Private ruling: Employee share schemes
Date of advice: 19 August 2024
Published: 30 September 2024
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the irretrievable cash contributions made by Company A to the Trustee of the Company A Employee Share Scheme Trust (Trust) to fund the acquisition of, or subscription for, Company A shares by the Trust, be assessable income of the Trust under section 6-5 or 6-10 of Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will a capital gain or capital loss that arises for the Trustee at the time when Participants become absolutely entitled to the shares (CGT Event E5), be disregarded under section 130-90 of ITAA 1997 if the employees acquire the shares for the same or less than the cost base of the shares in the hands of the Trustee? | A2: Yes.

Relevant facts and circumstances: 1. Company A is an ASX listed company which listed on the ASX on XX MONTH 20XX. 2. Company A carries on a business in Australia. 3. Company A has established a remuneration strategy that supports and drives the achievement of Company A's business strategy. 4. At Company A, the remuneration of executives is evaluated against comparative positions in similar companies and industries. The remuneration of executives at Company A is comprised of the following elements: (a) Fixed remuneration, which includes base pay and other benefits; and (b) Performance linked remuneration, which consists of: a. Short term incentives (part cash and part Performance Rights issued under the Plan Rules); and b. Long term incentives (Performance Rights issued under the Plan Rules). 5. In 20XX, the Board approved the adoption of the Plan to allow the delivery of the new Short term incentives and Long term incentives awards. The Plan is administered in accordance with their terms as summarised below. Company A Executive Incentive Plan 6. The Plan is designed to be flexible and allows the Board to offer employees (Participants) a range of awards as described in the Plan Rules. 7. Broadly, the Plan operates as follows: a) The Board in its absolute discretion may offer the following (Awards) to Employees (Rule XX): a. Options (Rule XX) b. Performance Rights (Rule XX) c. Service Rights (Rule XX) d. Deferred Share Awards (Rule XX) e. Exempt Share Awards (Rule XX) f. Cash Rights (Rule XX) g. Stock Appreciation Rights (Rule XX) b) Each offer to the Employees must be documented in writing in an Invitation Letter (Rule XX). Broadly, the Invitation Letter will outline the following amongst other terms: a. Name and address of the Participant; b. Type of Award(s) being offered; c. Number of Award(s) being offered; d. Vesting conditions (if any); e. Issue Price and/or Exercise Price (if any); f. Expiry Date (if any); and g. Restriction Period (if any). c) For the avoidance of doubt, the offer of an Award may only be accepted by the Employee to whom the offer is made (Rule XX). d) Once the employee has received the invitation, the employee may accept participation in the Plan on the terms described in that Invitation in any manner as described in Rule XX. e) As soon as reasonably practicable following the receipt of acceptance of an invitation (subject to Rules XX and XX), the Company will issue the relevant Awards to the Employee (Rule XX). f) Participation in the Plan does not give the Participant a legal or beneficial interest in a Share prior to its allocation to the Participant, not any entitlement to a Share, otherwise than in accordance with the Offer and the Plan Rules (Rule XX). g) The Awards may be subject to vesting conditions, as set out in the Invitation Letter. In order for the Rights to vest and subsequently be exercised, these vesting conditions must be satisfied or otherwise waived by Company A (Rule XX and XX). h) If the vesting conditions specified in the Offer are not wholly satisfied or waived in accordance with the Plan Rules, the Participant's rights in relation to the relevant Award will lapse except to the extent otherwise provided by the Offer or unless the Board determines otherwise, and the Participant will be treated as having never held any right or interest in the lapsed Award. (Rule XX) i) A Participant is, subject to Rule XX, entitled to exercise an Award on or after the Vesting Date and any exercise must be for a minimum number or multiple of Shares specified in the terms of the Offer. (Rule XX). j) The vested Awards will not be automatically exercised unless it is otherwise specified in the Invitation Letter (Rule XX). The Participant will be required to deliver an Exercise Notice to the Company in the manner as described in Rule XX before any vested Awards can be exercised by the Participant. Any vested Awards not exercised by the Expiry Date will automatically lapse. k) If the Board determines it is not appropriate to issue or transfer Shares and instead of issuing or transfer Shares as required upon the exercise of an Award by a Participant, Company A may make a cash payment to the Participant equivalent to the Fair Market Value as at the date of exercise of the Award (less any unpaid Exercise Price applicable to the exercise of the Award) multiplied by the relevant number of Shares required to be issued or transferred to the Participant upon exercise of the Award (Rule XX). l) The Shares issued under the Plan will receive dividend and voting rights and rank equally with the existing issued Company A ordinary shares at the time of allotment (Rule XX). m) Company A may, in its discretion, either issue new Shares or cause existing Shares to be acquired or a combination of both, to be transferred to the Participant to satisfy the Company's obligations under the Plan (Rule XX). The Company A Shares may be acquired by an appointed trustee that may subscribe for or acquire and hold Company A Shares, Options, and other Company A securities either on behalf of the Participants or for the purposes of the Plan (Rule XX). n) Any Plan Shares allotted and issued, or transferred by Company A to a Participant will rank equally with all existing Shares on and from the date of issue or transfer (Rule XX). A Participant may exercise any voting rights attaching to Plan Shares registered in the Participant's name (Rule XX). o) In the event of a Change of Control, the Board will have the absolute discretion to deal with all unvested and vested Awards in any manner, including the extent to which the Vesting Conditions will be waived, the number of unvested Awards to be retained, and the extent to which the original Awards are to be replaced by new Awards (Rule XX). 8. Since 20XX, Company A has offered Performance Rights to a number of Executive employees. As of the date of application, Company A expects Performance Rights to be offered on an annual basis and is unlikely to offer other types of Awards under the Plan. Performance Rights may be offered under the Plan as a long term incentive and/or short term incentive. Performance Rights 9. The Performance Rights (Rights) offered under the Plan are rights over shares in Company A for nil consideration. In order to receive shares, the Participant must satisfy the Vesting Conditions specified in their Invitation Letter. On the basis that these have been satisfied, the Participant will be entitled to shares in the company. On exercise of the vested Rights (nil exercise price), the shares may be acquired and held in the Trust on behalf of the Participant. The Participant can then apply to have the shares sold or withdraw the shares from the Trust. 10. Broadly, the Rights offered under the Plan operate according to the Plan Rules and as follows: 1) The Rights are Restricted Awards until they are exercised or expired (Rule XX). Therefore, the Participant is not permitted to sell, transfer, mortgage, pledge, charge, grant security over or otherwise dispose of any Rights that have not been exercised during the Restriction Period, unless the Board determines otherwise. (Rule XX). 2) To ensure the Restricted Awards are not disposed of during the Restriction Period, Company A may implement any procedures it considers appropriate including applying a holding lock in respect of the Shares (Rule XX). 3) The Rights will generally be issued to Participants for nil consideration and have a nil exercise price. 4) The exercise of Rights may be subject to Vesting Conditions, as set out in the Invitation. These Vesting Conditions may typically include performance conditions and service condition. The Rights will only vest if the Vesting Conditions are met. 5) If the Participant's employment with Company A is terminated before the Rights are vested, the number of unvested Rights that will vest will generally be determined as follows: a. In the case of resignation or termination with cause, all Rights will lapse; b. In the case of retrenchment or redundancy, a pro-rata number of Rights will vest as determined in accordance with the following formula: Number of days from grant date to termination date divided by number of days from grant date to vesting date multiplied by number of Rights issued; and c. In the case of death or permanent disability, the Board has sole discretion over the number of Rights that will vest. 6) A Participant has no dividends or voting rights until vested Rights have been exercised and the shares to which the Rights relate have been registered in the name of the Participant. 7) Rights and/or Shares held by the Trustee on the Participant's behalf will be forfeited and cease to exist in the following instances: a. Where unvested Rights do not become vested Rights by the end of the applicable vesting period, or if the Board determines that vesting conditions are incapable of being satisfied by the end of the vesting period. b. In the event of misconduct (such as fraud, defalcation or gross misconduct), the Board may determine that a Participant's Rights (whether vested or unvested) and/or Shares held in the Trustee are forfeited. c. If a Participant is ineligible to hold their office for the purposes of Part 2D.6 of the Corporations Act, the Participant shall forfeit their Rights (whether vested or unvested) and/or Shares held in the Trustee. d. Where any of the events detailed in clause XX of the Clawback Policy in relation to the Plan occur. This stipulates that in the events contemplated by this clause, unvested Rights and/or unexercised Rights will be forfeited for no consideration or compensation. Company A Employee Share Scheme Trust 11. The Trust was established in MONTH 20XX as a sole purpose trust for the purpose of acquiring, allocating, holding and transferring shares in connection with equity incentive plans established by Company A for the benefit of Participants in those plans. 12. The Trustee of the Trust is an independent third party. 13. The Trust Deed was originally executed on X MONTH 20XX. Parties to the Trust Deed are Company A and the Trustee. 14. A Deed of Variation was executed on X MONTH 20XX which varied the Trust Deed by replacing clause XX of the Trust Deed. 15. A further Deed of Variation was executed on X MONTH 20XX. The Deed of Variation removed clause XX of the Trust Deed. 16. The term Trust Deed (for the purposes of this ruling) refers to the Company A Trust Deed dated X MONTH XX amended by the Deeds of Variation (Trust Deed). Operation of the Trust 17. Broadly, the Trust operates as follows: • The Trustee declares and agrees that in respect of each Participant: o The Plan Shares held by the Trustee on behalf of that Participant; o Prior to their distribution in accordance with clause XXX, the proceeds of sales arising from the sale by the Trustee of rights under a Rights Issue on behalf of that Participant; and o Trust Assets related to or arising from Plan Shares held by the Trustee on behalf of that Participant, will at all times be held by the Trustee on trust for and on behalf of that Participant on the terms of the Trust Deed and subject to the relevant Plan Rules and relevant Terms of Participation (Clause XXX)). • Each participant is absolutely entitled to those Plan Shares held by the Trustee on their behalf, all Trust Assets in respect of those Plan Shares and all other benefits and privileges attached to or resulting from holding those Plan Shares (Clause XXX). • The Trust Assets, other than those referred to in clause XXX and the Unallocated Plan Shares, are to be held by the Trustee on trust for the Participants to be nominated by Company A from time to time in accordance with the terms of the Trust Deed, the relevant Plan Rules, and the relevant Terms of Participation until termination of the Trust under this Deed or by operation of law (Clause XXX). • At no time will Company A, any Related Body Corporate of the Company or the Trustee have or be entitled to obtain any beneficial interest in the Trust Assets, other than in respect of the Trustee's right of indemnity set out in clause XXX (Clause XXX). • The Trustee in its reasonable discretion has the full power to do all things a trustee is permitted to do by law in respect of the Trust, the Plan Shares and the Trust Assets as set out in Clause XXX. • The Trust is managed and administered so that it satisfies the definition of 'employee share trust' as defined in subsection 130-85(4) of the ITAA 1997 (Clause XXX). • The Trustee is not permitted to carry out activities 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, powers and discretions conferred on the Trustee by the Trust Deed or the law (Clause XXX). • The Trustee 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 relevant Plan Rules and/or relevant Terms of Participation (Clause XXX). • Company A must pay to or reimburse the Trustee for any and all expenses properly incurred by the Trustee, including any fees, commission or remuneration as Company A and the Trustee may agree from time to time (Clause XXX). • Company A must provide the Trustee the funds required for the purchase of Shares in accordance with the Plan Rules (refer Clause XXX). • These funds are used by the Trustee to acquire shares in Company A either on-market or via a subscription for new shares in Company A based on written instructions from Company A (refer Clause XXX). • Subject to clause XXX, all funds received by the Trustee from Company A will constitute Accretions to the corpus of the Trust and will not be repaid to the Company and no specific Participant shall be entitled to receive such funds (Clause XXX). • Where the Plan Rules stipulate that the Shares are to be held by the Trustee on behalf of Participants, the Trustee will hold the Company A Shares as Shares in respect of an identified Participant(s) (i.e. on an allocated basis) (refer Clause XXX). • 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 A Shares as unallocated plan shares for Participants generally (refer Clause XXX). • In relation to Unallocated Plan Shares, the Trustee: o is precluded from exercising voting rights in relation to the unallocated plan shares (refer Clause XXX); o may apply any capital receipts, dividends or other distributions received in respect of any Unallocated Plan Shares to purchase further Shares to be held on trust for the purposes of the Trust (Clause XXX); o must not participate in any Rights Issues in respect of any Unallocated Plan Shares (clause XXX); and o must hold any bonus shares issued in respect of the Unallocated Plan Shares on trust for the purposes of the Trust Deed (clause XXX). • A Participant will have an absolutely vested and indefeasible entitlement to receive from the Trustee all dividends or distributions actually paid by Company A on all Plan Shares held by the Trustee in respect of the Participant (refer clause XXX). • The Participant will be entitled to voting rights in relation Plan Shares in their account (refer clause XXX). • The Trustee can sell Shares on behalf of an employee where permitted to do so by the Participant (refer Clause XXX). • In its discretion, Company A may from time to time by notice in writing direct the Trustee to hold any Forfeited Shares as Unallocated Plan Shares (Clause XXX). Contributions to the Trust 18. Company A does not and will not pay cash contributions to the Trust prior to the issue of Awards under the Plan Rules to Participants. 19. Where possible, Company A will wait until the Awards vest and to receive the exercise notice from Participants before providing the Trust with the cash necessary to acquire shares to satisfy the acquisition/ subscription of shares related to those Awards. 20. However, where it makes commercial sense to do so, Company A may make cash contributions to the Trust prior to the Awards vesting. Costs incurred by Company A 21. Company A incurs various costs in the on-going administration of the Trust, which includes costs associated with the services provided by the Trustee of the Trust such as: • Employee plan record keeping; • Production and dispatch of holding statements to employees; • Costs incurred in acquisition of shares on market e.g., brokerage costs and the allocation of such shares to Participants; and • Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 Subdivision 83A-C | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 subsection 83A-105(1) | Income Tax Assessment Act 1997 subsection 104-75(1) | Income Tax Assessment Act 1997 subsection 104-75(2) | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 section 130-90 | Income Tax Assessment Act 1997 subsection 130-90(1)

Reasons for decision: Summary: Assessable income includes both ordinary income and statutory income according to sections 6-5 and 6-10 of the ITAA 1997. Ordinary income is income according to ordinary concepts. Statutory income is income that is not ordinary income but is included in assessable income because of a specific provision of the ITAA 1997 or Income Tax Assessment Act 1936 (ITAA 1936). As Chief Justice Jordan noted in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 ( Scott ): .. what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of receipts. | Detailed Reasoning - Ordinary income: 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 which may assist in determining whether a receipt is properly characterised as income according to ordinary concepts. As a general rule, amounts received as a result of carrying on a business should represent ordinary income. However, receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In GP International Pipecoaters v. Federal Commissioner of Taxation (1990) 170 CLR 124; (1990) 64 ALJR 392; (1990) 93 ALR 193; (1990) 21 ATR 1; 90 ATC 4413; [1990] HCA 25 ( Pipecoaters ), the High Court of Australia found that: To determine whether a receipt is of an income or of a capital character, various factors may be relevant. Sometimes, the character of receipt will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. The contributions made by Company A to the Trust to fund the acquisition of, or subscription for Company A shares will constitute Accretions to the corpus of the Trust (Clause XXX of the Trust Deed) that will be applied for the sole purpose of acquiring, or subscribing for, shares for the benefit of the Participants (Recitals and Clauses XXX and XXX of the Trust Deed). The cash contributions received by the Trustee are therefore of a capital character. It is irrelevant that, from Company A's perspective, the cash contribution may be deductible under section 8-1 of the ITAA 1997 because whether a receipt is income or capital depends on its objective character in the hands of the recipient, rather than the payer. This is made clear in Pipecoaters , where the High Court held that: ...although the amount expended on the construction of the plant was a capital expenditure, it does not follow that the taxpayer's receipt of the establishment costs was a receipt of capital. From the Trustee's perspective, the irretrievable cash contributions made by Company A are capital in nature and therefore not assessable to the Trust under section 6-5 of the ITAA 1997. | Detailed Reasoning - Statutory income: Section 10-5 of the ITAA 1997 provides a list of provisions of assessable income for section 6-10 purposes. None of the provisions apply to a cash contribution made by an employer to a trust established under an employee share scheme (ESS). Therefore, the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the acquisition of, or subscription to, Company A shares are also not assessable income of the Trust pursuant to section 6-10 of the ITAA 1997. [1] | Detailed Reasoning - CGT Event E5: Pursuant to section 102-20 of the ITAA 1997, an entity can make a capital gain or loss if, and only if, a CGT event happens. Under subsection 104-75(1) of the ITAA 1997, CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust (except a unit trust or a trust to which Division 128 of the ITAA 1997 applies) as against the trustee. The time of the event is when the beneficiary becomes absolutely entitled to the asset (subsection 104-75(2)). According to subsection 104-75(3), if CGT event E5 happens, the trustee may make a capital gain if the market value of the asset, at the time of the event, is more than its cost base. The trustee makes a capital loss if that market value is less than the asset's reduced cost base. In the present case, the Trust is neither a unit trust nor a deceased estate to which Division 128 of the ITAA 1997 applies. Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25) explains the principles set out in the leading English trust law case of Saunders v. Vautier (1841) 49 ER 282 in relation to 'absolutely entitled' as follows: ... if a sole beneficiary's interest in the trust property is vested and indefeasible and they are of age then they can put an end to the trust by directing the trustees to transfer the trust property to them or at their direction, even though the trust deed contains a contrary intention. The basis of the principle is that a beneficiary is entitled now to that which will be theirs eventually anyway. Pursuant to Clause XXX of the Trust Deed, a Participant is absolutely entitled to the Plan Shares held by the Trustee on their behalf. In accordance with Clause XXX, where the Plan Rules stipulate that the Shares are to be held by the Trustee on behalf of Participants, the Trustee will hold the Company A Shares as Shares in respect of an identified Participant(s) (i.e. on an allocated basis). Once allocated to and held by the Trustee on behalf of the Participant, the Participant (i.e., the beneficiary) will become absolutely entitled to the allocated shares (i.e., a CGT asset of the Trust) as against the Trustee. Accordingly, pursuant to subsection 104-75(1), CGT event E5 happens. If CGT event E5 happens, any capital gain or loss that the Trustee makes is disregarded if section 130-90 of the ITAA 1997 applies. Section 130-90 provides as follows: (1A) Disregard any *capital gain or *capital loss made by an *employee share trust to the extent that it results from a *CGT event, if: (a) immediately before the event happens, an *ESS interest is a *CGT asset of the trust; and (b) either of the following subparagraphs applies: (i) the event is CGT event E5, and the event happens because a beneficiary of the trust becomes absolutely entitled to the ESS interest as against the trustee; (ii) the event is CGT event E7, and the event happens because the trustee *disposes of the ESS interest to a beneficiary of the trust; and (c) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest. (1) Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if: (a) the CGT event is CGT event E5 or E7; and (b) the CGT event happens in relation to a *share; and (c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d) the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. (2) Subsection (1A) or (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens. To qualify for the exemption in section 130-90, there must be an 'employee share trust' and an 'ESS interest'. | Detailed Reasoning - Employee share trust: Subsection 130-85(4) of the ITAA 1997 defines an employee share trust 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). An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. Shares that are purchased by the Trustee to satisfy its obligation under the Plan Rules, and subsequently allocated to Participants pursuant to the Plan Rules, are ESS interests for the purposes of subsection 83A-10(1). An ESS is defined in subsection 83A-10(2) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees (including past or prospective employees) in relation to the employee's employment. The Plan Rules constitute an ESS because each are a scheme under which ESS interests in Company A are provided to the employees of Company A in relation to their employment with Company A. Therefore, paragraphs 130-85(4)(a) and (b) of the definition of an employee share trust are satisfied because: a. The Trust acquires shares in a company, namely Company A; and b. The Trust ensures that ESS interests as defined in subsection 83A-10(1) (being the Rights that are settled with Shares and the beneficial interest in the Share that is acquired pursuant to the exercise of the Right) are provided under an employee share scheme by allocating those shares to the employees of Company A in accordance with the Trust Deed and the Plan Rules. 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' ? As the activities listed in the Trust Deed are consistent with the requirements of subsection 130-85(4), including activities which the Commissioner considers are 'merely incidental' under paragraph 130-85(4)(c) (set out in paragraph 12 of TD 2019/13), it is considered that the Trust meets the definition of an employee share trust for the purposes of the ITAA 1997. | Detailed Reasoning - Other requirements in subsection 130-90(1): Relevantly to Company A's case, the other requirements in subsection 130-90(1) have been satisfied because: a. at the time the Participant becomes absolutely entitled to the Shares as against the Trustee, CGT event E5 will happen (paragraph 130-90(1)(a)) b. CGT event E5 happens in relation to the Shares (paragraph 130-90(1)(b)) c. the Participants acquire the Shares by exercise a Right granted under the Plan (paragraph 130-90(1)(c)), and d. as the Rights are granted under the Plan for nil consideration, they are acquired by the employees at a discount and therefore are ESS interests (where they are not cash settled) to which Subdivision 83A-B applies, unless the conditions in subsection 83A-105(1) are satisfied, in which case Subdivision 83A-C applies. Therefore, they are ESS interests to which either Subdivision 83A-B or 83A-C applies (paragraph 130-90(1)(d)). | Detailed Reasoning - Conclusion: As such, a capital gain or capital loss that arises for the Trustee at the time when Participants become absolutely entitled to the shares (CGT Event E5) will be disregarded under section 130-90 of ITAA 1997, if the employees acquire the Shares for the same or less than the cost base of the Shares in the hands of the Trustee. [1] This view is consistent with ATO ID 2002/965 Income Tax - Trustee not assessable on employer contributions made to it under the employer's employee share scheme, which found that: ' The funds provided to the Trustee are used in accordance with the Trust Deed and Plan Rules for the sole purpose of and under the employee share scheme. The contributions constitute capital receipts to the Trustee, and are not assessable under sections 6-5 or 6-10 of the ITAA 1997'.