Private ruling: Employee share scheme
Date of advice: 28 June 2024
Published: 12 August 2024
Ruling period: Income year ending 30 June 20XX to 30 June 20XX | This ruling applies to question 6 to 8 for the following periods : | Fringe benefits tax year ending 31 March 20XX to 31 March 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Will Company A as head company of the Company A tax consolidated group (Company A TCG) be entitled to obtain an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for irretrievable cash contributions made by Company A or any subsidiary member of the Company A TCG to the Trustee as trustee of the Trust, to fund the subscription for, or acquisition on-market of fully paid ordinary shares in Company A (Shares), pursuant to the Plan? | A4: Yes. | Q2: Will irretrievable cash contributions made by Company A or any subsidiary member of the Company A TCG to the Trustee, to fund the subscription for, or acquisition on-market of Shares pursuant to the Plan, be deductible to Company A at a time determined by section 83A-210 of the ITAA 1997 where contributions are made before the acquisition of the relevant ESS interests? | A5: Yes. | Q3: If the Trust satisfies its obligations under the Plan by subscribing for new Shares, will the subscription proceeds be included in the assessable income of Company A under section 6-5 or 20-20 of the ITAA 1997, or trigger a capital gains tax ("CGT") event under Division 104 of the ITAA 1997? | A6: No. | Q4: 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 in full, any deduction claimed by Company A as head company of the Company A TCG, in respect of the irretrievable cash contributions made by Company A or any subsidiary member of the Company A TCG to the Trustee to fund the subscription for, or acquisition on-market of Shares pursuant to the Plan? | A7: No. | Q5: Will the provision of Performance Rights by Company A to employees of the Company A Group pursuant to the Plan, be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A8: No. | Q6: Will irretrievable cash contributions made by Company A or any subsidiary member to the Trustee, to fund the subscription for, or acquisition on-market of Shares pursuant to the Plan, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A9: No | Q7: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A, by the amount of tax benefit gained from the irretrievable cash contributions made by Company A or any subsidiary member to the Trustee, to fund the subscription for, or acquisition on-market of Shares pursuant to the Plan? | A10: No.

Relevant facts and circumstances: Background Company A is an Australian incorporated company. Company A is a public company with shares listed on the Australian Securities Exchange. Company A is the head company of the Company A tax consolidated group (Company A TCG). While the Performance Share Rights Plan is not restricted to Australian tax-resident employees and the term "Participants" is a reference to "primary participant" (as the term is defined under section 1100L of the Corporations Act 2001 (Cth)) in relation to the Group, the scope of this ruling is limited to expenses paid in respect of Performance Rights and Shares granted under the Plan to Participants who are Australian tax-resident employees of members of the Company A TCG who engage in activities that derive income assessable in Australia. The Plan Company A established the Plan in 20XX. The Plan has been renewed and approved by shareholders at their Annual General Meeting in 20XX and 20XX. The purpose of the Plan is to assist in advancing the interests of Company A by creating a stronger link between the performance and reward of Company A's employees and contractors, and shareholder value, by enabling them to have greater involvement with, and share in the future growth and profitability of Company A. The Plan is administered by Company A's board of directors (the Board) or by any persons the Board delegates the exercise of its powers and discretions to, under the Plan. The Plan applies to full or part time employees (including an executive director), a non-executive director, a contractor, a casual employee or a prospective employee in relation to the Group and has been determined by the Board to be eligible to participate in the Plan from time to time (Eligible Person). Offer The Plan broadly operates in the following manner: i. the date of the Offer ii. the name of the Eligible Person iii. the number or value of Performance Rights iv. any applicable conditions relating to the performance of the Eligible Person and/or any or all of the Group Companies (Performance Conditions) v. any restrictions on the ability of a Participant to exercise a vested Performance Right (Exercise Restrictions) vi. the approximate date at which a Performance Condition will be measured (Measurement Date) vii. whether any Performance Rights may be settled by a cash amount equal to the Market Price of the Shares (Cash Equivalent Value) viii. the period or periods which vested Performance Rights may be exercised (including if vested Performance Rights may be automatically exercised) ix. the Expiry Time. Vesting and Exercise Performance Conditions which must be met for Performance Rights to vest (and become exercisable), may include: At each Measurement Date, the Board will notify Participants the extent to which Performance Conditions applicable to any Performance Rights have been satisfied. A Performance Right is exercised if the Participant follows the process set out in the Offer or, if the terms that provide that those Performance Rights are to be automatically exercised, are met. Upon valid exercise of Performance Rights, Company A must, as soon as reasonably practicable, either: Lapse of rights A Performance Right will automatically lapse, unless otherwise determined by the Board, if: Upon the occurrence of a takeover bid, a change of control, a merger or a winding up event (each, a Notification Event), the Board may exercise its discretion to determine whether all, or a portion of unvested Performance Rights will vest. The Board may use an employee share trust for the purposes of holding and delivering Shares and may do all things necessary for the establishment, operation and funding of the trust. Company A is responsible for all expenses, costs and charges in relation to the establishment, implementation and administration of the Plan, including costs incurred or associated with the allocation of Shares for the purpose of the Plan. Trust Deed On X May 20XX, Company A established the Trust under the terms of a trust deed between Company A and the Trustee as trustee of the Trust (Trust Deed). The Trustee is an independent third party. Under the terms of the Trust Deed, the Trust operates as follows: Company A and its subsidiaries within the Company A TCG will incur various costs in relation to the implementation and on-going administration of the Trust, including: Unallocated Shares The Trustee must deal with Unallocated Shares in the manner set out in a Dealing Notice. In respect of each Unallocated Share held by the Trustee, the Trustee must, if instructed by the Board and subject to the Trust Deed: In the absence of any direction from the Board, Forfeited Shares (or proceeds of sale of such Forfeited Shares) must be held by the Trustee in accordance with the Trust Deed. The Trustee may apply any capital receipts, dividends or other distributions received in respect of an Unallocated Share or a right issued under a Rights Issue in respect of that Unallocated Share to purchase further Shares to be held on trust for the purposes of the Trust. The Board may specify that a certain Unallocated Share is to be held by the Trustee for a particular Plan (Specified Unallocated Share).


Reasons for decision: Summary: Company A is entitled to deduct an amount under section 8-1 in respect of the irretrievable cash contributions made by Company A or any of its subsidiaries to the Trustee to fund the subscription of, or on-market acquisition of Shares to satisfy the issue of Performance Rights under the Plan. | Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) allows 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, under 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 in Australia and therefore derives income that is assessable in Australia. Company A operates an employee share scheme (ESS) as part of its employee remuneration strategy. Under the Plan, Company A will grant Performance Rights and Shares to Participants and make irretrievable cash contributions to the Trustee, which the Trustee will use to acquire Shares for allocation to Participants (in accordance with the Plan and the Trust Deed). | Detailed Reasoning - Incurred in gaining or producing assessable income or in carrying on a business: Company A will provide to the Trustee any funds required by the Trustee to comply with its obligations to acquire Shares under the Trust Deed. The cash contributions made by Company A to the Trustee are irretrievable as: Company A will grant ESS interests to Participants under the Plan as part of its remuneration program. The costs incurred by Company A for the acquisition of Shares by the Trustee to satisfy grants of ESS interests to Participants arise as part of these remuneration arrangements, and contributions to the Trust are part of an ongoing series of payments in the nature of the remuneration of those employees. Therefore, subsection 8-1(1) is satisfied. | Detailed Reasoning - Not capital or of a capital nature: The costs incurred by Company A will be an outgoing for the periodic funding of an ESS for employees of the Company A TCG. Costs incurred are likely to be relation to more than one grant of ESS interests, and Company A intends to continue satisfying the ESS interests using Shares acquired by the Trust. This indicates that the irretrievable cash contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the irretrievable cash contributions may be viewed to secure and enduring or last 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 not considered to have a last quality as the contributions which for the Trust's funds is permanently dissipated within a relatively short period of the contributions being made. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied. Accordingly, Company A will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee to acquire Shares to satisfy Performance Rights and Shares granted to its' employees under the Plan. | Summary: Company A will be entitled to deduct an amount under section 8-1 in respect of the costs incurred in relation to the on-going administration of the Trust. | Detailed Reasoning - Detailed reasoning: As discussed in Question 1, subsection 8-1(1) allows you to deduct from your assessable income any loss or outgoing to the extent it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, under 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 capital nature. Company A incurs on-going administration costs in operating the Trust and has appointed the Trustee to administer the Trust. The costs are regular and recurrent which are deductible under section 8-1 as they are costs necessarily incurred by Company A in administering the ESS while carrying on its business for the purpose of gaining or producing its assessable income. These costs are not capital or of a capital nature as the loss or outgoing are regular, recurrent and part of the ordinary employee remuneration costs of Company A (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' ). Accordingly, Company A will be entitled to deduct amount under section 8-1 in respect of the costs incurred in relation to the on-going administration of the Trust. | Summary: Company A will be entitled to deduct an amount under section 40-880 for costs incurred in relation to the establishment or amendment of the Trust. | Detailed Reasoning - Detailed reasoning: Tax Determination TD 2022/8 Income tax: deductibility of expense incurred in establishing and administering an 'employee share scheme' sets out the Commissioner's views on the deductibility of expenses in establishing and administering an ESS. Establishment expenses are outgoings associated with the creation of an ESS and include fees and start-up costs incurred to establish or implement the employee share trust (EST) and ESS Plan Rules. Section 40-880 allows deductions for certain business capital expenditure that fall outside the scope of the deduction provisions in the income tax law. It requires the expenditure to be capital and in relation to the business. As this expenditure relates to remuneration of employees of the employer company who work within that business, the expenditure must be incurred in relation to that business. Section 40-880 contains limitations and exceptions in subsections 40-880(3) to (9) which may prevent a deduction being allowed. Subsection 40-880(3) indicates that the expenditure is only deductible to the extent that the business is carried on for a taxable purpose. The other limitations and exceptions in subsections 40-880(4) to (9) do not prevent the expenses from being deductible under section 40-880. Therefore, establishment and administration expense incurred in relation to the Plan or the Trust, where they relate to employees of the Company A TCG, are deductible in equal proportions over five years under section 40-880 to the extent the business is carries on is for a taxable purpose. | Summary: Company A will be entitled to deduct an amount under section 25-5 for costs incurred for legal, tax and accounting services in respect of costs incurred by Company A in managing the tax affairs of the Trust. | Detailed Reasoning - Detailed reasoning: Section 8-10 states that if more than one income tax deduction provision applies to an amount, the most appropriate provision should be used (i.e. the specific provision should override the general provision). Division 12 sets out particular types of deductions that are dealt with by a specific provision of either the ITAA 1936 or the ITAA 1997. Section 25-5 of the ITAA 1997 is one such provision listed in Division 12 dealing with tax-related expenses. Subsection 25-5(1) allows a deduction for tax-related expenses, such as, managing your tax affairs. Subsection 25-5(4) denies deductions under section 25-5(1) for capital expenditure, however, states that expenditure will not be considered capital merely because the tax affairs concerned related to matters of a capital nature, and provides the following example: Example: Under this section, you can deduct expenditure you incur in apply for a private ruling on whether you can depreciate an item of property. Company A will incur tax related costs in managing the tax affairs of the Trust arising from the drafting and lodgement of a private ruling application with the Australian Taxation Office. The Commissioner accepts that these amounts, would not constitute as capital expenditure due to the operation of subsection 25-5(4). To the extent Company A incurs costs in managing its tax affairs, including costs arising from the preparation and submission of a private ruling application in relation to the Trust's tax affairs, they are tax-related expenses deductible by Company A under subsection 25-5(1) when it lodges the income tax return. | Summary: Irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or acquisition on-market of Shares by the Trustee to satisfy Performance Rights and Shares issued under the Plan to Participants directly employed by Company A, will be deductible to Company A under section 8-1 at a time determined by section 83A-210 if the contributions are made before the acquisition of the relevant ESS interests. | Detailed Reasoning - Detailed reasoning: It is often the case that an outgoing will be both incurred and paid in the same year of income, and as such, will be deductible in that income year for the purposes of section 8-1. Section 83A-210 modifies this rule in certain circumstances in respect of contributions provided by an employer to a trust to purchase shares under an ESS. The effect of section 83A-210 is to deem the time an employer incurred the outgoing to be the time the ESS interest is acquired by a beneficiary, rather than the time the employer makes the contribution to the trust, if the contribution was made before the ESS interests are acquired. 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. The Plan is an ESS for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (that is 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 in relation to their employment with Company A. The ESSs contain a number of interrelated components which include the provision of irretrievable cash contributions by Company A to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly through the Plan, to acquire ESS interests. The deduction for the irretrievable cash contributions made in respect of a Share can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a Share, or beneficial interest in a right to acquire a beneficial interest in a Share, is acquired by Participants of the Plan. | Detailed Reasoning - Indeterminate rights: The Commissioner accepts that Performance Rights provided under the Plan are indeterminate rights for the purposes of section 83A-340. That is because a Performance Right can be settled by either Shares or by making a payment of a cash equivalent amount in lieu of a Share, to be determined at a future time at the discretion of the employer. Accordingly, the issue of a Performance Right under the Plan is not a right to acquire a beneficial interest in a Share unless, and until the time it is determined by the Board that they will be satisfied by the provision of Shares. Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, where it is ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to receive is determined), the indeterminate right will, under section 83A-340, be treated as if it had always been an ESS interest. Section 83A-210 applies equally to contributions made in respect of ESS interests and indeterminate rights. Therefore, an irretrievable cash contribution in respect of an indeterminate rights is taken to have been paid at acquisition time of the ESS interest. If an indeterminate right becomes an ESS interest, deductible contributions made in respect of those rights can be claimed in the income year when the ESS interest is deemed to have been acquired under section 83A-340 (this will be the year in which the indeterminate right was granted to an employee). Once this has been established, such contributions can be matched to ESS interests issued to the employee, and where necessary, the relevant earlier income year assessments can be amended to allow the deduction (item 28 of subsection 170(10AA)). It is important to note that an indeterminate right which is satisfied by the provision of cash never becomes an ESS interest and the contribution to the Trust in respect of the provision of that right is permanently deferred. However, where that ESS interest is subsequently issued to another participating employee, that employee becomes the 'ultimate beneficiary' and the deduction is available in the income year that participating employee acquired that ESS interest. Once it is determined that they will be satisfied by provision of Shares, section 83A-340 operates to treat these rights as though they had always been rights to acquire beneficial interests in shares (therefore, an ESS interest) for the purposes of section 83A-210. If irretrievable contributions are provided to the Trustee before these rights are acquired (and they do subsequently become ESS interest by virtue of section 83A-340), section 83A-210 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1 to be the income year in which Participants originally acquired the Performance Rights under the Plan. | Summary: If the Trust satisfies its obligations under the Plan by subscribing for new Shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5, section 20-20 or trigger a CGT event under Division 104. | Detailed Reasoning - Section 6-5: Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. Receipts of 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 subscription proceeds received by Company A from the Trust can be determined by the character of the right or thing disposed of in exchange for the receipt. Where Company A issues the Trust with new shares in itself, the character of the newly issued share is one of capital. Therefore, the receipt of the subscription proceeds takes the character of share capital and is 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 employee of the option exercise price paid by an employee. When Company A receives subscription proceeds from the Trustee where the Trustee has subscribed to new shares in Company A to satisfy its obligations to Participants of the Plan, those subscription proceeds received are a capital receipt and will not be treated 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. 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. Therefore, the receipt of the subscription proceeds does not constitute an assessable recoupment under subsection 20-20(2) Subsection 20-20(3) provides that an amount received by you as a 'recoupment' of a loss or outgoing, except by way of insurance or indemnity, is an 'assessable recoupment' if you can deduct the loss or outgoing in the current or prior year because of a provision listed in the table in section 20-30. None of the provisions listed in section 20-30 are relevant to the current circumstances. Therefore, the subscription amount also does not constitute an assessable recoupment under subsection 20-20(3). | Detailed Reasoning - Division 104: A capital receipt will only be included as an assessable net capital gain if it arises as a result of a CGT event (section 102-20). The only CGT events that may have possible application to the receipt of the subscription proceeds are CGT event D1 (creating a contractual of other right) and CGT event H2 (receipt for event relating to a CGT asset) or both. Paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that CGT event D1 and CGT event H2 do not apply if a company issues or allots equity or non-equity shares in the company. As the Shares constitute an "equity interest" (see subsection 974-75(1)), neither CGT event D1 nor CGT event H2 will occur. Since no CGT event occurs, the subscription proceeds will not be assessable as a capital gain to Company A. | Summary: Part IVA of the ITAA 1936 will not apply to deny, in part of in full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or acquisition on-market of Shares by the Trust to the extent those contributions have been made to satisfy ESS interests issued to Participants. | Detailed Reasoning - Detailed reasoning: Part IVA is general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would be obtained but for section 177F, 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 any employer provides money or other property to an employee share trust where the conditions of Division 83A are met. The Commissioner also accepts that ongoing expenses associated with the administration of an employee share scheme are deductible under section 8-1 (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred establishing and administering an employee share scheme ). In the case, the employee share scheme does not contain the elements of artificially 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 employee share trust is not being entered into or carried out for the dominant purpose of enabling Company A to obtain a tax benefit. | Summary: The provision of Performance Rights and Shares to employees of the Group under the Plan will not constitute a 'fringe benefit' within the meaning of 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 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. In particular, paragraph (h) of the 'fringe benefit' definition excludes a benefit constituted by the acquisition of an ESS interest under an ESS (within the meaning of the ITAA 1997) to which Subdivision 83A-B or 83A-C applies. The Commissioner accepts that the Plan is an ESS as a Performance Right granted under the Plan is an ESS interest to which Subdivision 83A-B or 83A-C applies. Participants acquire ESS interests in lieu of future salary or wages they would otherwise earn (in line with subparagraph 83A-104(4)(a)(i)) (Taxation Ruling TR 2001/20: Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements) . Accordingly, the provision of Performance Rights under the Plan that are ultimately satisfied with Shares will not constitute a 'fringe benefit' by virtue of paragraph (h) in subsection 136(1) of the FBTAA. | Detailed Reasoning - Indeterminate rights: The Commissioner also accepts that Performance Rights granted under the Plan that may be satisfied in cash instead of Shares are indeterminate rights. At the time that Performance Rights are granted under the Plan, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because those Performance Rights may be satisfied in cash instead of Shares. Hence, they may not be ESS interests within the meaning of subsection 83A-10(1). Where those Performance Rights are ultimately satisfied with Shares instead of cash, section 83A-340 will operate to treat those Performance Rights to have always been ESS interests within the meaning of subsection 83A-10(1). In these circumstances, the Plan will constitute an ESS within the meaning of subsection 83A-10(2) because it is a scheme under which interests are provided to employees of the Group in relation to their employment. When Performance Rights granted under the Plan are 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 to ATO Interpretative Decision ATO ID 2010/219 Fringe benefits tax fringe benefit: shares provided to employees upon the exercise of rights granted under an employee share scheme) . For completeness, where the Award granted under the Plan is ultimately satisfied with cash instead of Shares, the granting of the Performance Right under the Plan will be viewed as a series of steps in the payment of salary or wages, and not a separate benefit to the payment of salary or wages which are excluded from the definition of a fringe benefit by paragraph 136(1)(f) of the FBTAA. This outcome is consistent with the ATO Interpretative Decision ATO ID 2010/142 Fringe benefits tax employee share scheme: indeterminate rights not fringe benefits. | Summary: The irretrievable cash contributions made by Company A to the Trustee, to subscribe for, or acquire on-market, Shares under the Plan will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefit taxes arises under section 66 of the 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 definition. Paragraph 136(1)(ha) of the FBTAA excludes from the definition of 'fringe benefit': (ha) a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997); Therefore, for the irretrievable cash contributions to be excluded from the definition of 'fringe benefit', the Trust must be an 'employee share trust' as defined in subsection 130-85(4). In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that are relevant. To qualify as an EST, a trustee's activities must be limited to: In the present case, paragraphs 130-85(4)(a) and (b) are satisfied because: Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(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'? (TD 2019/13). Activities that involve 'investing in assets other than shares or rights to shares, in the employer company' or result in employees being provided with additional benefits (such as the provision in 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 paragraphs 130-85(a) and (b). The other activities undertaken by the Trustee are merely incidental to managing the Plan under paragraph 130-85(4)(c). Therefore, the irretrievable cash contributions made by Company A to fund the subscription for, or acquisition on-market, of Shares under the Plan will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA. | Summary: The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregated fringe benefit taxable amount to Company A or any subsidiaries within the Group, by the amount of tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or on-market acquisition of, Shares pursuant to the Plan. | Detailed Reasoning - Detailed reasoning: Section 67 of the FBTAA is a general anti-avoidance provision of the FBTAA. Subsection 67(1) of the FBTAA 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. The Commissioner will only make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits taxes than would be payable but for entering into the arrangement. Without the provision of a fringe benefit, no amount will be subject to fringe benefits taxes. The benefits provided to the Trustee by way of irretrievable cash contributions to the Trust under the Plan is excluded from the definition of a fringe benefit for the reasons provided in response to Question 7. As these benefits have been excluded from the definition of a fringe benefit, the fringe benefits tax 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 applies to increase the aggregated fringe benefits amount of Company A by the amount of tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or on-market acquisition of Shares pursuant to the Plan.

Question 2(a): Will Company A as head company of the Company A TCG be entitled to obtain an income tax deduction under section 8-1 of the ITAA 1997, for costs incurred by Company A or any subsidiary member of the Company A TCG in relation to the on-going administration of the Trust? | Question 2(b): Will Company A as head company of the Company A TCG be entitled to obtain an income tax deduction under section 40-880 of the ITAA 1997, for costs incurred by Company A or any subsidiary member of the Company A TCG in relation to the establishment or amendment of the Trust? | Question 2(c): Will Company A as head company of the Company A TCG be entitled to obtain an income tax deduction under section 25-5 of the ITAA 1997, for costs incurred by Company A or any subsidiary member of the Company A TCG in relation to managing the tax affairs of the Trust? | the Board will offer to an Eligible Person the ability to participate in the Plan (Offer) by providing them with the terms and conditions of the Offer, an Application Form, and any ancillary documentation (if applicable) | an Offer will include, amongst other things: | upon receipt of an Offer, an Eligible Person can only participate in the Plan by completing the Application Form and returning it to Company A, or by nominating a Nominee to whom they wish to be granted the Performance Rights specified in the Offer | the Board, in its discretion, can refuse to allow an Eligible Person (or Nominee) to participate in the Plan in accordance with the Plan Rules | following the receipt of a completed Application Form, Company A will grant to the Eligible Person (or Nominee), as the case may be, the number of Performance Rights set out in the Offer, at which time the Eligible Person (or Nominee) will become a Participant (or Permitted Nominee) of the Plan and is thereby bound by the terms and conditions of the Plan | a Participant cannot transfer, assign, encumber or otherwise dispose of any Performance Rights, and cannot grant any Security Interest in or over any Performance Rights until the relevant Shares are acquired by that Participant. | individual performance metrics | corporate performance metrics | a payment of cash consideration for the issuance of Shares (Cash Payment Performance Condition) | the completion of a period of time (Time-based Performance Condition). | issue, allocate or procure the transfer to, or for the benefit of, the Participant, the relevant number of Shares | provide the Participant with a Cash Equivalent Value (settleable outside of the Trust) | issue, allocate or transfer a combination of Shares and Cash Equivalent Value. | any Performance Conditions are not satisfied or cannot be satisfied by the Measurement Date | an Eligible Person ceases to be an Eligible Person due to termination of employment or any contracting agreement, for serious misconduct, fraud or applicable law (Cause) | a vested Performance Right is not exercised earlier by the earlier of 3 months after the vesting date or the Expiry Time. | the sole purpose of the Trust is limited to subscribing for, acquiring, holding and transferring Shares in connection with equity incentive plans established by Company A for the benefit of participants of those plans | nothing in the Trust Deed confers on Company A any charge, lien or any other proprietary right or proprietary or beneficial interest in the Trust Assets | the Board may by notice in writing (Dealing Notice) instruct the Trustee to subscribe for, purchase or allocate Shares to be held by the Trustee as Allocated Shares in respect of a Participant | the Board may by a Dealing Notice instruct the Trustee to subscribe for, purchase or allocate Shares to be held by the Trustee as Unallocated Shares in accordance with the Trust Deed | the Trustee must establish and maintain a separate trust share account in respect of each Participant containing details of Shares allocated to or transferred from, proceeds of sale from Trust Shares and any other credit or debit relevant to that Participant | Company A must provide the Trustee, or cause the provision of, any funds required by the Trustee to subscribe for, or purchase Shares and, to meet any costs in connection with the relevant dealing | all funds provided to the Trustee will constitute accretions to the corpus of the Trust and will not be repayable to Company A | the Trustee must not use any Trust Assets of Trust Shares as security | the Trustee is not entitled to be paid whether from Trust Assets or any Participant, any fees or charges for administering the Trust. Notwithstanding, the Trustee may recover from Trust Assets (excluding Allocated Shares, Unallocated Shares (other than those Unallocated Shares which are also Forfeited Shares) and dividends from Allocated Shares) all reasonable disbursements actually incurred by the Trustee for managing the Trust | the Trustee is not prohibited from charging Company A fees, charges, commission or other remuneration, and may also seek reimbursement of reasonable disbursements actually incurred by the Trustee for managing the Trust | where required, the Trustee must as soon as practicable do all things necessary to transfer legal title in a Participant's Allocated Shares to the Participant (or Permitted Nominee) | the Board may direct the Trustee to do all things required to transfer a Participant's Allocated Shares to the relevant recipient and pay any monies held on account for the Participant | a Participant will be the beneficial owner of, and is absolutely entitled to their Allocated Shares, and is presently entitled to so much of the Net Income of the Trust for a Year of Income which is attributable to their Allocated Shares | the balance of the Net Income for a Year of Income to which no Participant is presently entitled to may be accumulated by the Trustee as an accretion to the corpus of the Trust | upon termination of the Trust, any Surplus Assets must not be paid to any Group Company. | audit and tax advisor fees | bank and other administrative charges | fees paid to share registry as Trustee of the EST | regulatory fees and stamp duty. | dispose of any Forfeited Shares that are Unallocated Shares, provided that such disposal is in accordance with the Trust Deed | reallocate any Forfeited Shares to one or more Participants to be held under the Trust Deed as Allocated Shares | participate in any Rights Issue in respect of that Unallocated Share | hold any bonus shares issued in respect of that Unallocated Share on trust. | all funds received by the Trustee from Company A will constitute accretions to the corpus of the Trust and will not be repayable to Company A, other than as consideration for Shares subscribed for by the Trustee in accordance with the Trust Deed, the Plan, or relevant terms or participation | nothing in the Trust Deed confers, or is intended to confer, on Company A any charge, lien or any other proprietary right, or proprietary or beneficial interest in Shares | obtaining shares or rights in a company (paragraph 130-85(4)(a)) | ensuring that ESS interest in the company that are beneficial interests in those shares or rights are provided under an ESS to employees, or associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b)) | other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(a)(c)). | the Trust acquires Shares in Company A | the Commissioner accepts that the Plan is an ESS under which ESS interests are provided to Participants | the Trustee ensure that ESS interest (as defined in subsection 83A-10(1)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating Shares to Participants in accordance with the Trust Deed and the Plan.