Private ruling: Employee share trust
Date of advice: 23 April 2026
Published: 13 July 2026
Ruling period: Questions 1 to 6 | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Questions 7 to 9 | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX
Date scheme commenced: XX XX XXXX

Ruling: Q1: Will the Company as the head company of the tax consolidated group (the Group) obtain an income tax deduction, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition off-market of ordinary shares in Company (Shares) by the Company Employee Share Trust (Trust) to satisfy the issue of Shares by the Trustee to Participants under the Company Employee Equity Incentive Plan (Plan)? | A1: Yes. | Q2: Will the Company as head company of the Group obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by the Company or any subsidiary member of the Group in relation to the on-going administration of the Trust? | A2: Yes. | Q3: Will the Company as head company of the Group obtain an income tax deduction, pursuant to section 40-880 of the ITAA 1997, in respect of the costs incurred by Company or any subsidiary member of the Group in relation to the implementation of the Trust? | A3: Yes. | Q4: Will irretrievable cash contributions made by the Group to the Trustee, to fund the subscription for, or acquisition off-market of, Shares by the Trust pursuant to the Plan, be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997 where contributions are made before the acquisition of the relevant 'ESS interest' (as defined in subsection 83A-10(1) of the ITAA 1997)? | A4: Yes. | Q5: If the Trust satisfies its obligation under the Plan by subscribing for new shares in the Company, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 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 full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Group to the Trustee to fund the subscription for or acquisition off-market of Shares by the Trust pursuant to the Plan? | A6: No. Issue 2 - Fringe Benefits Tax | Q7: Will the provision of Rights or Shares by the Company to employees or employees of other employer entities within the Group under the Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | A7: No. | Q8: Will the irretrievable cash contributions made by the Company or other employer entities within the Group to the Trustee, to fund the subscription for or acquisition off-market of Shares pursuant to the Plan, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | A8: No. | Q9: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company or any employer entity within the Group, by the amount of tax benefit gained from irretrievable cash contributions made by the Group to the Trustee, to fund the subscription for or acquisition off-market of Shares pursuant to the Plan? | A9: No.

Relevant facts and circumstances: 1. The Company is a privately owned Australian registered company that operates in the financial services sector. 2. The Company carries on business in Australia. 3. The performance of the Company is strongly correlated with the quality of its employees. Operating conditions within the business and industry that the Company operates in have significantly heightened the need for strong and effective people leadership so as to attract and retain talent, preserve and promote a positive culture and working environment, recognise and adopt best practice with respect to social and cultural policy, and ensure work practices, processes and administration are robust practically, legally, ethically and morally. Accordingly, the Company rewards key employees with a mix of remuneration commensurate with their position and responsibilities. Remuneration structures are reviewed regularly to ensure that: • remuneration is competitive by market standards; • rewards are linked to strategic goals and performance; and • accountabilities and deliverables are clearly defined to minimise potential conflicts of interest and promote effective decision-making. 4. The remuneration of key employees at the Company is comprised of the following elements: (a) Fixed remuneration, which includes base pay and other benefits; and (b) Performance linked remuneration, which consists of: (i) Short term incentives (cash bonus); and (ii) Long term incentives (performance rights). 5. The Company maintains a strong focus on the attraction, retention and motivation of staff to facilitate continued growth of the Company over the short, medium and long-term. The retention of outstanding people is an ongoing challenge faced by many companies in Australia. Accordingly, the Company is continually evaluating ways to improve the scope and implementation of incentive programs to its employees. Fundamental to this growth strategy is the establishment of the Trust to administer the issue of performance rights under the Plan and any future equity plans. The Trust Deed was executed on XX XX XXXX. 6. The Plan is administered in accordance with the terms summarised below. The Company Employee Equity Incentive Plan 7. The Plan has been designed to allow the Company to issue rights to acquire ordinary shares in the Company (Share) (or to receive a cash equivalent value), which may be subject to service and/or performance-based vesting conditions (Rights) to eligible employees who are Australian tax resident employees of the Company (Participants). 8. The Plan is governed by the Company Employee Equity Incentive Plan Rules (Plan Rules). 9. The Plan broadly operates as follows: A. Participants may receive a grant of Rights under the Plan. B. The Board may make an Invitation to Eligible Participants on any number of occasions, and the Invitations may be made on such terms and conditions as the Board decides from time to time. C. The Board may establish, administer, operate and fund an employee share trust for the purposes of holding Shares before or after the exercise of a Right or delivering any Resulting Shares. D. Where Rights are subject to any conditions (e.g. Vesting Condition(s)), a Right will vest when a Vesting Notice is given (or is deemed to be given) to the Participant. If a Right is subject to further conditions following vesting (e.g. Exercise Conditions), the Right may only be exercised when all Vesting Conditions and Exercise Conditions have been satisfied or waived by the Company and the Company has given (or is deemed to have given) a Confirmation Notice to Participant. If a Right is not subject to any Exercise Conditions, the Right may be exercised after the Company has given (or is deemed to have given) a Vesting Notice to the Participant. E. Cash settlement of the grant of Rights is allowed at the Board's discretion. Rules X and X state that where the Board exercises its discretion to satisfy a vested and exercised (where applicable) Right with a cash payment rather than Shares, the Company must pay to the Participant a cash amount equal to the value of the Shares that would have been granted to the Participant (less any Exercise Price if applicable and applicable taxes / other withholdings). F. Rights may be forfeited including under the following circumstances (but not limited to): • Where a Participant becomes a Leaver and forfeits their unvested Rights (e.g. where a Participant is a Good Leaver) or forfeits their vested and unvested Rights (e.g. where a Participant is a Bad Leaver); • Other forfeiture events, such as where Vesting or Exercise Conditions are not met, the Participant becomes insolvent or has materially breached the Plan Documentation, where a Right has not been validly exercised by the Expiry Date, or where the Participant has voluntarily forfeited the Rights; and • A circumstance or event described in the rules of the Plan or the Invitation that has the effect of lapsing a Right (e.g. a Participant acts fraudulently or dishonestly, commits a material breach of their obligations to the Company, makes a material misstatement on the Company's behalf, engaged in gross negligence or misconduct etc). G. Rights are non-transferable unless in accordance with rule X. H. Rights will not entitle Participants to voting rights or rights to receive dividends or distributions or any other rights of an ordinary shareholder until Shares are allocated after vesting and exercise (if applicable) of the Rights. However, the Company may grant to a Participant an entitlement to a dividend equivalent payment on vested but unexercised Rights. The Board may determine whether a dividend equivalent payment that is payable is satisfied through a grant of Shares or the payment of a cash equivalent or a combination of both. I. If a Participant ceases employment with the Company or any Group Company (Group): • Unless the Invitation provides otherwise, the Participant's vested Rights will not lapse on cessation of employment, and the Board will determine whether the Participant may retain some or all of their unvested Rights, unless the Participant ceases employment and becomes a Bad Leaver, in which case vested and unvested Rights will be forfeited. • All vested and unvested Rights held by a Participant who ceases employment with the Company will be subject to the terms and conditions that the Participant held those Rights prior to ceasing employment, or such other terms and conditions determined by the Board. J. In the event a Change of Control event, the treatment of the Participant's Rights and timing of such treatment will be dealt with as described in rule X. The Company Employee Share Trust 10. The Company Employee Share Trust (Trust) is intended to be established as a sole purpose trust for the purpose of subscribing for, acquiring, holding and transferring Shares in connection with equity incentive plans established by the Company (including the Plan established under the Plan Rules) for the benefit of participants in those plans. 11. The Board may establish, implement and operate a trust for the purposes of acquiring, holding and allocating Shares on behalf of Participants under the Plan on such terms and conditions as determined by the Board. 12. For completeness, the Trust will not be involved in the process of satisfying any cash settled Rights under the Plan. The Trust will only be used to acquire Shares for the purpose of satisfying equity settled Rights. Any cash settled Rights will be settled outside the Trust directly by the Company. 13. The Trust provides the Company with greater flexibility to accommodate the incentive arrangements of the Company both now and into the future as the group continues to expand its operations. The Trust provides capital management flexibility for the Company, in that the Trust can use the contributions made by the Company either to acquire Shares in the Company from a third party, or alternatively to subscribe for new shares in the Company. 14. The Trust provides an arm's length vehicle through which Shares in the Company can be acquired and held in the Company on behalf of employees. In effect, this aspect allows the Company to satisfy Corporations Law requirements relating to companies dealing in their own shares. 15. Additionally, as the Company is a private and unlisted company, there is no liquid market on which Participants may easily sell their Shares. The Trust therefore provides a mechanism for Participants to sell their Shares where there are no other existing shareholders or third-parties that are willing to purchase a Participant's Shares. 16. The Trustee, a separate legal entity to the Company is the Trustee of the Trust and will operate the Trust in accordance with the Trust Deed. 17. The Trust will broadly operate as follows: • The Company must provide the Trustee with the funds required for the acquisition of Shares in accordance with the Plan. • Irretrievable cash contributions (are made to the Trust in accordance with the rules of the Plan and the Trust Deed. • These funds are used by the Trustee to acquire Shares in the Company either by way of purchase from third parties or via a subscription for new Shares in the Company based on written instructions from the Company. • Where the Plan Rules and terms of participation (i.e. Invitation) stipulate that the Shares are to be held by the Trustee on behalf of Participants, the Trustee will hold the Company Shares as Shares in respect of a Participant(s) (i.e. on an allocated basis). • Where the Plan Rules include that the Shares may be held by the Trustee on behalf of Participants or employees, the Trustee will hold the Company Shares as unallocated Shares (Unallocated Shares) for Participants and employees of the Company generally. ­ The Board may also specify that certain Unallocated Shares are to be held by the Trustee for a particular Plan or a particular Participant (Specified Unallocated Shares). Where this occurs, the Trustee must, when directed to allocate Shares to a Participant, only use the Specified Unallocated Shares that have been held for that particular Participant, or the Participant is to be allocated Shares as a Participant under the relevant Plan (as applicable). ­ Specified Unallocated Shares are distinct from Allocated Shares, as the tagging of Unallocated Shares as Specified Unallocated Shares is merely to keep a record of which Unallocated Shares should be used for which purpose, whether that be for a Plan or Participant. In tagging Shares as Specified Unallocated Shares, no Participant has any beneficial interest in these Shares. Participants will not acquire a beneficial interest until such time that the Specified Unallocated Shares are allocated to the Participant and the Participant holds these Shares as Allocated Shares. • After a disposal restriction period lapses, the Trustee must transfer the relevant number of Shares into the name of the relevant employee or any third party as directed by the relevant employee (i.e. legal title) upon a withdrawal notice being submitted to the Trustee. Contributions to the Trust 18. The Company, where possible, will wait until the Rights vest (and to receive the exercise notice from Participants where relevant) before providing the Trust with the cash necessary to acquire Shares to satisfy the acquisition or subscription of Shares related to those Rights. 19. However, where it makes commercial sense to do so, the Company may make irretrievable cash contributions to the Trust prior to the Rights being granted, vesting, and where relevant, Rights being exercised by the Participants. In this case, the Company will contribute to the Trust enough funding to enable purchase of Shares in advance of when Rights are likely to be granted, vest or exercised to ensure there are enough Shares to satisfy anticipated grants, vests and exercises of Rights. This allows the Trustee to have enough Shares in the Trust ahead of when they need to be allocated to Participants, avoids delays and takes into account commercial circumstances. As the Company is a private company, this may also occur where a Participant or shareholder would like to sell their Shares and there are no existing shareholders that are willing to purchase the Shares, in which case the Trust will be directed to purchase the Participant's Shares to hold on an unallocated basis.

Relevant legislative provisions: Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 subsection 25-5(1) | Income Tax Assessment Act 1997 section 40-880 | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 section 701-1 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: All references below are to the Income Tax Assessment Act 1997 unless otherwise stated. | Detailed Reasoning - Issue 1: Income Tax | Detailed Reasoning - Question 1: Will the Company as the head company of the Group obtain an income tax deduction, under section 8-1, in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition off-market of ordinary shares in the Company (Shares) by the Trust to satisfy the issue of Shares by the Trustee to Participants under the Company Employee Equity Incentive Plan (Plan)? | Summary: The Company can deduct an amount under section 8-1 in respect of irretrievable cash contributions that it makes to the trustee of the Trust to fund the subscription for or acquisition of Shares by the Trustee to Participants under the Plan. | Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. The Company carries on a business as an independent property lending specialist, providing commercial, residential and SMSF lending solutions. The Company is a privately held unlisted Australian company. the Company provides an employee share scheme (ESS) as part of its remuneration strategy. The Company employs staff and will make contributions to the Trustee of the Trust in relation to their employees who participate in the Plan. Under the Plan, the Company grants Rights to eligible employees and will make irretrievable contributions to the Trust (in accordance with the Trust Deed) which the Trustee will use to acquire Shares (either off-market, or by subscription) for allocation to Plan participants to satisfy their awards. Based on the following, The Commissioner considers the contributions to the Trust are irretrievable and non-refundable: • all funds provided to the Trustee will constitute accretions to the corpus of the Trust and are not repayable by the Trustee; • nothing in the Trust Deed confers or is intended to confer onto the Company any encumbrance, proprietary right or interest in the Shares acquired by the Trustee The Trustee may only carry out activities that constitute the management of an employee share scheme plan. In addition, the Trustee agrees that the Trust will be managed and administered so that it satisfies the definition of'employee share trust' contained in subsection 130-85(4). The contributions to the Trust will be a loss or outgoing that is incurred at the time it is made in accordance with the Trust Deed and the rules of the Plan. | Detailed Reasoning - Incurred in carrying on a business: 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. A 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). In this case, the contributions are made by the Company to the Trust to enable the Company to meet its obligations arising from the grant of rights, options and awards under the Plan. The Commissioner accepts that granting awards under the Plan is to incentivise, remunerate and retain employees of the Company and in turn, is likely to result in the gaining or production of the assessable income of Think Tank as a result of the employee's increased performance and productivity. The Commissioner accepts there is sufficient nexus between: a) the irretrievable cash contributions made by the Company to the Trustee to satisfy the granting of rights, options and awards under the Plan to the Participants, and b) The Company's own income earning activities. Therefore, subsection 8-1(1) is satisfied. | Detailed Reasoning - Not 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. The Company will be making regular, irretrievable contributions, to the Trustee for awards granted under the Plan (in accordance with the Trust Deed and the rules of the Plan). These contributions are costs incurred by the Company to fund the acquisition of Shares for the purpose of the Plan. Therefore, the costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for the employees. Costs incurred are likely to be in relation to more than one grant of awards (rather than being one-off), and the Company intends to continue satisfying awards using shares acquired by the Trust. This indicates that the irretrievable cash contributions made by the Company to the Trustee are ongoing in nature, recurrent employment expenses, and are part of the broader remuneration expenditure of the Company. 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. 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) (ITAA 1936) or ITAA 1997. Accordingly, subject to the operation of section 83A-210, the Company will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee to acquire Shares in accordance with the Plan. | Detailed Reasoning - Question 2: Will the Company as head company of the Group obtain an income tax deduction, pursuant to section 8-1, in respect of costs incurred by the Company or any subsidiary member of the Group in relation to the on-going administration of the Trust? | Summary: The Company can deduct an amount under section 8-1 for costs it incurred in relation to the on-going administration of the Trust to the extent these costs relate to the Participants. | Detailed Reasoning - Detailed reasoning: Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. The Company will incur on-going administration costs in operating the Trust and has appointed the Trustee to administer the Trust. In this respect the Company will incur costs associated with the services provided by the Trustee that include, • employee plan record keeping • production and dispatch of holding statements to employees • costs incurred in the acquisition of shares on market (e.g. brokerage costs and the allocation of such shares to Employees), and • other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. These are costs necessarily incurred by the Company in administering the ESS while carrying on its business for the purpose of gaining or producing its assessable income. That is, there is a sufficient nexus. Given the loss or outgoing are regular, recurrent and part of the ordinary employee remuneration costs of the Company, they are not treated as capital or of a capital nature (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' (TD 2022/8)). Accordingly, the Company 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 to the extent those costs relate to the Participants. | Detailed Reasoning - Question 3: Will the Company as head company of the Group obtain an income tax deduction, pursuant to section 40-880, in respect of the costs incurred by the Company or any subsidiary member of the Group in relation to the implementation of the Trust? | Summary: The Company can deduct an amount under section 40-880 for costs it incurred in relation to the establishment costs of the Trust. | Detailed Reasoning - Detailed reasoning: As outlined in TD 2022/8, establishment/implementation expenses are one-off in nature and used in setting up the ESS as part of the employer company's remuneration structure. The character of the advantage sought is the enduring benefit of having the ESS in its business structure to deliver ESS interests. Therefore, the establishment expenses for the Trust are capital in nature including: • legal advice obtained in respect of the implications which may arise for both the Company and the Participants of the Plans in respect of the Trust structure and the Plans • legal documents required in respect of the Trust and the Plans, and • professional fees associated with the establishment of the Trust including such costs associated with the creating and registration of the Trust with various authorities. As also outlined in TD 2022/8, section 40-880 allows a deduction for certain business-related capital expenditure such as the implementation costs. Limitations and exceptions are in subsections 40-880(3) to (9). Relevantly, the business needs to be carried on for a taxable purpose and as stated above the Company carries on a business of an independent lender which the Commissioner considers to be a taxable purpose. Therefore, as per paragraphs 4 to 9 of TD 2022/8, these costs are deductible to the Company under section 40-880. | Detailed Reasoning - Question 4: Will irretrievable cash contributions made by the Group to the Trustee, to fund the subscription for, or acquisition off-market of, Shares by the Trust pursuant to the Plan be deductible to the Company at a time determined by section 83A-210 where contributions are made before the acquisition of the relevant 'ESS interest' (as defined in subsection 83A-10(1))? | Summary: Where the irretrievable cash contributions are made before the acquisition of the relevant ESS interest, section 83A-210 will determine the timing of the deduction. The contributions will be deductible to the Company in the income year when the relevant beneficial interest in a Company Share is acquired by a Participant under the Plan. | Detailed Reasoning - Detailed reasoning: A deduction for the irretrievable cash contributions under section 8-1 would generally be allowable in the income year in which the company incurred the outgoing. However, under certain circumstances, the timing of the deduction is determined under section 83A-210. The effect of section 83A-210 is to deem the timing of when an employer incurred the outgoing to be the time when the ESS interest is acquired by the ultimate beneficiary, rather than the time when the employer makes the contribution to the trust, where the contribution is made before the ultimate beneficiary receives the 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 right to acquire a beneficial interest in a share in the company. | Detailed Reasoning - Employee Share Scheme: The Plan meets the requirement of an ESS for the purpose of subsection 83A-10(2) as it is a scheme under which ESS interests are provided to Participants in relation to their employment or engagement with the Group. | Detailed Reasoning - Arrangement: The implementation of the Plan (as set out in the rules of the Plan), the establishment of the Trust and the provision of irretrievable cash contributions by the Company to the Trustee of the Trust, constitutes an arrangement for the purpose of subparagraph 83A-210(a)(i). The Plan (that is, the ESS) contains a number of interrelated components which include the provision of irretrievable cash contributions by the Company to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly as part of the Plans, to acquire ESS interests. | Detailed Reasoning - ESS interest: The deduction for the irretrievable cash contributions, to the extent they relate to the Participants, can only be deducted from the assessable income of the Company in the income year when the relevant beneficial interest in a Share, or beneficial interest in an award to a beneficial interest in a Share, is acquired by the Participant under the Plans. In the present case, each Right provided to a Participant when an offer is made under the Plan is an ESS interest because it is (or may later become) a right to acquire a beneficial interest in a share in the Company. This is consistent with the ATO view expressed in ATO Interpretive Decision ATO ID 2010/103 Income Tax - Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . Accordingly, if the irretrievable cash contributions are made before acquisition of the relevant ESS interests, the contribution can only be deducted from the assessable income of the Company in the income year when the relevant beneficial interest in a Company Share is acquired by a Participant under the Plan. (Where the irretrievable contribution is made after the acquisition of the relevant ESS interest, irretrievable contributions are deductible in the income year in which the irretrievable contribution is made.) Indeterminate Rights under the Plan In some cases, the Participant's Invitation may specify that rights offered under the Plan may be settled in cash at the Company's discretion. In these cases, the rights offered under the Plan may be considered indeterminate rights as it is uncertain whether the rights will be settled in Shares or cash. The right may later become a right to acquire a beneficial interest in shares when it is determined the rights will be settled in Shares. Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, when the number of shares the employee is entitled to receive is determined, the indeterminate right will, pursuant to section 83A-340, be treated as if it had always been an ESS interest. The Plan meets the requirements of an ESS for the purpose of subsection 83A-10(2) as it is a scheme under which ESS interests are provided to Participants in relation to their employment or engagement with the Group. 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 right is taken to have been paid at the 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 (being the year in which the indeterminate right was granted to the employee). | Detailed Reasoning - Question 5: If the Trust satisfies its obligation under the Plan by subscribing for new Shares in the Company, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 20-20 or trigger a CGT event under Division 104? | Summary: Where the Trust satisfies its obligations under the Plan by subscribing for new Shares in the Company, the subscription proceeds are not included in the assessable income of the Company under section 6-5 or section 20-20 and do not 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 a capital nature do not constitute income according to ordinary concepts, whether incurred in carrying on a business or not. 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 the Company from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Where the Company 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 employer of the option exercise price paid by an employee . When the Company receives subscription proceeds from the Trustee where the Trustee has subscribed for new shares in the Company to satisfy its obligations to Participants in the Plans, 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. The Company 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 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 or other rights) 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 interest 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 the Company. | Detailed Reasoning - Question 6: Will the Commissioner seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Group to the Trustee to fund the subscription for or acquisition off-market of Shares by the Trust pursuant to the Plan? | Summary: The Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or in full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Group to the Trustee to fund the subscription for or acquisition off-market of Shares by the Trust pursuant to the Plan. | Detailed Reasoning - Detailed reasoning: Part IVA is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A are met. In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Company to obtain a tax benefit. | Detailed Reasoning - Issue 2: Fringe Benefits Tax | Detailed Reasoning - Question 7: Will the provision of Rights or Shares by the Company to employees or employees of other employer entities within the Group under the Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | Summary: The provision of Rights of Shares by the Company to employees or employees of other employer entities within the Group will constitute a provision of ESS interests. The provision of ESS interests by the Group to employees under the Plan will not constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986. | 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. No amount will be subject to FBT unless a 'fringe benefit' is provided. 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. An indeterminate right comes within the definition of 'benefit'. 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. At the time indeterminate rights are granted, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) applies because at the time, the employee has not acquired rights that are ESS interests within the meaning of subsection 83A-10(1). Although the indeterminate rights are not ESS interest within the meaning of 83A-10(1) at the time they are granted, where they are ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to is determined): • the indeterminate right will, pursuant to section 83A-340 be treated as if they had always been an ESS interest; and • as they will constitute an acquisition of ESS interests acquired under an ESS (within the meaning of the ITAA 1997) to which to Subdivision 83A-B or Subdivision 83A-C applies, they will be excluded from the definition of fringe benefit by paragraph 136(1)(h) of the FBTAA (see ATO ID 2010/142). The Commissioner accepts that the Plan meets the requirements of an ESS, and the Rights granted under the Plan are ESS interests under section 83A-340 and paragraph 83-10(1)(b), being a beneficial interest in a right to acquire a share in a company. Specifically, the Commissioner accepts that the Rights provided under the Plan are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests acquired at a discount. Where the indeterminate rights are ultimately satisfied with Shares, section 83A-340 will operate to treat the Rights to have always been ESS interests within the meaning of subsection 83A-10(1). Accordingly, the provision of indeterminate rights under the Plan will not be subject to FBT on the basis that they are acquired by employees under an employee share scheme and excluded by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. | Detailed Reasoning - Question 8: Will the irretrievable cash contributions made by the Company or other employer entities within the Group to the Trustee, to fund the subscription for or acquisition off-market of Shares pursuant to the Plan, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | Summary: The provision of Rights by the Company to its employees or employees of other employer entities within the Group, will constitute a provision of ESS interests. The provision of ESS interest by the Company to employees under the Plan, are not a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986. | Detailed Reasoning - Detailed reasoning: Paragraph (ha) of subsection 136(1) of the FBTAA excludes from being a 'fringe benefit', a benefit constituted by the acquisition of money or property by an employee share trust within the meaning of the ITAA 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 is relevant. To qualify as an employee share trust, a trustee's activities must be limited to: • obtaining shares or rights in a company (paragraph 130-85(4)(a)) • ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b)), and • other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(c)). Paragraph 130-85(4)(a) and (b) are satisfied because: • the Trust acquires shares in the Company • the Commissioner accepts that the Plan meets the requirements of an ESS under which ESS interests are provided to employees, and • the Trustee ensures that ESS interests (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 rules of the Plan. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? Activities that 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 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 subsection 130-85(4), including paragraph 130-85(4)(c). (The Trust Deed provides at clause 4.9 regarding the sole activities test that "Despite any other clause in this deed, the Company and the Trustee agree that the Trust will be managed and administered so that it satisfies the definition of 'employee share trust'for the purposes of subsection 130-85(4) of the ITAA 1997.". The other activities undertaken by the Trustee under the trust deed are merely incidental to managing the Plans. Therefore, paragraph 136(1)(ha) of the FBTAA applies to exclude the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition of, Shares by the Trust, from being a fringe benefit. | Detailed Reasoning - Question 9: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company or any employer entity within the Group, by the amount of tax benefit gained from irretrievable cash contributions made by the Group to the Trustee, to fund the subscription for or acquisition off-market of Shares pursuant to the Plan? | Summary: The Commissioner will not make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company or any employee entity within the tax consolidated group, by the amount of tax benefit gained from the irretrievable cash contributions made by the Group to the Trustee, to fund the subscription for or acquisition off-market of the Company shares. | Detailed Reasoning - Detailed reasoning: PS LA 2005/24 Application of General Anti-Avoidance Rules explains the application of Part IVA or other general anti-avoidance rules to an arrangement, including the operation of section 67 of the FBTAA (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. Paragraph 191 of PS LA 2005/24 states: The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. Irretrievable cash contributions made by the Company to the Trust will not be a fringe benefit defined in subsection 136(1) of the FBTAA as explained in the reasons for question 8. As a result, the FBT liability of the Company or any employee entity within the Group, is not any less than it would have been but for the existence of the arrangement. The Commissioner will not make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount to the Company or any employee entity within the Group, by the amount of the tax benefit gained from the irretrievable cash contributions made to the Trustee to fund the subscription for or acquisition off-market of the Shares.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for the Company. | This is to explain how we reached our decision. This is not part of the private ruling.