Private ruling: Employee share schemes
Date of advice: 21 November 2024
Published: 13 January 2025
Ruling period: Income years ending 30 June 20XX to 30 June 20YY
Date scheme commenced: In a particular year

Ruling: Q1: Will Company X be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 ( ITAA 1997 ) in respect of the irretrievable cash contributions made by Company X to the Trustee to fund subscription for, or on-market acquisition of, Shares by the Trust? | A1: Yes. | Q2: Will Company X be entitled to deduct an amount under section 8-1 of the ITAA 1997, in respect of costs incurred by Company X in relation to the on-going administration of the Trust? | A2: Yes. | Q3: Will Company X be entitled to deduct an amount under section 40-880 of the ITAA 1997, in respect of costs incurred by Company X in relation to the implementation and establishment of the Trust? | A3: Yes. | Q4: Will the irretrievable cash contributions made by Company X to the Trustee, to fund subscription for, or on-market acquisition of, Shares by the Trust, be deductible to Company X at a time determined by section 83A-210 of the ITAA 1997, to the extent those contributions are made before the acquisition of Awards by the Participants? | A4: Yes. | Q5: If Trustee satisfies its obligations under the Plans by subscribing for new Shares, will the subscription proceeds be included in the assessable income of Company X under section 6-5 or section 20-20 of the ITAA 1997, or trigger a CGT event under Division 104 of the ITAA 1997? | A5: No. | Q6: 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 X in respect of the irretrievable cash contributions made by Company X to the Trustee to fund subscription for, or on-market acquisition of, Shares by the Trust? | A6: No. | Q7: Will the provision of Awards by Company X to Participants under the Plans constitute a 'fringe benefit' within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A7: No. | Q8: Will the irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed, to fund subscription for, or on-market acquisition of, Shares by the Trust constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA? | A8: No. | Q9: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company X by the amount of tax benefit gained from irretrievable cash contributions made by Company X to the Trustee, to fund subscription for, or on-market acquisition of, Shares by the Trust? | A9: No.

Relevant facts and circumstances: Company X 1. Company X is the head company of an income tax consolidated group ( Group ). 2. Company X is an employer that makes contributions to the Company X Employee Share Plan Trust ( Trust ) for its employees who participate in employee shares schemes ( ESS ). ESS 3. Company X established a number of ESS plans ( Plans ). 4. For the purposes of this Ruling, shares in Company X are referred to as ' Shares '. 5. The Plans provides eligible employees with rights to acquire Shares ( Rights ), options to acquire Shares ( Options ) and Shares that are subject to dealing restrictions ( Restricted Shares ) (collectively, Awards ). 6. The Rights and Options granted under the Plans are either for nil consideration or subject to deferred taxation under Subdivision 83A-C of the ITAA 1997. 7. Some Rights and Options offered under the Plans may be satisfied in cash instead of Shares. 8. The Restrictive Shares granted under the Plans are for nil consideration. 9. Eligible employees are invited to participate in the relevant Plans via an invitation letter setting out the terms and conditions of the offer ( Invitation Letter ). 10. For the purposes of this Ruling, an eligible employee or participant who has been granted one or more Awards under the Plans is referred to as a Participant . Trust 11. The Trust was established by Company X and trustee of the Trust ( Trustee ) 12. The Trust was established for the sole purpose of subscribing for, acquiring, holding and transferring Shares in connection with ESS plans established by Company X for the benefit of the Participants in those plans. Trust Deed and related matters 13. The Trust operates under the terms of the trust deed executed on XX XX 20XX ( Trust Deed ) as described below. 14. The Trustee must hold a Participant's allocated Shares on trust of, and on behalf of, that Participant. 15. Each Participant will be the beneficial owner of and absolutely entitled to their allocated Shares and all benefits and privileges attached to, or resulting from holding, those allocated Shares. 16. The Trustee must hold all other Trust assets (including unallocated Shares), on trust of, and on behalf of, certain Participants and employees of Company X generally. 17. Nothing in the Trust Deed confers or is intended to confer on Company X any charge, lien or any other proprietary right or proprietary or beneficial interest in the Trust assets. 18. Subject to the Trust Deed, the applicable law (including in relation to subsection 130-85(4) of the ITAA 1997, and statements or guidance of the Commissioner of Taxation) and certain other conditions, the Trustee in its reasonable discretion has the power to do all things a trustee is permitted to do by law in respect of the Trust and the Trust assets, including, amongst other things, the following: • to enter into and execute all contracts, deeds and other documents and do all acts, matters or things it in its discretion considers necessary to give effect to and carry out the trusts, authorities, rights, powers and discretions conferred on the Trustee under the Trust Deed; • to enter into and give undertakings; • to acquire, hold, dispose or otherwise deal with on any terms any Trust assets for the purposes of the Trust Deed; • to subscribe for, purchase or otherwise acquire Trust assets or rights which the Trustee is authorised by the Trust Deed to acquire, and (where relevant) on such terms and conditions as it thinks fit, and do all things incidental to this activity; • to sell or otherwise dispose of Trust assets or rights which the Trustee is authorised by the Trust Deed to dispose of, and (where relevant) on such terms and conditions as directed by the relevant Participant, and do all things incidental to this activity; and • to receive dividends or distributions in relation to the trust shares and to apply those amounts under the Trust Deed. 19. Despite any other provision of the Trust Deed, the Trustee: • in its capacity as trustee of the Trust, may only carry out activities that constitute the management of one or more Plans; • is not permitted to offer, issue, transfer or acquire any Share or any right to any Share if to do so would contravene any applicable law and is not obliged to offer, issue, transfer or acquire any Share or any right to any Share where compliance with any applicable law would in the opinion of the Trustee or the board be unduly onerous or impractical; • is not permitted to carry out activities in its capacity as trustee of the Trust that are not matters or things which are necessary or expedient to administer and maintain the Trust and the Trust assets or for the purpose of giving effect to, and carrying out, the trusts, authorities, powers and discretions conferred on the Trustee by the Trust Deed or the law; • is not permitted to carry out activities which result in the Participants being provided with additional benefits other than the benefits that arise from the Trust Deed, rules of the relevant Plan and the relevant terms of participation; and • may not use any Trust assets as security. 20. The Trustee is not entitled to be paid, whether from the Trust assets or any Participant, any fees or charges for administering the Trust. The Trustee may recover from the Trust assets (excluding from allocated shares, unallocated shares and dividends from allocated shares) all reasonable disbursements actually incurred by the Trustee in performing its duties pursuant to the Trust Deed. 21. The Trustee may charge Company X any fees, charges, commission and other remuneration (which Company X and the Trustee agree from time to time) and may also seek reimbursements of reasonable disbursements incurred by the Trustee for managing the Trust if not recovered from the Trust assets. 22. The Trust will be managed and administered so that it satisfies the definition of 'employee share trust' ( EST ) for the purposes of subsection 130-85(4) of the ITAA 1997. 23. The Trustee will not hold other securities (which are not Shares). 24. If the Trustee has received a dealing notice, subject to the Trustee receiving sufficient funds or having sufficient capital as required by that dealing notice and satisfying certain other conditions, the Trustee must: • subscribe for, or purchase the requisite number of Shares on behalf of the relevant Participants or beneficiaries of the Trust generally; • allocate any unallocated Shares to one or more Participants; or • effect a combination of the above. 25. All funds provided to the Trustee by Company X will constitute accretions to the corpus of the Trust and will not be payable or repayable by the Trustee to Company X or any other entities, other than being paid to Company X as consideration for the subscription of Shares provided such Shares are held under the terms of the Trust Deed. 26. At the end of the disposal restriction period and subject to certain matters, a Participant may give to the Trustee a withdrawal notice. Upon receipt of a valid withdrawal notice and subject to Company X's approval of that withdrawal notice, the Trustee must transfer the requisite number of allocated Shares into the name of the Participant or any third party as directed by the Participant. 27. Company X will indemnify the Trustee in respect of all liabilities, costs and expenses incurred by the Trustee in performing its duties or in the execution or purported execution of any of its powers, authorities or discretions vested in the Trustee. 28. Company X will indemnify the Trustee in respect of any tax payable by the Trustee in respect of any unallocated Shares unless the Trustee has sufficient available funds to pay the tax. 29. Upon the termination of the Trust, all Trust assets are to be distributed in a particular order. If there are any remaining assets ( Surplus Assets ), the Trustee will transfer the Surplus Assets to an EST established and maintained for the employees or any charity that the Trustee thinks fit. 30. The Trustee must not pay any of the Surplus Assets to Company X or the Group. Establishment and on-going administration costs of the Trust 31. Company X incurred or will incur various costs for the implementation and establishment of the Trust. 32. Company X will incur various on-going administration costs in respect of the on-going administration and management of the Trust, for services including but not limited to: a) employee plan record keeping; b) production and dispatch of holding statements to employees; c) acquisition of Shares on market, such as brokerage and the allocation of such Shares to Participants; d) annual audit of the financial statements; and e) preparation of the annual income tax return of the Trust. Contributions to the Trust 33. Generally, Company X will wait until the Rights or Options vest before providing the Trust with the irretrievable cash necessary to acquire Shares to satisfy the acquisition or subscription of Shares related to those Awards. In the event that Restricted Shares are granted, Company X will also typically wait until the grant of Restricted Shares to make related contributions to the Trust. 34. Where it makes commercial sense to do so, Company X may make cash contributions to the Trust prior to the Awards being issued or granted to the Participants.

Relevant legislative provisions: Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 section177F | Income Tax Assessment Act 1936 section 6-5 | Income Tax Assessment Act 1936 subsection 20-20(2) | Income Tax Assessment Act 1936 subsection 20-20(3) | Income Tax Assessment Act 1936 section 20-20 | Income Tax Assessment Act 1936 section 8-1 | Income Tax Assessment Act 1936 subsection 8-1(1) | Income Tax Assessment Act 1936 Paragraph 8-1(1)(b) | Income Tax Assessment Act 1936 Paragraph 8-1(2)(a) | Income Tax Assessment Act 1936 section 40-880 | Income Tax Assessment Act 1936 subsection 40-880(3) | Income Tax Assessment Act 1936 subsection 40-880(4) | Income Tax Assessment Act 1936 subsection 40-880(5) | Income Tax Assessment Act 1936 subsection 40-880(6) | Income Tax Assessment Act 1936 subsection 40-880(7) | Income Tax Assessment Act 1936 subsection 40-880(8) | Income Tax Assessment Act 1936 subsection 40-880(9) | Income Tax Assessment Act 1936 section 83A-210 | Income Tax Assessment Act 1936 section 83A-10 | Income Tax Assessment Act 1936 subsection 83A-10(1) | Income Tax Assessment Act 1936 subsection 83A-10(2) | Income Tax Assessment Act 1936 subsection 83A-105(1) | Income Tax Assessment Act 1936 section 83A-340 | Income Tax Assessment Act 1936 subdivision 83A-B | Income Tax Assessment Act 1936 subdivision 83A-C | Income Tax Assessment Act 1936 subsection 130-85(4) | Income Tax Assessment Act 1936 Paragraph 130-85(4)(a) | Income Tax Assessment Act 1936 Paragraph 130-85(4)(b) | Income Tax Assessment Act 1936 Paragraph 130-85(4)(c) | Income Tax Assessment Act 1936 section 102-20 | Income Tax Assessment Act 1936 Division 104 | Income Tax Assessment Act 1936 Paragraph 104-35(5)(c) | Income Tax Assessment Act 1936 Paragraph 104-155(5)(c) | Income Tax Assessment Act 1936 subsection 974-75(1) | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: Paragraph 8-1(1)(b) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to paragraph 8-1(2)(a), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. | Detailed Reasoning - Necessarily incurred: For a deduction to be allowable under paragraph 8-1(1)(b), a nexus must exist between the outgoing and a business carried on for the purpose of gaining or producing of assessable income. In Magna Alloys & Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180, the Full Federal Court stated that an outgoing is necessarily incurred in carrying on a business where, viewed objectively, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income. Company X carries on a business for the purpose of gaining or producing assessable income and operates the Plans as part of its remuneration strategy. The Plans provide for the use of a trust for the purposes of acquiring and holding Shares on behalf of and delivering those Shares to Participants. Company X must provide the Trustee with any funds required by the Trustee in order to purchase, subscribe for and allocate Shares under the Plans. The Trustee is not obliged to act unless it receives sufficient payment from Company X. Therefore, there is sufficient nexus between the cash contributions made by Company X to the Trustee to acquire Shares and Company X's remuneration arrangements with its employees, which directly relate to the business carried on by Company X for the purpose of producing Company X's assessable income. However, for the cash contribution to be deductible under section 8-1, the contribution must be a permanent loss or outgoing to which Company X has definitely committed itself and there should be no circumstance in which Company X can retrieve any of the contributions ( Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339 and Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650 ( Spotlight )). The cash contributions made by Company X to the Trustee are irretrievable and non-refundable to Company X as the Trust Deed do not contain any clauses which allow any trust funds to be returned to Company X or any other entities from the Trust for purposes other than acquiring Shares to implement the Plans. Therefore, the irretrievable cash contributions are necessarily incurred by Company X in carrying on its business. The advantage provided by each irretrievable cash contribution to the Trustee does not have a lasting quality because it forms part of the overall remuneration of Company X's employees, Furthermore, the irretrievable cash contributions are a recurring outlay (rather than a once-off payment). Therefore, it can be concluded that the cash contributions are not capital, or of a capital nature ( Sun Newspapers Limited v Federal Commissioner of Taxation [1938] HCA 73 and Spotlig ht at paragraph 71). Based on the above analysis, Company X will be entitled to a deduction under section 8-1 in respect of the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition on-market, of Shares by the Trust.. | Detailed Reasoning - Question 2: As discussed above in Question 1, for a deduction to be allowable under subsection 8-1(1), there must be sufficient nexus between the loss or outgoing and the gaining or producing of assessable income. As explained above, Company X carries on a business for the purpose of gaining or producing assessable income and operates the Plans as part of its remuneration framework. Under the Trust Deed, Company X will indemnify the Trustee in respect of all liabilities, costs and expenses incurred by the Trustee in performing its duties and the Trustee may charge Company X any fees, charges, commission and other remuneration incurred by the Trustee for managing the Trust if not recovered from the trust assets. Furthermore, Company X will necessarily incur various on-going administration costs in respect of the on-going administration and management of the Trust, in operating its remuneration framework for the purpose of carrying on its business to gain or produce assessable income, for services including but not limited to: (a) employee plan record keeping; (b) production and dispatch of holding statements to employees; (c) acquisition of Shares on market, such as brokerage and the allocation of such Shares to Participants; (d) annual audit of the financial statements; and (e) preparation of the annual income tax return of the Trust. These on-going administration 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 X (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' ( TD 2022/8 )). Accordingly, Company X 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. | Detailed Reasoning - Question 3: 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. 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. TD 2022/8sets out the Commissioner's views on the deductibility of expenses in establishing and administering an ESS, it relevantly provides: 4. Establishment expenses are not deductible to the employer company under section 8-1 because they are capital in nature. 5. Establishment expenses are deductible to the employer company in equal proportions over five years under section 40-880 to the extent that the business is carried on for a taxable purpose. 6. Establishment expenses are outgoings associated with the creation of an ESS and include: • legal fees incurred in establishing the EST and ESS plan rules • start-up costs; for example, trustee company commencement charges, and • registration fees with various authorities; for example, stamp duty and Australian Securities & Investments Commission fees. Company X incurred or will incur various costs for the implementation and establishment of the Trust. As these implementation and establishment expenses relate to remuneration of employees who work within Company X's business, the expenditure must be incurred in relation to Company X's business. Therefore, establishment and administration expenses incurred in relation to the Plans or the Trust, where they relate to employees who work within Company X's business, are deductible in equal proportions over five years under section 40-880 to Company X, to the extent that Company X's business carried on is for a taxable purpose. | Detailed Reasoning - Question 4: Section 83A-210 applies to determine the timing of the deduction of contributions provided under an ESS arrangement, but only if the contribution is made before the ESS interest is acquired by the ultimate beneficiary under the employee share scheme. 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. An 'employee share scheme' is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees of a company, or a subsidiary of the company, in relation to the employee's employment. An 'ESS interest' in a company is defined in subsection 83A-10(1) 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. Some Rights and Options offered under the Plans may be satisfied in cash instead of Shares, and are therefore indeterminate rights. If the Awards are Options or Rights: • which are not indeterminate rights, the relevant Plans are ESS under which Participants are provided with rights to acquire beneficial interests in Shares (i.e. ESS interests) in relation to their employment and as employees of Company X. Therefore, in respect of any irretrievable cash contributions that are made (or will be by made) by Company X to the Trustee before the Participant acquires those Options or Rights, section 83A-210 will apply to modify the timing of deductions to be claimed by Company X to the income year in which those Options or Rights are acquired by the Participants; and • which are indeterminate rights, they are not rights to acquire beneficial interests in shares (i.e. they are not ESS interests at the time they are granted). However, where those indeterminate rights are ultimately satisfied with Shares instead of cash, section 83A-340 will operate to treat those Options or Rights to have always been ESS interests within the meaning of subsection 83A-10(1). Therefore, if irretrievable contributions are provided to the Trustee before those Rights or Options are acquired by the Participants and they subsequently become ESS interests by virtue of section 83A-340, section 83A-210 will apply retrospectively to modify the timing of the deduction claimed by Company X to be the time when those Options or Rights were originally acquired by the Participants under the Plans. For completeness, those Rights or Options that are ultimately satisfied by cash consideration are not ESS interests and no deduction is available in respect of irretrievable cash contributions made by Company X to the Trustee in respect of those Rights and Options which are satisfied by cash consideration. Restricted Shares granted under the Plans are beneficial interests in Shares and are not indeterminate rights. Therefore, they are ESS interests for the purposes of subsection 83A-10(1) at the time they are granted to the Participants under the Plans (which are ESS). Therefore, in respect of any irretrievable cash contributions that are made (or will be by made) by Company X to the Trustee before the Restricted Shares are granted to the Participants, section 83A-210 will apply to modify the timing of deductions to be claimed by Company X to the income year that the Participants are granted the Restricted Shares. | Detailed Reasoning - Section 6-5: Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. The expression 'income according to ordinary concepts' is not a defined term. However, case law has identified certain factors to be taken into consideration. The characterisation of the subscription proceeds received by Company X from the Trustee can be determined by the character of the right or thing disposed of in exchange for the subscription proceeds ( GP International Pipecoaters v. Federal Commissioner of Taxation [1990] HCA 25). Where Company X issues the Trustee 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, which is capital in nature. Accordingly, the subscription proceeds should not be treated as ordinary income assessable in the hands of Company X 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 an assessable recoupment 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. The subscription proceeds received by Company X from the Trustee would not represent an amount received by way of insurance or indemnity, as there is no insurance contract and the receipt does not arise because of a statutory or contractual right of indemnity nor in the nature of compensation. Subsection 20-20(3) makes assessable a recoupment of a loss or outgoing that is deductible in the current income year, or has been deductible or deducted in a previous income year, where the deduction was claimed under a provision in section 20-30. None of the provisions listed in the table in section 20-30 are relevant to a receipt of subscription proceeds. Therefore, the subscription proceeds received by Company X from the Trustee will not constitute an assessable recoupment under section 20-20. | Detailed Reasoning - Division 104: You make a capital gain or loss if and only if a CGT event happens (section 102-20). The relevant CGT events that may be applicable when the subscription proceeds are received by Company X are CGT event D1 (creating a contractual or other rights) and/or CGT event H2 (receipt for event relating to a CGT asset). However, paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that CGT events D1 and H2 do not apply if a company issues or allots equity interests or non-equity shares in the company. As the ordinary shares of Company X constitute 'equity interests' as defined in subsection 974-75(1), neither CGT event D1 nor H2 will occur. Accordingly, the subscription proceeds will not be assessable as a capital gain to Company X under Division 104. | Detailed Reasoning - Question 6: Part IVA of the ITAA 1936 is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, 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 EST 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 EST arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company X to obtain a tax benefit. | Detailed Reasoning - Fringe benefit: 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. Relevantly, paragraph (h) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA excludes the following from being a fringe benefit: ...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... | Detailed Reasoning - Options or Rights which are not indeterminate rights: As discussed earlier, if the Awards are Options or Rights which are not indeterminate rights, they are ESS interests and the relevant Plans are ESS. Subsection 83A-20(1) states that Subdivision 83A-B applies to an ESS interest if you acquire the interest under an ESS at a discount. The Options and Rights granted under the Plans are either for nil consideration or subject to deferred taxation under Subdivision 83A-C. Hence, those Rights and Options, which are not indeterminate rights, are ESS interests under ESS to which Subdivision 83A-B or 83A-C will apply. Accordingly, the grant of those Options or Rights under the Plans, which are not indeterminate rights, will be excluded from being fringe benefits by paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. For completeness, at the time those Options or Rights, which are not indeterminate rights, are exercised or vested, it will not give rise to a 'fringe benefit' as any benefits received by the Participants would be in relation to the exercise of those Options or Rights and not in respect of their 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 ). | Detailed Reasoning - Options or Rights which are indeterminate rights: As discussed earlier, if the Awards Options or Rights which are indeterminate rights, they may not be ESS interests within the meaning of subsection 83A-10(1) and therefore, paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA may not apply to exclude the indeterminate rights as a fringe benefit. However, where the indeterminate rights are ultimately satisfied with Shares instead of cash, section 83A-340 will operate to treat those Options or Rights to have always been ESS interests within the meaning of subsection 83A-10(1). In these circumstances, the relevant Plans will constitute ESS within the meaning of subsection 83A-10(2). Accordingly, indeterminate rights granted under the Plans, which are ultimately satisfied with Shares instead of cash are excluded from being a fringe benefit by paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. Further, indeterminate rights granted under the Plans which are satisfied with cash consideration, will not constitute a 'fringe benefit' by virtue of the exclusion in paragraph (f) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA (refer to ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee Share Scheme: indeterminate rights not fringe benefits ). | Detailed Reasoning - Restricted Shares: As discussed earlier, Restricted Shares are ESS interests and the relevant Plans are ESS. Restricted Shares are granted to the Participants for nil consideration (i.e. they are acquired at a discount) and therefore are ESS interests to which Subdivision 83A-B will apply at the time they are granted, unless the conditions in subsection 83A-105(1) are satisfied, in which case Subdivision 83A-C will apply. Accordingly, the grant of Restricted Shares under the Plans will be excluded from being a fringe benefit by paragraph (h) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. | Detailed Reasoning - Question 8: Paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) 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 ); An employee share trust is defined in subsection 130-85(4) as 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). Paragraphs 130-85(4)(a) and (b) are satisfied because the Trust: • acquires shares in a company, namely Company X; and • ensures that ESS interests as defined in subsection 83A-10(1) (being the Awards that are settled with Shares (i.e. not settled with cash) and the Restricted Shares granted) are provided under the ESS (established by the Plans) by allocating Shares to Participants in accordance with the Trust Deed, the Plans and the Invitation Letters. 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 Commissioner's view on the types of activities that are and are not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? Whether a trust is an 'employee share trust' for the purposes of subsection 130-85(4) requires an analysis of what the trustee actually does, not only the powers and duties that are prescribed in the trust's deed. Having regard to scheme as set out in the 'Relevant facts and circumstances', it is our view that the Trust is an EST as defined in subsection 130-85(4). Therefore, the irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed to fund subscription for, or on-market acquisition of, Shares by the Trust will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA, as the exclusion in paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will apply. | Detailed Reasoning - Question 9: Section 67 is a general anti-avoidance provision in the FBTAA. Subsection 67(1) of the FBTAA is satisfied where a person, or one of the persons who entered 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. Paragraphs 185 to 188 of PS LA 2005/24 Application of General Anti-Avoidance Rules ( PSLA 2005/24 ) provides guidance in respect of section 67 of the FBTAA. As discussed above, the irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed to fund subscription for, or on-market acquisition of, Shares by the Trust will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA, as the exclusion in paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will apply. As these benefits (i.e. the irretrievable cash contributions) have been excluded from the definition of a fringe benefit, there is no fringe benefits tax payable under the arrangement which includes the use of the Trust. Furthermore, if the Trust was not used in the ESS (i.e. to acquire and hold Shares), there would equally be no fringe benefits tax payable (nor is it likely that any fringe benefits tax would be payable under alternative remuneration plans), the fringe benefits tax liability is not any less than it would have been but for entering into the arrangement. Hence, the Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of Company X by the amount of tax benefit gained from the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, on-market acquisition of, Shares.

Reasons for decision: All legislative references are to the ITAA 1997 unless otherwise indicated.