Private ruling: Deduction under section 8-1 of the Income Tax Assessment Act 1997
Date of advice: 9 October 2019
Published: February 2020
Date scheme commenced: 1 April 2015

Ruling: Q1: Will Company D as head company of the Company D income tax consolidated group ( DCG ) obtain a deduction under section 8-1 of the Income Tax Assessment Act 1997 (Cth) ( ITAA 1997 ) for irretrievable cash contributions made by Company D to the trustee of its Employee Share Trust ( Trustee ) to fund the subscription for, or acquisition on-market of, Company D's shares in respect of employees based in Australia ( Participants )? | A1: Yes Question 2a Are irretrievable contributions made by Company D to the Trustee, to fund the subscription for, or acquisition on-market of, Company D's shares by the Trust to satisfy Employee Share Scheme Interests ( ESS interests ) in respect of Participants in the Company D Share and Option Plan ( DSOP ), deductible to Company D under section 8-1 of the ITAA 1997 at a time determined by section 83A-210 of the ITAA 1997, in respect to those ESS interests which are subject to Division 83A of the ITAA 1997, where the contributions are made before the acquisition of the relevant ESS interests? Answer 2a Yes Question 2b Are irretrievable contributions made by Company D, to the Trustee, to fund the subscription for, or acquisition on-market of, Company D's shares by the Trust to satisfy ESS interests in respect of Participants of the DSOP, deductible to Company D under section 8-1 of the ITAA 1997 in the income year when the contributions are made, where the contribution is made after the acquisition of the relevant ESS interests? Answer 2b Yes | Q2: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (Cth) ( ITAA 1936 ) applies to deny, in part or in full, a deduction claimed by Company D as head company of the DCG for irretrievable contributions made to the Trustee in respect of the DSOP to fund the acquisition of Company D's shares in respect of Participants, where a share is a fully paid ordinary share in the capital of Company D? | A2: No The rulings for questions 1 - 3 inclusive each apply for the following periods: Income tax year ended 30 June 2019 Income tax year ended 30 June 2020 Income tax year ended 30 June 2021 Income tax year ended 30 June 2022 Income tax year ended 30 June 2023 | Q3: Is the provision of options under the DSOP by Company D to its employees (or employees of a member of the DCG) a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefit Tax Assessment Act 1986 (Cth) ( FBTAA )? | A3: No | Q4: Will the irretrievable cash contributions made by Company D to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company D's shares in respect of Participants, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A4: No The rulings for questions 4 and 5 inclusive each apply for the following periods: Fringe benefits tax year ended 31 March 2019 Fringe benefits tax year ended 31 March 2020 Fringe benefits tax year ended 31 March 2021 Fringe benefits tax year ended 31 March 2022 Fringe benefits tax year ended 31 March 2023


Relevant legislative provisions: ITAA 1997 - section 8-1 | ITAA 1997 - paragraph 8-1(2)(a) | ITAA 1997 - Division 83A | ITAA 1997 - Subdivision 83A-D | ITAA 1997 - section 83A-10 | ITAA 1997 - paragraph 83A-10(b) | ITAA 1997 - subsection 83A-10(1) | ITAA 1997 - subsection 83A-10(2) | ITAA 1997 - section 83A-210 | ITAA 1997 - subparagraph 83A-210(a)(i) | ITAA 1997 - subparagraph 83A-210(a)(ii) | ITAA 1997 - subsection 130-85(4) | ITAA 1997 - subsection 995-1(1) | ITAA 1936 - Part IVA | ITAA 1936 - subsection 177A(1) | ITAA 1936 - paragraph 177C(1)(b) | ITAA 1936 - section 177D | ITAA 1936 - paragraph 177D(b) | ITAA 1936 - subsection 177F(1) | FBTAA 1986 - subsection 136(1) | FBTAA 1986 - paragraph 136(1)(ha) | All legislative references are to provisions of the Income Tax Assessment Act 1997 , unless otherwise indicated. Questions 1 to 3 - 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 Company D's income tax consolidated group ( DCG ) are treated, for income tax purposes, as having been undertaken by Company D as the head company of the DCG. | Questions 4 and 5 | The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). The Commissioner has therefore provided a ruling to Company D and each company which is a subsidiary member of the DCG in relation to questions 4 and 5. Question 1 | The general deduction provision is section 8-1, which states: | (1) You can deduct from your assessable income 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. | Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income. | (2) However, you cannot deduct a loss or outgoing under this section to the extent that: | (a) it is a loss or outgoing of capital, or of a capital nature; or | (b) it is a loss or outgoing of a private or domestic nature; or | (c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or | (d) a provision of this Act prevents you from deducting it. For a summary list of provisions about deductions, see section 12-5. | Under the DSOP, Company D grants options or shares to Participants and makes irretrievable contributions to the Trust (in accordance with the Rules and the Deed) which the Trustee will use to acquire shares (either on-market or by subscription) for allocation to Participants to satisfy their options or allocation of shares. The irretrievable contributions made by Company D to the Trust to subscribe for, or acquire on market, shares for allocation to Participants under the DSOP will be deductible by Company D if the requirements of section 8-1 are satisfied. | Those conditions are: | 1. There must be a loss or outgoing; | 2. The loss or outgoing must be incurred; | 3. The required connection to the assessable income or the carrying on of a business must be present; | 4. The loss or outgoing cannot be incurred in gaining or producing exempt income or non­assessable non-exempt income; | 5. The loss or outgoing cannot be capital or of a capital nature; and | 6. The loss or outgoing is not of a private or domestic nature or otherwise prevented from being deductible. | There must be a loss or outgoing | To claim a deduction under subsection 8-1(1), contributions made to the Trustee by Company D must be irretrievable and non-refundable. | Company D must provide the Trustee with all the funds required to enable the Trustee to subscribe for, or acquire those Company D shares in accordance with the Deed. | Whilst the Deed contemplates the Trustee utilising certain receipts associated with the Trust Property (e.g. dividends) in repayment of any loan to a Company D Group member, the cash contributions have not been sourced from loan funds. | The contributions made to the Trustee by Company D, are irretrievable and non-refundable to Company D in accordance with the Deed as: | · On termination of the Trust, Company D and any member of the Group will not have any entitlement to any part of the Trust Fund, including any shares that form part of the Trust Fund, at any time; and | · Company D may not acquire any interest in the Capital (or corpus) or be entitled to any Income of the Trust Fund. | Under the terms of the Deed, the cash contributions provided by Company D to the Trustee are irretrievable and as such represent an outgoing to Company D for the purpose of subsection 8-1(1). | The loss or outgoing must be incurred | Company D will incur an outgoing on the day the irretrievable contributions are made to the Trustee. Company D has a legal obligation to provide shares to participants in accordance with the Rules of the DSOP, and if those shares are to be satisfied from the Trust, to fund the Trust for that purpose. Consequently, when Company D makes a cash contribution to the Trustee, it will have incurred a loss or outgoing. | The required connection to the assessable income or the carrying on of a business must be present | For a loss or outgoing to be deductible under subsection 8-1(1), it must be either incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing that assessable income. | That relevant connection exists between a loss or outgoing and the derivation of income where there is a sufficient nexus; (see, Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47 at 56). | Company D established the Trust for the sole purpose of facilitating the DSOP. | Company D has granted (and will in the future grant) options under the DSOP as part of its remuneration and reward program for Participants. The costs incurred by Company D for the acquisition of shares to satisfy options arise as part of these remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of Company D's employees. | All the documentation provided indicates that Company D makes the contributions to the Trust solely to enable the Trustee to acquire Company D shares for Participants according to the Rules to remunerate and retain employees of the Group. Therefore, it is considered that there is a sufficient nexus between the outgoings (contributions made by Company D to the Trustee) and Company D's derivation of assessable income. The loss or outgoing cannot be incurred in gaining or producing exempt income or non-assessable non-exempt income | Nothing in the facts suggest that the irretrievable cash contributions made to the Trustee are private or domestic in nature, or are incurred in gaining or producing exempt, non-assessable non-exempt income, or are otherwise prevented from being deductible under a specific provision of either the Income Tax Assessment Act 1936 ( ITAA 1936 ) or ITAA 1997. The loss or outgoing cannot be capital or of a capital nature | Paragraph 8-1(2)(a) states that a loss or outgoing is not deductible if it is a loss or outgoing of capital, or of a capital nature. | Company D will be making regular, irretrievable contributions to the Trustee to satisfy options ( Awards ) granted under the DSOP (in accordance with the Deed and the Rules of the DSOP). These costs will be incurred by Company D to fund the acquisition of shares for the purpose of the DSOP. Therefore, the costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for employees of Company D and the Group. Costs incurred are likely to be in relation to more than one grant of Awards (rather than being one-off), and Company D intends to continue satisfying outstanding Awards using shares acquired by the Trust. This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of Company D. | This is supported by the decisions in Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) FCAFC 339 ( Pridecraft) and Federal Commissioner of Taxation v Spotlight Stores Pty Ltd (2004 FCA 650 ( Spotlight) , which held that payments by an employer company to a trust established for the purpose of providing incentive payments to employees were on revenue account and not capital, or of a capital nature. | Apportionment | The combined operation of subsections 8-1(1) and 8-1(2) may require apportionment of a loss or outgoing into deductible and non-deductible components, where a single loss or outgoing is incurred for more than one purpose or on items of a different nature. This would be relevant, for example, in the circumstances where contributions made by Company D to the Trustee for the purposes of administering the Trust are instead used to subscribe for Company D shares. | A contribution to the trustee of an employee share trust is capital or of a capital nature where the contribution secures for the employer an asset or advantage of an enduring or lasting nature that is independent of the year to year benefits that the employer derives from a loyal and contented workforce. | Where a contribution is, ultimately and in substance, applied by the trustee of an employee share trust to subscribe for equity interests in the employer (for example shares) the employer has also acquired an asset or advantage of an enduring nature. | Where a contribution is made for the purpose of securing for the employer advantages of both a revenue and capital nature, but the advantages of a capital nature are only expected to be very small or trifling by comparison, apportionment may not be required. | In this case, the outgoings incurred by way of the irretrievable cash contributions made to the Trustee are either not capital in nature or any capital component is considered to be sufficiently small or trifling such that any deduction would not need to be apportioned. | Accordingly, when Company D makes an irretrievable cash contribution to the Trustee to allow shares to be acquired to satisfy Awards granted to Participants under the DSOP, a deduction under section 8-1 will be available in respect of the contribution to the Trust. | Question 2a | A deduction under section 8-1 for a loss or outgoing would generally be allowable in the income year in which the loss or outgoing is incurred. However, under certain circumstances, the timing of a deduction is specifically determined under section 83A-210. | Section 83A-210 provides: | 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 will only apply if there is an arrangement under which there is a relevant connection between the irretrievable cash contribution provided to a trustee and the acquisition of ESS interests (directly or indirectly) by an employee under an employee share scheme in relation to the employee's employment and the contributions are made before the acquisition of the ESS interests. | Subparagraph 83A-210(a)(i) | The implementation of the DSOP (as set out in the Rules), the establishment of the Trust and the provision of irretrievable cash contributions by Company D to the Trustee of the Trust, constitute an arrangement for the purpose of subparagraph 83A-210(a)(i). Subparagraph 83A-210(a)(ii) | Subparagraph 83A-210(a)(ii) requires that money or other property is provided to another entity under an arrangement for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme. | ESS interest | The term ESS interest, in a company, is defined in subsection 83A-10(1) as being 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 DSOP, an invitation made to an employee of Company D who is an Eligible Person under the Rules ( Participant ), will be an ESS interest as it is either a beneficial interest in a share, or a beneficial interest in a right to acquire a beneficial interest in a share in a company (specifically, Company D). Employee share scheme | The term 'employee share scheme' is defined in subsection 83A-10(2) as: | (2) An employee share scheme is a *scheme under which *ESS interests in a company are provided to employees, or *associates of employees, (including past or prospective employees) of: | (a) the company; or | (b) *subsidiaries of the company; | in relation to the employees' employment. | Note: See section 83A-325 for relationships similar to employment. | For the purposes of subsection 83A-10(2), subsection 995-1(1) defines the term 'scheme' as follows: | scheme means: | (a) any *arrangement; or | (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. | Note: The Commissioner may determine that, for the purposes of the debt and equity interest rules in Division 974, what would otherwise be a single scheme is to be treated as 2 or more separate schemes, and that the schemes are not related: see section 974-150. | The DSOP is an employee share scheme for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (i.e. a beneficial interest in a share or 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 Company D (or the DCG). | The DSOP contains a number of interrelated components, such as: | · The making of an Invitation under the Rules of the DSOP; · The provision of irretrievable cash contributions to the Trustee of the Trust; | · The allocation of Company D shares to Participants in accordance with the Rules and the Deed. Each interrelated component must be carried out so that the scheme can operate as intended. One of those components is the provision of irretrievable cash contributions by Company D to the Trustee of the Trust. The irretrievable cash contributions enable the Trustee to acquire CompanyD shares for the purpose of enabling each Participant, indirectly as part of the DSOP, to acquire ESS interests. | Section 83A-210 will apply to determine the timing of any deduction under section 8-1 for an irretrievable cash contribution made to the Trustee of the Trust where it is made before: | · A Participant acquires the beneficial interest in a share in Company D under the DSOP; or | · A Participant acquires the beneficial interest in a Right to acquire a beneficial interest in a share in Company D under the DSOP (i.e., an option). | The deduction for the irretrievable cash contribution can only be deducted from the assessable income of Company D in the income year when the relevant beneficial interest in a share in Company D, or beneficial interest in a Right to a beneficial interest in a share in Company D, is acquired by a Participant under the DSOP. | This is consistent with the ATO view expressed 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 . | Question 2b | Consistent with the analysis in question 2a (above), where the contribution is made after the acquisition of the relevant ESS interests, irretrievable contributions made by Company D to the Trustee of the Trust to fund the subscription for or acquisition on-market of shares by the Trust to satisfy the ESS interests granted to Participants will be deductible in the income year in which the contribution is made by Company D. | Question 3 | Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936. Before the Commissioner can exercise the discretion under subsection 177F(1) of the ITAA 1936, the following three requirements must exist: 1. there must be a scheme within the meaning of section 177A of the ITAA 1936; | 2. there must be a tax benefit that was obtained or would be obtained in connection with the scheme, but for section 177F of the ITAA 1936; and | 3. having regard to the matters in paragraph 177D(2) of the ITAA 1936, the scheme is one to which Part IVA of the ITAA 1936 applies. | The Commissioner has considered these three requirements and will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, the whole or a part of, any tax deduction claimed by Company D in respect of irretrievable contributions made by Company D (or any member of the DCG), to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, shares by the Trust. | Question 4 | 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. The fringe benefits taxable amount is calculated under the FBTAA by reference to the taxable value of each fringe benefit provided. No amount will be subject to FBT unless a 'fringe benefit' is provided. | In general terms, '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. | In particular paragraph (h) of subsection 136(1) of the FBTAA 1986 excludes the following from being a 'fringe benefit': | (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 DSOP is an employee share scheme, the options for Company D shares provided under the DSOP are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests. | Accordingly, the provision of Options for Company D shares under the DSOP will not be subject to FBT on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 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. | In addition, when an Option is later exercised, any benefit received would be in respect of the exercise of the option, 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 ). | Accordingly, the benefit that arises to an employee upon the exercise of an option (being the provision of a share in Company D) will not give rise to a fringe benefit as a benefit has not been provided in respect of the employment of the employee. | Question 5 | Pursuant to paragraph 136(1)(ha) of the FBTAA, a fringe benefit is defined to exclude: | (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 ); or An employee share trust is defined within subsection 130-85(4) to be: | (4) An employee share trust , for an *employee share scheme, is a trust whose sole activities are: | (a) obtaining *shares or rights in a company; and | (b) ensuring that *ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to *associates of employees, of: | (i) the company; or | (ii) a *subsidiary of the company; and | (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). | As discussed above, the terms 'ESS interest' and 'employee share scheme' are defined in section 83A-10. It has been accepted that the Plan is an employee share scheme under which ESS interests are provided to employees of Company D and the Group. | Paragraph 130-85(4)(a) and (b) are therefore satisfied because: | · The Trust acquires shares in a company, namely Company D; and | · The Trust ensures that ESS interests as defined in subsection 83A-10(1) (being options in Company D) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Deed and the Plan. | Paragraph 11 of Draft Taxation Determination TD 2019/D8: Income tax: what is an 'employee share trust'? sets out a number of activities which are merely incidental for the purposes of paragraph 130-85(4)(c). | 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 objects of the Trust are for the sole purpose of undertaking activities that are in line with the definition of an employee share trust under section 130-85(4). | Paragraph 130-85(4)(c) is satisfied as all other activities undertaken by the Trustee are merely incidental to managing the Plan. | Consequently, paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA 1986 excludes the contributions to the Trustee from being a fringe benefit. | The cash contribution made by Company D to fund the subscription for or acquisition on-market of Company D shares by the Trust will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA.


Background: Company D is the parent entity of a number of wholly-owned and partially-owned subsidiaries, collectively referred to herein as 'the Group '. Company D's shares are listed on the Australian Securities Exchange ( ASX ). | Company D has appointed a corporate entity, which is a member of the Company D Group, as the trustee ( Trustee ) of the Company D Employee Share Trust ( Trust ). | Company D provided the Deed. | The Trust was settled for the purpose of holding property for the benefit of Participants in the Company D Share and Option Plan ( DSOP ), and potentially other future remuneration plans. | The terms of the Deed detail with various things, including; | · The objects of the Trust, which are consistent with activities of an Employee Share Trust ( EST ) | · How the Trust property and any distributions associated with it are to be treated | · Matters such as the powers, responsibilities and obligations of the Trustee | · The obligations of Company D with respect to the Trustee, as well as the Trustee's indemnity and removal, and | · How the Trust is to be wound up, and how any surplus assets of property are to be dealt with. | Company D established the DSOP with shareholder approval at an Annual General Meeting. | The DSOP is regulated by rules ( Rules ), which after having been adopted at the AGM, have been subsequently amended at various times. | The Rules of the DSOP detail various things, including; | · The general nature of the DSOP | · Eligibility requirements (including any restrictions) | · What happens when options lapse | · The general operation of the DSOP | · Discretions that the Board of Company D has in relation to various matters, including the vesting of shares and options. | Company D has been providing cash contributions to the Trustee in accordance with the Deed, and intends to continue to provide irretrievable cash contributions to the Trust so that the Trustee can acquire shares (either through subscription for newly issued shares, or through an on-market purchase), so as to satisfy options ( Awards ) issued by Company D to Participants in the DSOP. | None of those cash contributions have been provided by way of loan from any member of the Company D Group. | Grant of Options: In accordance with the Rules, Company D has granted options to Eligible Persons ( Participants ). | Options are not listed on the ASX and are granted for nil consideration. | Lapse of Options: Where a contribution has been made to the Trust to acquire shares in the expectation that those options will be exercised, those shares will remain General Trust Property as contemplated under both the Deed and the Rules. | Vesting of Options: Company D has applied predetermined Vesting Conditions to options granted under the DSOP as outlined in an Invitation Letter. Any Vesting Conditions (as amended from time to time) must be satisfied in order for the relevant option or share to be exercised, and vest. | Exercise of Options and Allocation of Shares under the DSOP: Options become exercisable when all the Vesting Conditions are satisfied. When this happens Company D must allocate shares to Participants upon exercise of that option. The DSOP allows the Board to allocate either newly issued shares, or cause existing shares to be transferred to Participants. Company D intends to use the Trust to facilitate the acquisition of shares on behalf of Participants for all future vesting of options under the DSOP. | Company D's Options will be issued for nil consideration, or at a discount. | Restrictions on Shares after vesting/exercise: The Rules do not specify any restrictions on shares after they have vested, although the Invitation Letter may specify a disposal restriction in the future. | Company D established the Trust to facilitate the acquisition, holding of, and allocation of shares to Participants in accordance with the DSOP (and other plans) that Company D will operate from time to time. | Allocating Shares for the Plans: With respect to the DSOP, the Deed specifies that the Trustee must acquire shares to satisfy options granted under the DSOP in accordance with written directions from Company D. | In short, the Trustee is only required to satisfy vested options with shares held by the Trust to the extent that sufficient payment has been received to buy shares on-market, and/or to the extent that sufficient shares are already held on Trust. | Assumption: Any funds received by the Trustee of the Trust from Company D, or any member of the DCG, will not be repaid to Company D or a member of the DCG. | Certain clauses in the Deed and the Rules will be amended.