforced in a simple manner through the Trust. From the commencement of the Plan, annual contributions are made to the Trust by the Employer in accordance with a formula established by the Employer for the subscription or acquisition of Shares for the purposes of the Plan. The Trustee, at the direction of the Employer, uses any money contributed by the Employer and any residual amounts to purchase Shares from the existing shareholders of the Employer, although a small amount is retained to provide for the administration of the Plan. The Trust Deed allows for the Employer to direct the Trustee to subscribe for Shares, but it is not the Employer's current intention for the Trustee to use this method to acquire Shares. The Trust Deed does not allow, and under no circumstances may, the Trustee repay to the Employer or any Associated Company any amount received as contributions for the subscription or acquisition of Shares. The Employer and its Associated Companies have no proprietary right or interest, charge or lien in the Company shares acquired by the Trustee under the Trust Deed. No member of the Group (the Company and its Associated Entities) has, or is able to acquire, a beneficial interest in the assets of the Trust. The Employer and its Associated Companies do not have any right to the income or capital of the Trust. The Trustee will only invest in shares in the Employer. The Trustee is not permitted to make any loans or provide any other form of financial assistance. Additional funds that are derived through unallocated Shares need to be applied for the purpose of the Trust i.e. to acquire shares and allocate them to Participants or to pay administration costs of the Trust. If the Trust terminates, any residual income or capital amounts must be applied to an employee of the Company, a Participant, a complying superannuation fund or a charity nominated by the Employer. On termination of the Trust, no amount can be paid to the benefit of the Employer or any associate. The Trustee will not borrow any money for a purpose other than meeting the administration costs of the Trust. There will be no security provided on such loans and interest will not be more than arm's length commercial rates. The equity made available for purchase by the Trustee under the terms of the Trust Deed is XX% of the issued Shares. This will be reviewed every two years. Shares will be held by the Trustee as Unallocated Shares until such Shares are allocated to Eligible Employees who become Participants in the Plan. The Employer will be entitled under the Trust Deed to nominate and invite Eligible Employees to participate in the Plan. Eligibility to participate in the Plan is based upon an independently assessed set of criteria. To be eligible to benefit from any contributions subsequent to the initial contribution (and any residual amounts of capital after the application of Disqualifying Events or Disqualifying Discounts) an employee must have been continuously employed as a permanent employee of the Employer for three years excluding any breaks in employment (e.g. leave without pay). Subject to a demonstrated commitment to Company (determined by the exercise of the Directors discretion) and meeting the expectations of their current role (demonstrated by having no significant performance issues), the Employer will invite Eligible Employees to participate in the Plan by owning Units. Clause 3 of the Trust Deed states, that notwithstanding anything else express or implied in the Trust Deed, the Plan must be available to at least seventy-five (75) percent of the permanent employees of the Employer who have completed as least 3 years of service (whether continuous or noncontinuous) with the employer. The beneficial interest of the Shares in the Trust Fund is divided into Units. The Trust Deed is expressly made with the intention that the Units in the Trust Fund confer to the Participants a beneficial interest in the Shares in the Employer. The invitation will include the terms and conditions upon which the Units will be issued. Following receipt of an invitation, an Eligible Employee who wishes to participate in the Plan will return the completed application form. Upon acceptance of the application by the Employer, Eligible Employees become Participants in the Plan. The Employer will then instruct the Trustee to allocate a specific number of Units to the Eligible Employee and to designate one Share to each Unit (Allocated Share). The Trustee shall ensure such designation is recorded in the books and records of the Trust. Eligible Employees may make a contribution toward the acquisition of a Unit. An Eligible Employee may participate in a salary sacrifice arrangement in relation to the acquisition of Units in accordance with the Plan. The Units provided to the Participants are substantially the same rights in respect of the Shares which are allocated to the Units as if the Participants were the legal owners of the Shares. Subject to the provisions of the Trust Deed, a Unitentitles the Participants to: • receive the income deriving from the Allocated Shares including dividends declared by the Directors at their discretion in respect of the Shares • to the extent that voting rights are attached to the Shares, direct the Trustee on how it should be exercised in any manner permitted by the Trustee, and • receive the Employee Redemption Amount on redemption. The Units may be issued to an associate of an Eligible Employee (and the associate will be a Participant under the Plan). The number of Units issued to a Participant will be determined by the Trustee with reference to the following factors: • role/responsibility- reflected by consideration of current role, with key metric including current base salary level (FTE), and • performance/KPIs an individual performance KPIs will be agreed and reviewed annually. The Trustee shall keep and maintain an up-to-date register of all Unit Holders. Units cannot be transferred or assigned or otherwise dealt with in favour of any person nor can any equitable, contingent, future or partial interest or other security interest be created in a Unit. Where the Shares are allocated to a particular Participant, any dividends that the Trustee receives as the result of holding those Shares in the Trust will flow-through to the relevant Participant. Where Shares remain unallocated in the Trust any dividends that the Trustee receives as the result of holding those Shares in the Trust will be retained as part of the capital of the Trust. The Trust Deed provides that if a Disqualifying Event occurs, the relevant Participant will forfeit any right or interest in the Units acquired for the benefit of the Participant under the Plan. "Disqualifying Event" is defined in the Trust Deed. Redemption clause The redemption clause provide that, subject to the Trust Deed, a Participant is only entitled to have their Units redeemed on the first to occur of the following events (or otherwise direct the Trustee to transfer the relevant Allocated Shares in accordance with the Trust Deed): a) the Participant or, if the Participant is an Associate, the relevant Eligible Employee, ceases to be employed by or otherwise providing services to the Company or any Associated Company (this only arises if the cessation of employment or provision of services does not give rise to the forfeiture of Units under the Trust Deed); b) the 15th anniversary of the acquisition of those Units by the Participant; and c) an Exit Event other than a Share Sale (noting that in the event of a Share Sale, the relevant Participant or Eligible Employee is entitled to the cash value of the Allocated Shares referable to their Units sold, net of any costs in relation to the selling of those Allocated Shares) An Exit Event means: a) a Listing - an initial public offering of an IPO Entity (as defined) to the official list of ASX Limited or another recognised stock exchange; b) a Business Sale - a sale to a third party purchaser of all (or substantially all) of the assets and business undertaking of the Group (including by way of a sale of shares of the Company's directly or indirectly owned Subsidiaries) provided that no sale or transfer undertaken to effect a corporate reorganisation of the Group will constitute a Business Sale; or c) a Share Sale - the sale by Shareholders (in one transaction or a series of connected transactions) to a third-party purchaser of all of the issued Shares provided that no sale or transfer undertaken to effect a corporate reorganisation of the Group will constitute a Share Sale. Upon redemption of such Unit the relevant Disqualification Discounts (if any) will apply to the Units redeemed, rounded up to the nearest whole number. 'Remaining Units' means the Units held by a Participant after the application of the Disqualification Discounts (if any). The Participant will be entitled to the rights and interests in the Remaining Units, and will forfeit any rights or interests in the Units that the Participant would, but for the application of the disqualification Discounts, have been entitled to. However, no Disqualifying Discounts are applicable to any Units: whose issue was funded by the Participant wholly by way of Employee's Contribution; or in the event that there is an Exit Event other than a Share Sale (that is there is accelerated vesting where the relevant redemption trigger is an Exit Event other that a Share Sale). Further, where an Exit Event that is a Share Sale occurs, then the Participant is entitled to the cash value of the Allocated Shares referable to their Units sold ignoring any Disqualification Discount that would otherwise arise in the event of a redemption at that time and net of any costs in relation to the sale of those Allocated Shares (that is, there is also accelerated vesting where the relevant redemption trigger is a an Exit Event by way of Share Sale). The holder of the Remaining Units in the event of cessation of employment or provision of services or in the event that the redemption trigger is the 15 th anniversary of the issue date of the relevant Units shall be entitled to direct the Trustee to either: (a) sell the Allocated Shares referable to the Remaining Units or Units held by the Trustee on behalf of the Participant and receive from the Trustee the Employee Redemption Amount (the cash value of the Allocated shares referable to the Remaining Units sold, net of any costs in relation to the selling of those Allocated Shares); or (b) transfer the Allocated Shares referable to the Remaining Units or Units held by the Trustee to the Eligible Employee or the Participant. (c) Continue to hold their Remaining Units. The Plan is operated in accordance with the above clause so that a participant may request delivery of the Shares or request that the Shares are sold on their behalf. However, the Shares or Employee Redemption Amount will not be transferred/paid until a 12 month period (bad leaver period) has passed and the employee is not found to be a bad leaver (e.g. an employee who within 12 months of cessation of their employment with the Employer commences employment with a competitor of the Employer). Disqualification Discounts are defined in the Trust Deed Entitlement Percentage are defined in the Trust Deed. Assumptions An Exit Event is not anticipated at the time of acquisition of the Units by Participants.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8 - 1 | Income Tax Assessment Act 1997 section 83A - 10 | Income Tax Assessment Act 1997 section 83A - 35 | Income Tax Assessment Act 1997 section 83A - 205 | Income Tax Assessment Act 1997 section 83A - 210 | Income Tax Assessment Act 1997 subsection 130 - 85(4) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 section 177A | Income Tax Assessment Act 1936 section 177C | Income Tax Assessment Act 1936 section 177D | Income Tax Assessment Act 1936 section 177F | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: Irretrievable contributions made by the Employer to the Trustee are deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: An employer is entitled to a deduction under section 8-1 of the ITAA 1997 for a contribution paid to the trustee of an employee share trust that is either: • incurred in gaining or producing assessable income ('first limb') or • necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income ('second limb') to the extent the contribution is not private or domestic in nature, is not of capital or of a capital nature, does not relate to the earning of exempt income or non-assessable non-exempt income and deductibility is not precluded by another provision of the ITAA 1997 or ITAA 1936. Losses or outgoings incurred To qualify for a deduction under section 8-1 of the ITAA 1997 a contribution to the trustee of an employee share trust must be incurred. In broad terms, a taxpayer incurs an outgoing at the time the taxpayer owes a present money debt that they cannot escape. This must be read subject to the propositions developed by the courts, which are discussed in more detail in Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions (TR 97/7) and Taxation Ruling TR 94/26 Income tax: subsection 51(1) - meaning of incurred - implications of the High Court decision in Coles Myer Finance (TR 94/26). A contribution made to the trustee of an employee share trust is incurred only when the ownership of that contribution passes from an employer to the trustee of the employee share trust and there is no circumstance in which the employer can retrieve any of the contribution - Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339 (Pridecraft); Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650 (Spotlight). In the present case, the Employer has established the Trust for the purpose of facilitating the acquisition, holding and allocation and delivery of Shares to meet its obligations under the Plan, by making irretrievable and non-refundable contributions to the Trust. The Trustee will then follow instructions or notices from the Employer to acquire and allocate the Shares for the benefit of Participants. On this basis, it is concluded that the Employer will incur an outgoing for the purposes of subsection 8-1(1) of the ITAA 1997 at the time it makes irretrievable contributions to the Trust. For the purpose of gaining or producing assessable income Further, to be deductible under section 8-1 of the ITAA 1997, a contribution must have been incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. In order to satisfy the second limb of section 8-1 of the ITAA 1997, there must be a relevant connection between the outgoing and the business. An expense will have the relevant connection to the business when it is 'desirable or appropriate in the pursuit of the business ends of the business' ( Ronpibon Tin NL and Tongkah Compound NL v. FC of T (1949) 78 CLR 47 (Ronpibon); Magna Alloys & Research Pty Ltd v. Federal Commission of Taxation (1980) 49 FLR 183 (Magna Alloys)). The Employer carries on the business of providing certain services which produces assessable income. The Employer operates an employee share scheme as part of its overall remuneration strategy to retain employees. Under the Plan, the Employer makes irretrievable contributions to the Trust (in accordance with the Trust Deed) which the Trustee will use to acquire shares for allocation to Participants to satisfy their allocation of shares. The Employer is carrying on a business and when it makes a contribution to the Trust, its primary purpose is for the contribution to be applied to the acquisition of the Shares to be held for, and allocated to, employees under the Plans as remuneration. The provision of funds to the Trust and the acquisition and allocation of Shares by the Trustee are interrelated components of an employee share scheme to which Division 83A of the ITAA 1997 applies and all must be carried out to allow the scheme to operate as intended and enable the direct provision of remuneration to the employees. Therefore, the contributions to the Trust is an employee remuneration cost incurred in carrying on the business for the purpose of deriving assessable income and is deductible under section 8-1 of the ITAA 1997. The contribution must not be of a capital nature Where a contribution satisfies the positive limbs of subsection 8-1(1) of the ITAA 1997, it may not be deductible to an employer under subsection 8-1(2) of the ITAA 1997 to the extent that such contribution is a loss or outgoing of capital, or of a capital nature, is a loss or outgoing of a private or a domestic nature, is incurred in gaining or producing exempt income or is prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936. On the facts, nothing has suggested that the contributions are private or domestic in nature, or are related to producing exempt income or non-assessable non-exempt income, or are otherwise prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936. Whether an outgoing is capital or revenue in nature can generally be determined by reference to the test articulated by Dixon J in the leading case on the capital/revenue distinction, Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337. In that case Dixon J stated that: There are, I think, three matters to 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, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay... Taxation Ruling TR 2018/7 Income Tax: employee remuneration trusts (TR 2018/7)indicates when a contribution made to the trustee of an employee share trust may be of a capital nature. Although TR 2018/7 specifically excludes its application to employee share schemes to which Division 83A applies, these principles can provide a guide when determining whether a contribution was capital in nature. Relevantly paragraphs 16 to 19 of TR 2018/7 state: 16. A contribution is not deductible under section 8-1 of the ITAA 1997 to the extent it secures a capital advantage for an employer, unless that advantage is small or trifling. 17. A capital advantage is considered to be small or trifling (and therefore disregarded) when, within a relatively short period of a contribution (which secures the capital advantage) being made to the ERT, so much of the trust fund as comprises that contribution is permanently and entirely dissipated in remunerating employees. 18. A contribution is of a capital nature and not deductible under section 8-1 of the ITAA 1997 to the extent it is to be applied in remunerating employees who are engaged in affairs of capital of the business. 19. When considering the character of expenditure, it is critical to consider the advantage sought by the payer from a practical and business point of view.[26] Where a contribution is made to an ERT to secure any of the following benefits (without limitation), it is likely to be capital expenditure by the employer: • to acquire an asset that is likely to generate an enduring or permanent improvement to employee goodwill (for example, an acquisition of a holiday house for use by employees) • to provide loans, on a continuous basis, to employees • to acquire shares and/or equity in the employer or a holding company of the employer in circumstances where it is not intended to divest legal and beneficial ownership of these shares to employees within a relatively short period of the contribution being made, or • to acquire arm's length investments where the intention is to derive a return to be paid to employees, whilst keeping the capital of the trust fund intact. In this case, irretrievable contributions are provided by the Employer, as an employer, to the Trustee. That the contributions may ultimately and in substance be applied by the Trustee to subscribe for shares in the Employer for the benefit of Participants, would not render the contributions an investment in the Employer such that the Employer could be considered as having acquired an asset or advantage of an enduring nature which is capital or of a capital nature, in whole or in part. As previously discussed, the contributions to be made to the Trustee by the Employer are to be used to acquire Shares to be allocated to, and held for, the benefit of the Participant employees (subject to the employee not having a disqualifying event (e.g. termination for cause). Once shares are allocated Participants will, from that time, be entitled to receive the income deriving from the Allocated Shares and direct the Trustee on how the voting rights attached to the Allocated Shares should be exercised. The Shares progressively vest over a 10 year continuity of employment period (allowing for employee's leaving in Special Circumstances) and the Participants become entitled to redeem their interest in the Allocated Shares in the circumstances provided for in Clause 14. All the components of the scheme operate together to achieve the intended purpose of attracting, motivating, rewarding and aligning the interests of employees with that of the Employer within the statutory scheme established under Division 83A. The advantage sought is of a revenue nature and any capital advantage is small or trifling. Consequently, irretrievable contributions made by the Employer to the Trustee are deductible under section 8-1 of the ITAA 1997. | Summary: Contributions paid by the Employer to the Trust pursuant to the Trust Deed will be deductible in the income year in which the Shares acquired from the contribution are allocated to a Participant. | Detailed Reasoning - Detailed Reasoning: The provision of money to the Trustee of the Trust by the Employer for the purpose of remunerating its employees under the Plan is an outgoing in carrying on the Employer's business and is deductible under section 8-1 of the ITAA 1997. The deduction under section 8-1 of the ITAA 1997 would generally be allowable in the income year in which the Employer incurred the outgoing but under certain circumstances section 83A-210 of the ITAA 1997 applies to determine the timing of the deduction. Section 83A-210 of the ITAA 1997 provides that if: (a) at a particular time, you provide another entity with money or other property: (i) under an arrangement; and (ii) for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest; then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. Section 83A-210 of the ITAA 1997 will only apply if there is a relevant connection between the money provided to the trustee and the acquisition of ESS interests (directly or indirectly) by the employee under an employee share scheme in relation to the employee's employment. Arrangement The implementation of the Plan, the establishment of the Trust under the Trust Deed and the provisions of money by the Employer to the Trustee to acquire and hold Shares on behalf of Participants, are considered as constituting an arrangement for the purpose of subparagraph 83A-210(a)(i). ESS Interest An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 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. Under the Plan, each Share provided to a Participant when allocated under the Plan is an ESS interest, as it is a beneficial interest in a share in the Employer. Employee Share Scheme Subsection 83A-10(2) of the ITAA 1997 defines 'employee share scheme' as: ... a *scheme under which *ESS interests in a company are provided to employees, or *associates of employees, (including past or prospective employees) of: (a) the company; or (b) *subsidiaries of the company; in relation to the employees' employment. For the purposes of subsection 83A-10(2), subsection 995-1(1) defines the term 'scheme' as follows: (a) any *arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. The Plan is an ESS for the purposes of subsection 83A-10(2) of the ITAA 1997 as it is an arrangement under which an ESS interest, is provided to a Participant in relation to their employment in the Employer, in accordance with the Trust Deed. Relevant connection The provision of irretrievable cash contributions to the Trustee under the arrangement, the acquisition and holding of the Shares by the Trustee and the allocation of Shares to Participants are all interrelated components of the Plan. All the components of the scheme, including the provision of irretrievable cash contributions to the Trustee must be carried out so that the scheme can operate as intended. In particular, the provision of money to the Trustee is a necessary component for the scheme to operate. Accordingly, this is for the purpose of enabling Participants to acquire ESS interests. This is consistent with the ATO view expressed inATO ID 2010/103. Consequently, the provision of money to the Trustee to acquire shares in the Employer is considered to be for the purpose of enabling the participating employees, to acquire the beneficial interest in Shares. If that money is provided before the Shares are allocated to a Participant, then section 83A-210 of the ITAA 1997 will apply to deny the deduction until the income year in which the beneficial interest in the Share is allocated to the Participant. In conclusion, contributions paid by the Employer to the Trust pursuant to the Trust Deed will be deductible in the income year in which the Shares acquired from the contribution are allocated to a Participant. | Summary: The irrevocable contributions The Employer makes to the Trustee of the Trust, to fund the subscription for, or acquisition of, the Shares in accordance with the Trust Deed will not constitute a fringe benefit under subsection 136(1) of the FBTAA. | 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'), 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 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 (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 Trust acquires shares in a company, namely the Employer; and • The Trust ensures that ESS interests as defined in subsection 83A-10(1), being beneficial interests in those shares, are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Trust Deed. 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, having regard to the whole of its terms and the express limitation in a specific clause in 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 the purpose of the Trust, namely for the sole purpose of undertaking activities that are in line with the definition of an employee share trust under section 130-85(4). Therefore, the irretrievable contributions contribution made by the Employer to the Trustee of the Trust to fund the acquisition of shares in accordance with the Trust Deed will not be a fringe benefit. | Summary: The Commissioner will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Employer for contributions to the Trustee to fund the subscription for or acquisition of shares in the Employer by the Trustee. | Detailed Reasoning - Detailed Reasoning:: Part IVA 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, 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), the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Employer to obtain a tax benefit.

This ruling applies for the following period periods :