Private ruling: Employee Share Scheme
Date of advice: 2 August 2016
Published: September 2016

Ruling: Q1: Will Company A as head entity of the Company A tax consolidated group, be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the irretrievable cash contributions made by Company A or any subsidiary member of the Company A tax consolidated group to The Trustee for Company A Employee Share Trust (Trustee) to fund the subscription for, or acquisition on-market, of Company A shares by the Trustee to satisfy ESS interests issued pursuant to the Company A Long Term Incentive Plan (LTIP) or the Company A General Employee Salary Sacrifice Share Plan (GESS)? | A1: Yes. | Q2: Will Company A as head entity of the Company A tax consolidated group be entitled to deduct an amount under section 8-1 of the ITAA 1997, in respect of costs incurred by Company A or any subsidiary member of the Company A tax consolidated group in relation to the implementation and on-going administration of the Trust? | A2: Yes. | Q3: Will irretrievable cash contributions made by Company A or any subsidiary member of the Company A tax consolidated group to the Trustee, to fund the subscription for, or acquisition on-market, of Company A shares by the Trustee, be deductible to Company A at a time determined by section 83A- 210 of the ITAA 1997 if the contributions are before the acquisition of the relevant ESS interests? | A3: Yes. | Q4: If the Trustee satisfies its obligation under the LTIP or GESS by subscribing for new shares in Company A, will the subscription proceeds be included in the assessable income of Company A under section 6- 5 or 20-20 of the ITAA 1997, or trigger a capital gains tax ("CGT") event under Division 104 of the ITAA 1997? | A4: No. | Q5: 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 Company A as head entity of the tax consolidated group in respect of the irretrievable cash contributions made by Company A or any subsidiary member of the tax consolidated group to the Trustee to fund the subscription for, or acquisition on-market, of Company A shares by the Trustee? | A5: No. The rulings for questions 1 to 5 inclusive each apply for the following periods: Income tax year ended 30 June 2016 Income tax year ended 30 June 2017 Income tax year ended 30 June 2018 Income tax year ended 30 June 2019 Income tax year ended 30 June 2020 | Q6: Will the provision of Share, Performance Right or Options by Company A to employees of Company A or any subsidiary of Company A under the LTIP or GESS be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | A6: No. | Q7: Will the irretrievable cash contributions made by Company A or any subsidiary of Company A to the Trustee, to fund the subscription for or acquisition on-market of Company A shares, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | A7: No. | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount of Company A or any subsidiary of Company A, by the amount of tax benefit gained from irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Company A shares? | A8: No. The rulings for questions 6 to 8 inclusive each apply for the following periods: Fringe benefits tax year ended 31 March 2016 Fringe benefits tax year ended 31 March 2017 Fringe benefits tax year ended 31 March 2018 Fringe benefits tax year ended 31 March 2019 Fringe benefits tax year ended 31 March 2020

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Background Company A is an Australian listed company that operates Auto Parts stores across Australia, focussing on servicing the automotive aftermarket trade and retail customers with their product needs. As part of its overall remuneration strategy and in addition to fixed remuneration, Company A offers its employees cash bonuses and long-term equity based incentives to encourage loyalty and increased employee performance. Company A operates a Long Term Incentive Plan (LTIP) and a General Employee Salary Sacrifice Share Plan as part of the Company A remuneration strategy. General Employee Salary Sacrifice Share Plan (GESS) The General Employee Salary Sacrifice Share Plan Rules (GESS Rules) governs the General Employee Salary Sacrifice Share Plan (GESS). Schedule 1 of the GESS Rules defines the following relevant terms: ASX means ASX Limited ACN 008 624 691, trading as the Australian Securities Exchange. Board means all or some of the directors of the Company acting as the board of directors or a person or committee delegated by the board of directors in accordance with rule 10.2. Company means Company A Group Limited. Constitution means the constitution of the Company. Corporations Act means the Corporations Act 2001 (Cth). Discount means the discount in respect of Shares that are offered for acquisition by a Participant under this Plan, calculated as the Market Value of a Share at the time when it is acquired by the Participant less any consideration paid by the Participant for acquisition of that Share. For the removal of doubt, Salary Sacrifice contributions do not constitute consideration paid under the Plan. Disposal Restrictions means any conditions or restrictions determined in accordance with rule 6 that must be satisfied before an Eligible Employee is entitled to dispose of the Share or any interest in the Share. Eligible Employee means Australian resident full time and part time employees of the Company or a subsidiary of the Company. Grant Date means the date the Board resolves to grant Shares pursuant to the Company receiving a properly executed acceptance from an Eligible Employee. Holding Lock means a "holding lock" as defined in the Listing Rules. Listed means a company that has been admitted to the official list of ASX. Listing Rules means the official listing rules of ASX. Market Value means the market value of Shares, calculated as the issue price of the Shares under the initial public offering ("IPO") or post IPO, the weighted average of the prices at which Shares were traded on the ASX during the one week up to and including the day the market value is calculated, unless determined otherwise by the Board. Offer means an offer of Shares made by the Company to an Eligible Employee under this Plan. Participant means an Eligible Employee who has accepted an Offer to acquire Restricted Shares under this Plan. Plan means this plan known as the Company A General Employee Salary Sacrifice Share Plan as constituted by the Rules. Remuneration means the payment, emoluments and other benefits that the Eligible Employee may become entitled to receive from time to time as remuneration for services to be provided or work to be performed by the Eligible Employee in the course of, or in connection with, the Eligible Employee's employment as an employee of the Company or a Subsidiary or position as a director including, but not limited to, salary, wages, fees or bonuses. Restricted Shares means Shares that are subject to a current Disposal Restriction. Rules means the rules contained in this document known as the Company A General Employee Salary Sacrifice Share Plan. Salary Sacrifice means where the Eligible Employee agrees to contractually forgo part of his or her pre-tax remuneration in return for Shares. Security Trading Policies means the Company's security trading policies (if any). Share means an ordinary share in the capital of the Company. Subsidiary has the same meaning as in Division 6 of Part 1.2 of the Corporations Act 2001 (Cth). Tax Act 1997 means the Income Tax Assessment Act 1997 (Cth). Rule 2.1 of the GESS Rules states that the purpose of the plan is to: (a) enable Eligible Employees to acquire Shares in a cost and tax effective manner; and (b) to align the interests of Eligible Employees with those of the Company's shareholders. Rule 2.3 of the GESS Rules states: (a) The Plan continues in operation until the Board determines the Plan is terminated, suspended or discontinued. The Board may decide to terminate or suspend the operation of the Plan either for a fixed period or indefinitely and may also decide to end any period of suspension. (b) If the Plan terminates, is suspended or is discontinued for any reason, the accrued rights of the Participants will not be prejudiced. Rule 3.1 of the GESS Rules states Shares acquired under this Plan: (a) May be issued or transferred to the Participant at the Board's discretion; (b) are subject to the genuine Disposal Restrictions in rule 6; and (c) are not subject to any conditions that result in a risk that a Participant will forfeit or lose the Shares( other than by disposing of them) Rule 3.2 of the GESS Rules states that a Participant must not hold a beneficial interest in more than 5% of the Shares and be in a position to cast or control more than 5% of the number of votes that might be cast at a general meeting of the company. Rule 3.3 of the GESS Rules states that in respect of a grant of Shares under the Plan, the Discount must not exceed $1,000 per Participant per Year or such other amount set out in section 83A-35(2) of the Tax Act 1997. Rule 4.1 of the GESS Rules states that the Board determines whether or not an employee is an Eligible Employee for the purposes of the Plan. Rule 4.2 of the GESS Rules states the Plan will be operated by the Board on a non-discriminatory basis in relation to at least 75% of employees who have completed at least 3 years of service and are Australian residents. Rule 4.3 of the GESS Rules states an offer may only be made if approved by the Board. It must be in writing and must be made in accordance with the GESS Rules and that offers are not transferrable. Rule 4.4 of the GESS Rules states that the terms of any Offer must include: (a) the name of the Eligible Employee; (b) the terms and conditions that satisfy rule 5; (c) the number of shares that may be acquired by the Participant or the method of calculating the number of Shares that may be acquired by the Participant; (d) the terms and conditions of the Salary Sacrifice arrangement; (e) the Disposal Restrictions in accordance with Rule 6; (f) the closing date for accepting the Offer; and (g) any other terms the Board considers appropriate. Under Rule 4.5 of the GESS Rules an Eligible Employee who wishes to accept the Offer must on or before the closing date do what is specified in the Offer to accept the Shares. Under Rule 4.6 of the GESS Rules where the Eligible Employee has complied with Rule 4.5 the Company will grant the relevant Shares to the Participant. Rule 5 of the GESS Rules states that the Company will take reasonable steps to ensure that no Participant is given an Offer that would cause them to hold more than 5% of the issued shares in that class of the Company as at the time of the Offer. Rule 6.1 of the GESS Rules states the disposal restrictions places on Shares offered pursuant to the GESS. Shares may not be disposed of or dealt with in any way for a period that is the earlier of 3 years from acquisition by a Participant and the time when Participant cease to be employed by the Company. Rule 6.3 of the GESS Rules states Shares subject to Disposal Restrictions will be known as Restricted Shares. Rule 6.4 of the GESS Rules states once the Shares are no longer Restricted Shares the Company will, within a reasonable time, take all actions necessary to ensure that the Participant can deal with those Shares, subject to the Security Trading Policies. Rule 7.1 of the GESS Rules states that a Participant must not sell, assign, transfer, encumber or otherwise deal with Restricted Shares unless otherwise permitted under this Plan or with the written approval of the Board on terms and conditions determined by the Board. Rule 8.1 of the GESS Rules states that a Participant is entitled to any rights which accrue to Shares held by the Participant and may deal with those rights in accordance with the terms of these Rules and the Offer in respect of those Shares. Rule 8.2 of the GESS Rules states Shares acquired under the Plan rank equally with all existing Shares from the date of acquisition in respect of any capital reconstructions and all rights issues, bonus issues, dividends and other distributions to, or entitlements of, holders of existing Shares made or declared after acquisition. Rule 10.3 of the GESS Rules states that the Company may appoint a Trustee to undertake all necessary functions to implement the Plan including the exercise of all necessary power under the GESS Rules and that the Trustee may be used as a conduit in the transfer of shares to Participants. Company A Long Term Incentive Plan (LTIP) The Long Term Incentive Plan Rules (LTIP Rules) govern the Company A Long Term Incentive Plan (LTIP). Schedule 1 of the LTIP Rules defines the following relevant terms: 5% Limit has the meaning given in clause 5(a) Acquisition Date for an Option held by an Employee means the first date on which the Option was issued to that Employee. Application means an application for Performance Rights made by an Employee under the terms of an Offer. Application Form means an application form (if any) attached to an Offer in the form determined by the Board from time to time. ASX means the ASX Limited. Bad Leaver has the meaning in clause 12.1. Board means the board of directors of the Company. Business Day means a day on which banks are open for business excluding Saturdays, Sundays and public holidays. Change of Control mean: (a) a takeover bid is announced for all of the Shares and the bidder has acquired voting power in more than 50% of the Shares; (b) a court sanctions a compromise or arrangement for the purposes of, or in connection with, a scheme for the amalgamation of the Company with any other company or companies under Part 5.1 of the Corporations Act; or (c) any other transaction which, in the reasonable opinion of the Board, would constitute a change of control in the Company. Claim means any allegation, debt, cause of action, liability, claim, proceeding, suit or demand of any nature howsoever arising and whether present or future, fixed or unascertained, actual or contingent whether at law, in equity, under statute or otherwise. Company means Company A Group Limited. Corporations Act means Corporations Act 2001 (Cth). Disposal Restrictions means, in relation to a Performance Right or Option, each restriction specified as such in the Offer for the Performance Right or Option. Employee means a person who is in the full-time or part-time permanent employment of a Group Member. Employer means any Group Member and in relation to any particular Participant means the Group Member by which that Participant is employed. Encumbrance means any mortgage, lien, charge, pledge, assignment by way of option, option interest, title retention, preferential right or trust arraignment, Claim, covenant, profit a prendre, easement or any other option arrangement or any other arrangement having the same effect or any agreement to create any of them and "Encumber" has a corresponding meaning. Good Leaver has the meaning given in clause 12.2. Government Agency includes any governmental, semi-governmental, administrative, fiscal, judicial or quasi-judicial body, department, commission, authority, tribunal, agency or entity. Group means the Company and its subsidiaries and Group Member has a corresponding meaning. GST means a goods and services tax, or a similar value added tax, levied or imposed under the GST Law. GST Law has the meaning given to it in the A New Tax System (Goods and Services Tax) Act 1999 (Cth). Holding Lock means a "holding lock" as defined in the Listing Rules. Interest means in relation to a person, all legal or equitable interests in the subject matter held or acquired by that person whether direct or indirect, and includes any economic interest in the subject matter arising under any transaction entered into by the person in respect of the subject matter. Invitation means the invitation containing the Offer to participate in the Plan. Law includes: (a) any law, regulation, authorisation, ruling, judgment, order or decree of any Government Agency; and (b) any statute, regulation, proclamation, ordinance or by-law in: (i) Australia; or (ii) Any other jurisdiction. Listing Rules means the listing rules of the ASX. Market Value means the value of Shares as determined by the volume weighted average trading price of Shares sold on the ASX over the last 5 trading days immediately before the relevant date, or any other valuation methodology approved by the Board. Notice of Exercise means a notice provided to the Company within the relevant exercise period (if any) as described in the Offer notifying the Company that the Participant wishes to exercise their Vested Options. Offer means an offer of Performance Rights and/or Options to an Employee under the Plan and made in accordance with clause 3. Option means the option to acquire a fully paid Share subject to the terms of the Offer and these Rules. Participant means an Employee who is participating in the Plan. Performance Period means the performance period specified in an Offer. Performance Right means the right to acquire a fully paid Share subject to the terms of the Offer and these Rules. Plan means the Company A Long Term Incentive Plan constituted by these Rules. Rights Issue means the granting by the Company to its members in that capacity a pro rate right to acquire securities, whether or not that right is renounceable. Share means an ordinary share in the Company. Tax Acts means the Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth), as the context requires. Transfer means sell, transfer, assign, swap or otherwise dispose of or deal with any Interest, and includes taking any steps or attempting to dispose of or deal in any Interest. Unvested Option means an Option that is not a Vested Option. Unvested Performance Right means a Performance Right that is not a Vested Performance Right. Vested Option means an Option in respect of which all of the Vesting Conditions have been satisfied or waived. Vested Performance Right means a Performance Right in respect of which all of the Vesting Conditions have been satisfied or waived. Vested Condition means, in relation to a Performance Right or an Option, any condition which as set out in the Offer that must be satisfied or waived before that Performance Right or Option becomes vested in its holder for the purposes of these Rules. Vesting Date means the date specified as such in the Offer, being the date of issue of a Vesting Notice. Vesting Notice has the meaning given to it in clause 7.1(b). Rule 2.1 of the LTIP Rules states that the purpose of the LTIP plan is to: (a) Assist in the reward, retention and motivation of eligible Employees; and (b) Align the interests of eligible Employees more closely with the interests of the Company's shareholders by providing an opportunity for the eligible Employees to acquire an ownership interest in the Company. Rule 3.3 of the LTIP Rules states the terms of Offer, including: (a) The number of Performance Rights and/or Options for which that Employee may apply (b) The amount payable (if any) for the acquisition of a Performance Right and/or Option or how it is calculated (c) The amount payable (if any) for the exercise of a Performance Right and/or Option or how it is calculated (d) The Performance Period (e) The Vesting Date (f) Any Vesting Condition (g) Any Disposal Restriction (h) The method of acceptance of the Offer (i) Any other terms and conditions determined by the Board from time to time. Rule 4 of the LTIP Rules states that unless otherwise determined by the Board and set out in the Offer, no consideration will be payable for the grant of a Performance Right or Option. Rule 5 of the LTIP Rules states that the number of Shares to be held by a Participant upon exercise of their Rights and Options must not exceed 5% of the total number of issued Shares at the time of the Invitation. Rule 6 of the LTIP Rule states that upon vesting each Performance Right or Option gives the Participant the right to receive one Share subject to the terms of the Rules and the Offer. Additionally, no Performance Right or Option will give a Participant any interest in Shares until those Performance Rights or Options have vested and the relevant Shares issued or transferred to the Participant. Rule 7.1 of the LTIP Rules states that Performance Rights and Options will vest on the Vesting Date to the extent that the Vesting Conditions are satisfied or waived subject to the Rules and Offer. Notification of vesting must be via written notice to the Participant. Rule 7.3 of the LTIP Rules states that if Vesting Conditions are not satisfied or waived by the Vesting Date then the applicable Performance Rights or Options will lapse. Rule 8.1 of the LTIP Rules states that exercise of any Option is dependent upon the applicable Vesting Condition being satisfied or waived and the Participant has received a Vesting Notice. An option may only be exercised by following particular procedures, including payment of the Exercise Price (if any). Rule 8.3 of the LTIP Rules contains a cashless exercise formula that the Board may allow a Participant to use for the determination of the ultimate number of shares to be allocated to that Participant. A cashless exercise arises when the Board allows a Participant to exercise an option without paying a cash Exercise Price. Rule 10 of the LTIP Rules states that if the Board become aware of a material misstatement in the Company's financial statements or any other event occurs resulting in Vested Option or Performance Rights should not have been determined to be satisfied then the Participant will cease to be entitled to those Vested Performance Rights or Options. The Board may either cancel the relevant affected Options for no consideration, require the Participant pay to the Company the after tax value of the Affected Options or Performance Rights that have been converted to shares, or adjust fixed remuneration, incentive or participation in this Plan to reflect the Affected Options or Rights. Rule 12.1 of the LTIP Rules states that if a Participant ceases employment due to resignation, dismissal or any other circumstance the Board determines to constitute a Bad Leaver, then any Unvested Performance Rights or Options will immediately lapse. Rule 12.2 of the LTIP Rules states that in any other circumstances other than those defined as a Bad Leaver the Participant will be a Good Leaver and will be entitled to a pro-rata amount of their Unvested Performance Rights or Options with all remaining Unvested Performance Rights and Options lapsing. Rule 14 of the LTIP Rules states that the Company may appoint a Trustee to administer the Plan in accordance with the relevant trust deed and in accordance with the Plan Rules. Rule 17.8 of the LTIP Rules states that the costs and expenses of establishing, managing and administering the Plan must be borne by the Company. Company A Employee Share Trust (the Trust) Company A has established a trust (Trust) under the Company A Employee Share Trust Deed dated 27 May 2016 (Trust Deed) which will be used to administer the Plans. Company B has been appointed under the Trust Deed as the Initial Trustee (Trustee). Company A will incur various costs in relation to the implementation and on-going administration of the Trust including, but not limited to: • employee plan record keeping; • production and dispatch of holding statements to employees; • provision of annual income tax return information to employees; • management of employee termination; and • costs incurred in the acquisition of shares on-market (e.g. brokerage costs and the allocation of shares to Participants); • other Trustee expenses, including the annual audit of the financial statements and annual income tax return of the Trust. Schedule 1 of the Trust Deed defines the following relevant terms: Account means an account established by the Trustee in respect of a Participant in accordance with clause 6. Accretion means any accretion, dividend, distribution, entitlement, benefit or right of whatever kind whether cash or otherwise which is issued, declared, paid, made, arises or accrues directly or indirectly to or in respect of a Share including, without limitation, any rights issue, bonus issue, entitlements offer, or distribution from any reserve of Company A and any reduction of capital. Applicable Law means any one or more or all, as the context requires of: (a) the laws of the State or Territory referred to in clause 18; (b) the Corporations Act; (c) the Listing Rules; (d) the Tax Act; (e) any practice note, policy statement, class order, declaration, guideline, policy, procedure, ruling, judicial interpretation or other guidance note made to clarify, expand or amend (a), (b), (c) or (d) above; and (f) the constitution of Company A; and (g) any other legal requirement that applies to a Company A Employee Share Ownership Plan or the Trust. Auditor means any person who is a registered company auditor (as that term is defined) in the Corporations Act). Authorisation includes: (a) an authorisation, consent, agreement, notice of non-objection, notarisation, certificate, licence, approval, permit, authority, permission, notification, application, filing, registration, lodgement, resolution, direction, declaration or exemption from, by or with a Government Agency; and (b) in relation to anything which a Government Agency may prohibit or restrict within a specific period, the expiry of that period without intervention or action Board means the board of directors of the Company or any committee of the board appointed by the board to administer any Company A Employee Share Ownership Plan. Bonus Shares means Shares to which a holder of Shares is entitled in any pro rata issue by the Company to holders of Shares for which no consideration is payable by the holder. Company A means Company A Group Limited. Company A Employee Share Ownership Plan means an employee incentive plan (including a share purchase plan) established by Company A for the benefit of employees and/or executive directors of the Group from time to time, and for the avoidance of doubt includes each of: (h) Company A Long Term Incentive Plan; and (i) Company A General Employee Salary Sacrifice Share Plan. Company A General Employee Salary Sacrifice Share Plan means the share plan entitled "Company A General Employee Salary Sacrifice Share Plan" for the acquisition of shares in Company A by Eligible Employees by means of a salary sacrifice scheme as detailed in the Company A Employee Salary Sacrifice Share Plan Rules. Company A Long Term Incentive Plan means the share plan entitled "Company A Long Term Incentive Plan" for the acquisition of options or rights in respect of shares in the Company, with vesting dates as set out in the Company A Long Term Incentive Plan Rules. Business Day means a day on which banks are open for business excluding Saturdays, Sundays or public holidays in the relevant City. Commencement Date has the meaning given in clause 2.2. Corporations Act means the Corporations Act 2001 (Cth) as amended from time to time. Director means a director of Company A. Eligible Employee means an employee or Director of Company A who receives an invitation from Company A to participate in a Company A Employee Share Ownership Plan. Fund means: (a) the Settlement Sum; (b) the Shares acquired or accepted by the Trustee for the purposes of the Trust; (c) the Incentive Shares; (d) all other money, property and assets acquired or accepted by the Trustee which become subject to the terms and conditions of this deed; and (e) all income of the Trust. Government Agency means a government or governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity whether foreign, federal, state, territorial or local. Group means Company A and its Related Bodies Corporate. Incentive Shares means Shares held by the Trustee on behalf of the Participant in accordance with the requirements of this deed and the relevant Plan Rules. Listing Rules means the listing rules of the Australian Securities Exchange, as amended from time to time. Net Income means in respect of a Year of Income of the Trust, "net income" as defined in section 95 of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (as relevant) but excluding any franking credits attaching to dividends received by the Trust during that Year of Income. Participant means a person participating in a Company A Employee Share Ownership Plan who has been allocated Incentive Shares in accordance with the relevant Plan Rules and the terms of this deed. Plan Rules means the terms and conditions and other rules relating to the Company A Employee Share Ownership Plans. Related Body Corporate has the meaning given in the Corporations Act. Rights means any rights or options (not being by way of a pro rata bonus issue of Shares or other securities) to acquire Shares or other securities issued or to be issued by the Company. Security Interest means a mortgage, charge, pledge, lien, encumbrance or other third party interest of any nature (including the registration and/or perfection of that security interest under the Personal Property Securities Act 2009 (Cth)). Settlement Sum means AU$10. Shares means fully paid ordinary shares in the capital of the Company. Subsidiary has the same meaning as in Division 6 of Part 1.2 of the Corporations Act. Tax means any tax, levy, charge, impost, duty, fee, deduction, compulsory loan or withholding of any nature, including stamp and transaction duty or any goods and services tax, value added tax or consumption tax, which is assessed, levied, imposed or collected by any government agency and includes any interest, fine, penalty, charge, fee or any other amount imposed on or in respect of any of the above. Tax Act means the Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth), as the context requires. Trust means the trust established by this deed. Trust Expenses means all expenses, outgoings, costs and charges incurred in establishing and operating a Company A Employee Share Ownership Plan and includes any amount of income or other Tax payable by Company A and/or the Trustee in relation to a Company A Employee Share Ownership Plan but excludes any costs directly related to selling and transferring Shares or Incentive Shares. Trustee means initially Company B Pty Limited and thereafter means the trustee from time to time of the Trust. Year of Income means a period of 12 months corresponding with the financial year of Company A and includes the period commencing on the date of this deed and terminating on the next financial year end for Company A and the period ending on the date of termination of the Trust and commencing on the start of the preceding financial year for Company A. Clause 2 of the Trust Deed establishes the Trust on the terms of the Deed. Further, in administering the Trust, the Trustee must act in accordance with an applicable Company A Employee Share Ownership Plan. The Trustee, on behalf of the Participants, holds the Fund on the terms and conditions of the deed. Clause 3.8 of the Trust Deed states that the Trustee is not entitled to receive from the Trust any fees, commission or other remuneration in respect of its office. However, the Trust Deed recognises that Company A must pay to the Trustee from Company A's own resources any such fees, and reimburse such expenses incurred by the Trustee as agreed from time to time by Company A and the Trustee. The Trustee is entitled to retain for its own benefit any such fee or reimbursement. Clause 4.1 of the Trust Deed states that the Trustee can buy Shares, or sell any Shares (including Incentive Shares) (as the case maybe) and apply the proceeds of sale in accordance with this deed and the applicable Company A Employee Share Ownership Plan. The trustee also has the power to transfer Incentive Shares to Eligible Employees in satisfaction of obligations under any Company A Employee Share Ownership Plan. Clause 4.2 of the Trust Deed states that in respect of Incentive Shares held by the Trustee that have been allocated to a Participant the Trustee will hold the Incentive Shares on behalf of the Participant. Upon instruction in writing by a Participant must vote those shares in accordance with instructions as contemplated by Clause 15.1(a). Additionally, the Trustee, when instructed by the company in writing, and in accordance with the relevant Employee Share Ownership Plan and the other provisions of the deed must transfer legal and beneficial title to the Participant. The Trustee must also remit any cash proceeds in respect of the relevant allocated incentive share to the Participant and conduct any other actions as may be required by the Company in regards to those Allocated Shares. Clause 4.3 of the Trust Deed states that Company A 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. Clause 5.1 of the Trust Deed states from the Commencement Date Company A may contribute money to the Trustee to fund the acquisition or subscription of Shares for the purpose of a Company A Employee Share Ownership Plan. Clause 5.2 of the Trust Deed states that Company A may instruct the Trustee in writing from time to time to acquire Shares in accordance with the instructions, to be held by the Trustee for the purpose of granting Incentive Shares to Participants from time to time, including at some future point in time. Clause 5.3 of the Trust Deed states that The Trustee must allocate incentive Shares to the Account established for a Participant in accordance with the written direction from Company A provided that it holds or will be provided with sufficient shares or funds to carry out the written instructions. Clause 5.4(b) of the Trust Deed states that Company A must provide the Trustee, or cause the Trustee to be provided with, any funds required by the Trustee to comply with its obligations under Clause 5.2(a) and 5.4(a) of the Trust Deed. Clause 5.4(c) of the Trust Deed states that, subject to clause 5.4(d) all funds provided to the Trustee by Company A will constitute accretions to the corpus of the Trust and will not be repaid to Company A and no Participant shall be entitled to receive such funds. Clause 5.4(d) of the Trust Deed states that funds may be paid to Company A or a third party as consideration for the subscription or acquisition of Shares provided such is in accordance with the terms of the Trust Deed or relevant Terms of Participation. Clause 7.1(a) of the Trust Deed states that the Trustee must, on receipt of written direction from Company A and in accordance with the rules of the relevant Company A Employee Share Ownership Plan, transfer to the relevant Participant the number of Shares specified in the written direction. Clause 7.1(c) of the Trust Deed states that upon Incentive Shares allocated to and held on behalf of a Participant being transferred to a Participant in accordance with clause 7.1(a), Company A will register the Participant as the holder of those Shares and the Participant will be absolutely legally and beneficially entitled to those Shares. Clause 7.2 of the Trust Deed states that upon the sale of any Incentive Shares the Trustee must pay the proceeds of sale to the Participant after deducting the reasonable costs of the sale. Clause 12.1 of the Trust Deed states that Company A indemnifies the Trustee in respect of all liabilities, costs and expenses incurred by the Trustee in the execution or purported execution of powers, authorities or discretions vested in the Trustee under the Trust Deed. Clause 12.4 of the Trust Deed also states that if the Trustee is entitled to be indemnified by the Participants in respect of any tax payable by the Trustee in respect of Incentive Shares held for the benefit of that Participant. Clause 16 of the Trust Deed states that Shares not allocated to a Participant will be held on trust for the benefit of Participants generally in accordance with the terms of this deed. The Trustee: (a) Must not exercise any voting rights in relation to those Shares; (b) Hold all dividends and cash return from those Shares as property of the Fund to which no Participant is presently entitled; (c) May elect to waive any dividend entitlement in respect of such shares, with that waiver lapsing upon allocation to a Participant; (d) Participate in dividend reinvestment if directed by Company A; (e) Hold any bonus issues or other benefits received in respect of those Shares as property of the fund to which no Participant is presently entitled (f) May participate in any other corporate action of Company A including but not limited to a Rights or Bonus issue, in its absolute discretion; and (g) May allocate those Shares to identified Participants in accordance with any direction given by Company A in accordance with any Company A Employee Share Ownership Plan and this deed. Clause 17.3 of the Trust Deed states that, in the event that the Trust is terminated then any surplus assets of the Trust must be applied, in accordance with clause 9.4, which are: (a) Payment of any costs and expenses incurred by the Trustee in execution or purported execution of the Trust or (b) For the benefit of any of the following beneficiaries as the Trustee thinks fit: i. a Company A Employee Share Ownership Plan; ii. a provident, benefit, superannuation or retirement fund established and maintained by Company A; or iii. a charity nominated by the Trustee. Clause 17.3 (b) of the Trust Deed states that the Trustee must not pay any of the surplus assets to a member of the Group.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 66 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 67(1) | Fringe Benefits Tax Assessment Act 1986 subsection 67(2) | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 paragraph 136(1)(h) | Fringe Benefits Tax Assessment Act 1986 paragraph 136(1)(ha) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 section 177A | Income Tax Assessment Act 1936 subsection 177A(1) | Income Tax Assessment Act 1936 section 177C | Income Tax Assessment Act 1936 subsection 177C(1) | Income Tax Assessment Act 1936 subsection 177CB(2) | Income Tax Assessment Act 1936 subsection 177CB(3) | Income Tax Assessment Act 1936 subsection 177CB(4) | Income Tax Assessment Act 1936 section 177D | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 section 177F | Income Tax Assessment Act 1936 s ubsection 177F(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 8-1(1) | Income Tax Assessment Act 1997 subsection 8-1(2) | Income Tax Assessment Act 1997 paragraph 8-1(2)(a) | Income Tax Assessment Act 1997 Division 20 | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 subsection 20-20(2) | Income Tax Assessment Act 1997 section 20-30 | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 Subdivision 83A-C | Income Tax Assessment Act 1997 section 83A-205 | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 paragraph 104-35(5)(c) | Income Tax Assessment Act 1997 paragraph 130-85(4) | Income Tax Assessment Act 1997 paragraph 130-85(4)(a) | Income Tax Assessment Act 1997 paragraph 130-85(4)(c) | Income Tax Assessment Act 1997 section 701-1 | Income Tax Assessment Act 1997 section 974-75 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Reasons for decision: Questions 1 to 5 - application of the single entity rule in section 701-1of the ITAA 1997 The consolidation provisions of the ITAA 1997 allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1 of the ITAA 1997 the subsidiary members of a consolidated group are taken to be parts of the head company. As a consequence the subsidiary members cease to be recognised as separate entities during the period they are members of the consolidated group with the head company of the group being the only entity recognised for income tax purposes. The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997. As a consequence, the actions and transactions of the subsidiary members of the Company A tax consolidated group are treated for income tax purposes as having been undertaken by Company A Limited as the Australian head company of the Company A tax consolidated group. Questions 6 to 8 The SER in section 701-1 of the ITAA 1997 has no application to the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Accordingly the Commissioner has provided a ruling to Company A and each subsidiary member of the Company A consolidated group in relation to questions 6 to 8. | Detailed Reasoning - Question 1: The general deduction provision in section 8-1 of the ITAA 1997 states: (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income. (1) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your * exempt income or your * non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. Losses or outgoings To claim a deduction under subsection 8-1(1) of the ITAA 1997 contributions made to the Trustee by Company A must be irretrievable and non-refundable. Pursuant to Clause 5.2 of the Deed, Company A will issue Company A shares to the Trustee or direct the Trustee to acquire Company A shares on market. The Trustee holds these Company A shares as Incentive Shares on behalf of the Participants for the purposes of the LTIP and GESS Rules. Under Clause 5.4(b), Company A must provide the Trustee with all funds required by the Trustee to enable it to comply with its obligations under clause 5.2, including, to subscribe for or acquire Company A shares. Under Clause 5.4(c) of the Deed, the Trustee cannot repay funds received by the Trustee from the company. The Trustee must apply the funds received in the acquisition or subscription of Company A shares under the Deed and the relevant Rules or Terms of Participation. Clause 5.4(c) further provides that no Participant is entitled to receive such funds from the Trustee. Under Clause 17.3 of the Deed, upon termination of the Trust the Trustee must distribute any consideration or Company A shares that the Trust has been directed to provide to Participants. The Trustee must apply any remaining assets held by the Fund and proceed to pay all outstanding debts and liabilities of the Trust. Any surplus that remains must be distributed for the purposes of another Company A Employee Share Ownership Plan, a provident, benefit, superannuation or retirement fund established and maintained by Company A, or any charity nominated by the Trustee. The Deed prohibits the Trustee from distributing this surplus to any Company A Group Company. The terms of the Deed when read together demonstrate that contributions made by Company A to the Trustee will be irretrievable and non-refundable and therefore these contributions are considered to be a loss or outgoing for the purpose of subsection 8-1(1) of the ITAA 1997. Sufficient nexus In order for a loss or outgoing to be deductible under subsection 8-1(1) of the ITAA 1997 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 assessable income. A line of authorities has established that there will be a link between a loss or outgoing and the derivation of income where there is a sufficient nexus. ( The Herald and Weekly Times Limited v The Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 2 ATD 169, Amalgamated Zinc (De Bavay's) Limited v The Federal Commissioner of Taxation (1935) 54 CLR 295;(1935) 3 ATD 288, W. Nevill And Company Limited v The Federal Commissioner of Taxation (1937) 56 CLR 290;4 ATD 187;(1937) 1 AITR 67, Ronpibon Tin No Liability v The Federal Commissioner of Taxation (1949) 78 CLR 47; 4 AITR 236; (1949) 8 ATD 431, Charles Moore & Co (W.A.) Pty Ltd v Federal Commissioner of Taxation (1956) 95 CLR 344;(1956) 6 AITR 379; (1956) 11 ATD 147). The contributions made by Company A to the Trustee of the Trust are part of the overall employee remuneration costs of Company A. The benefits provided to employees under the LTIP and GESS intend to reward, retain and motivate employees and to encourage participation by employees of Company A through share ownership. A sufficient nexus exists between the outgoings (being the irretrievable contributions made by Company A to the Trustee of the Trust) and the derivation of Company A's assessable income for the purposes of subsection 8-1(1) of the ITAA 1997. Capital or revenue? Company A will make periodic contributions to the Trustee of the Trust for the purpose of acquiring and subscribing for ordinary shares in Company A pursuant to the LTIP and GESS. In ATO ID 2002/1074 Income Tax - deductibility - irretrievable employer contributions paid to the Trustee of its employee share scheme to acquire a share or right under the employee share scheme the view is expressed that a company will be entitled to a deduction for irretrievable contributions made to the trustee of its employee share scheme under section 8-1 of the ITAA 1997. In Spotlight Stores Pty Ltd v Federal Commissioner of Taxation (2004) 55 ATR 745 and Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) 58 ATR 210 payments by an employer company to an employee share trust, established to provide incentive payments to employees, were held to be on revenue account and were not capital or of a capital nature. | Detailed Reasoning - Apportionment: The combined operation of subsections 8-1(1) and 8-1(2) of the ITAA 1997 may require apportionment of a loss or outgoing into deductible and non-deductible components, where a single loss or outgoing is incurred for more than one purpose or on items of a different nature. This would be relevant in the circumstances where the Trustee of the Trust uses contributions made by Company A to the Trustee for the administration of the LTIP and GESS to subscribe for shares in Company A. A contribution to the trustee of an employee share trust is capital or of a capital nature where the contribution secures for the employer an asset or advantage of an enduring or lasting nature that is independent of the year to year benefits that the employer derives from a loyal and contented workforce. Where the trustee of an employee share trust, ultimately and in substance, uses a contribution from the employer to subscribe for equity interests in the employer (for example shares), the employer has also acquired an asset or advantage of an enduring nature. Where a contribution secures for the employer advantages of both a revenue and capital nature, but the expected advantages of a capital nature are very small or trifling by comparison, apportionment may not be required. In this case, the outgoings incurred by Company A by way of the irretrievable contributions it makes to the Trustee of the Trust in order to carry on its business are either not capital in nature or any capital component is considered to be sufficiently small or trifling such that the Commissioner would not seek to apportion the deduction. Private or domestic in nature Nothing in the facts suggest that the irretrievable contributions made by Company A to the Trustee of the Trust are private or domestic in nature, or are incurred in gaining or producing exempt income, or are otherwise prevented from being deductible under a specific provision of the ITAA 1936 or ITAA 1997. Clawback Rule 10 of the LTIP Rules states that if the Board becomes aware of a material misstatement in the Company's financial statements or any other event occurs that results in Vested Conditions of Vested Options or Performance Rights not being satisfied, then the Participant will cease to be entitled to those Vested Performance Rights or Options. The Board may either cancel the relevant affected Options for no consideration, require the Participant pay to the Company the after tax value of the Affected Options or Performance Rights that have been converted to shares, or adjust fixed remuneration, incentive or participation in this Plan to reflect the Affected Options or Rights. Although under this rule an amount may come back to the employer, Company A chose to implement such a rule in the LTIP to satisfy corporate governance requirements that are associated with the remuneration of executive employees. Amounts returned to the employer from the Participant under this rule would be assessable income of the employer. Therefore, nothing in this clawback provision alters the character of the irretrievable contributions made by Company A to the Trustee of the Trust. Conclusion The irretrievable contributions Company A makes to the Trustee of the Trust to fund the acquisition of ordinary Company A shares in accordance with the Deed and LTIP and GESS will be an allowable deduction to Company A under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 2: Company A will incur costs in relation to the establishment and implementation of the Trust, including the costs that are associated with applying for this private ruling. Company A will also incur further costs associated with the services provided by the Trustee of the Trust in respect of the on-going administration and management of the Trust, including, but not limited to: • employee plan record keeping; • production and dispatch of holding statements to employees; • provision of annual income tax return information to employees; • management of employee termination; and • costs incurred in the acquisition of shares on-market (e.g. brokerage costs and the allocation of shares to Participants); • other Trustee expenses, including the annual audit of the financial statements and annual income tax return of the Trust. Under Clause 3.8 of the Deed, the Trustee is not entitled to receive from the Trust any fees, commission or other remuneration in respect of its office. Company A will pay to the Trustee from Company A's own resources any such fees and reimburse such expenses incurred by the Trustee as agreed between Company A and the Trustee. The Trustee is entitled to retain for its own benefit any such fee or reimbursement. The costs incurred by Company A in relation to the implementation and on-going administration of the Trust are deductible under section 8-1 of the ITAA 1997 as either: • costs incurred in gaining or producing the assessable income of Company A; or • costs necessarily incurred in carrying on the business of Company A for the purpose of gaining or producing the assessable income of Company A. The view that the costs incurred by Company A are deductible under section 8-1 of the ITAA 1997 is consistent with ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible in which it was decided that such costs are part of the ordinary employee remuneration costs of a taxpayer. Consistent with the detailed reasoning above in question 1, the costs are revenue and not capital in nature on the basis that they are regular and recurrent employment expenses. The costs are therefore not excluded from being deductible under paragraph 8-1(2)(a) of the ITAA 1997. Accordingly, Company A is entitled to an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by Company A in relation to the implementation and on-going administration of the Trust. | Detailed Reasoning - Question 3: The deduction for the irretrievable cash contributions under section 8-1 of the ITAA 1997 would generally be allowable in the income year in which Company A incurred the outgoing. However, under certain circumstances, the timing of the deduction is specifically determined under section 83A-210 of the ITAA 1997. Section 83A-210 of the ITAA 1997 provides that if: (a) at a particular time, you provide another entity with money or other property: (i) under an arrangement; and (ii) for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest; then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. Section 83A-210 of the ITAA 1997 applies under an arrangement where there is a relevant connection between the irretrievable cash contributions, provided to the Trustee, and the acquisition of ESS interests (directly or indirectly) by an employee under an employee share scheme, in relation to the employee's employment and the contributions are made before the acquisition of the ESS interests. Arrangement The implementation of the LTIP and GESS, establishment of the Trust and provision of money by Company A to the Trustee, are considered as constituting an arrangement for the purpose of subparagraph 83A-210(a)(i) of the ITAA 1997. ESS interest 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. Under the LTIP and GESS, each right provided to a Participant when an offer is made under the LTIP or GESS is an ESS interests as it is (or may later become) a right to acquire a beneficial interest in a share in a company (Company A). Employee share scheme Subsection 83A-10(2) of the ITAA 1997 defines 'employee share scheme' as: a scheme under which ESS interests in a company are provided to employees, or associates of employees, (including past or prospective employees) of: (a) the company; or (b) subsidiaries of the company; in relation to the employees' employment. For the purposes of subsection 83A-10(2) of the ITAA 1997, subsection 995-1(1) of the ITAA 1997 defines the term 'scheme' as follows: (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. The LTIP and GESS are employee share schemes for the purposes of Division 83A of the ITAA 1997 as they are arrangements, which provide an ESS interest (i.e. a beneficial interest in a right to acquire a beneficial interest in a share), to a Participant in relation to their employment in Company A in accordance with the Deed. A Company A share acquired by the Trustee to satisfy a right provided under an employee share scheme, to an employee in relation to the employee's employment, is itself acquired under the same employee share scheme. Relevant connection The making of offers under the LTIP or GESS, the provision of irretrievable cash contributions to the Trustee under the arrangement, the acquisition and holding of the Company A shares by the Trustee and the allocation of Company A shares to Participants are all interrelated components of the LTIP and GESS. All the components of the scheme, including the provision of irretrievable cash contributions to the Trustee must be carried out so that the scheme can operate as intended. As one of those components, the provision of money to the Trustee necessarily allows the scheme to proceed. Accordingly, the provision of money to the Trustee to acquire Company A shares is for the purpose of enabling Participants, indirectly as part of the LTIP and GESS, to acquire relevant rights (that is ESS interests). If Company A provides irretrievable contributions before a Participant acquires the relevant ESS interests, then section 83A-210 of the ITAA 1997 will apply to determine the timing of a deduction for the irretrievable contributions under section 8-1 of the ITAA 1997. In this instance, the contribution will only be deductible to Company A in the income year when the relevant rights (ESS interests) are provided to Participants. This is consistent with the ATO view expressed in ATO Interpretative Decision ATO ID 2010/103 Income Tax- Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . Indeterminate rights Performance Rights and Options provided under the LTIP are indeterminate rights for the purposes of section 83A-340 of the ITAA 1997. That is because delivery of a Company A share satisfies the right, at the discretion of the Board. They are not a right to acquire a beneficial interest in a share unless and until the time when the Board determines the proportion of the Performance Rights and Options that will be satisfied by the provision of Company A shares. Once this proportion is determined, section 83A-340 of the ITAA 1997 operates to treat these Performance Rights and Options as though they had always been rights to acquire beneficial interests in shares. If irretrievable contributions are provided to the Trustee before these Performance Rights and Options are acquired (and the Performance Rights and Options do subsequently become ESS interests), then section 83A-340 of the ITAA 1997 operates to deem the Performance Rights and Options to always have been ESS interests. Where this occurs, section 83A-210 of the ITAA 1997 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1 of the ITAA 1997. In such a case, a deduction to fund the exercise of the Performance Rights and Options would be available to Company A in the income year in which Participants acquire the Performance Rights and Options. | Detailed Reasoning - Note: Where the Performance Rights and Options do not become ESS interests because they are ultimately satisfied in cash, the outgoing should not flow through the Trust. This is because the Trust would not be satisfying the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997. As discussed in the analysis above, section 83A-210 of the ITAA 1997 will only apply if there is an arrangement under which there is a relevant connection between the irretrievable cash contributions provided to the Trustee and the acquisition of ESS interests (directly or indirectly) by an employee under an employee share scheme in relation to the employees employment and the contributions are made before the acquisition of the ESS interests. Accordingly, section 83A-210 of the ITAA 1997 will not apply where Company A makes irretrievable contributions to the Trustee to fund the acquisition of Company A shares where the contribution is made after the acquisition of the relevant rights or options. In such a situation, the irretrievable contributions by Company A to the Trustee will be deductible under section 8-1 of the ITAA 1997 in the income year in which the irretrievable contributions are made where relevant rights or options are ultimately satisfied with Company A shares. | Detailed Reasoning - Question 4: Ordinary Income Section 6-5 of the ITAA 1997 provides that a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income. Jordan CJ considered the definition of 'income' in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219; 3 ATD 142 at 144-145 where his Honour said: The word "income" is not a term of art, and 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 such receipts… A leading case on ordinary income is Eisner v Macomber 252 US 189 (1919). It was said in that case that: The fundamental relation of "capital" to "income" has been much discussed by economists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time. …Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being "derived" that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; …that is income derived from property. Nothing else answers the description. In G.P. International Pipecoaters Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1990) 170 CLR 124 the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient. Brennan, Dawson, Toohey, Gaudron and McHugh JJ stated at page 138 that: To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts 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. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In an employee share scheme, the trustee subscribes to the company for an issue of shares, it pays the full subscription price for the shares and the company receives a contribution of share capital from the trustee. The character of the right or thing disposed of in exchange for the receipt can determine the character of the contribution of share capital received by Company A from the Trustee. Under this arrangement, Company A is issuing the Trustee with a new share in itself. The character of the newly issued share is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is of a capital nature. The reasoning in ATO ID 2010/155 Income Tax - Employee Share Scheme : assessability to an employer of the option exercise price paid by an employee supports this view Accordingly, when Company A receives subscription proceeds from the Trustee of the Trust where the Trustee has subscribed for new shares in Company A to satisfy obligations to Participants of the LTIP and GESS, that subscription price received by Company A is a capital receipt. That is, it will not be on revenue account, and it will not be ordinary income under section 6-5 of the ITAA 1997. Section 20-20 of the ITAA 1997 Subsection 20-20(2) of the ITAA 1997 provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year. Company A will receive an amount for the subscription of shares by the Trustee of the Trust. There is no insurance contract in this case, so the amount received is not by way of insurance. Further, 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. Subsection 20-20(3) of the ITAA 1997 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 of the ITAA 1997. Subsection 20-25(1) of the ITAA 1997 defines a recoupment as including any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of the loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. To the extent section 8-1 of the ITAA 1997 allows a deduction for bad debts or rates or taxes, section 20-30 of the ITAA 1997 will apply such that if there were a recoupment of that deduction, that amount would be assessable. The receipt by Company A is in return for issuing shares to the Trustee of the Trust, not as a recoupment of previously deducted expenditure under section 8-1 of the ITAA 1997 regarding bad debts or rates and taxes that could be subject to section 20-30 of the ITAA 1997. The subscription proceeds will therefore not be an assessable recoupment under section 20-20 of the ITAA 1997. Capital Gains Tax (CGT) Under section 102-20 of the ITAA 1997, you make a capital gain or loss if and only if a CGT event happens. The relevant CGT events that may be applicable when the subscription proceeds are received by Company A are CGT events D1 (creating a contractual or other rights) and H2 (receipt for event relating to a CGT asset). However, paragraph 104-35(5)(c) of the ITAA 1997 states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case, Company A is issuing shares, being equity interests as defined in section 974-75 of the ITAA 1997, to the Trustee of the Trust and therefore CGT event D1 does not happen. In relation to CGT event H2, paragraph 104-155(5)(c) of the ITAA 1997 also states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. Therefore, CGT event H2 does not occur. As no CGT event occurs, there is no amount assessable as a capital gain to Company A. Therefore, when the Trustee of the Trust satisfies its obligations under the Deed by subscribing for new shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5 of the ITAA 1997 or section 20-20 of the ITAA 1997, and nor will it trigger a CGT event under Division 104 of the ITAA 1997. | Detailed Reasoning - Question 5: Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules (PS LA 2005/24) deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936. Before the Commissioner can exercise his discretion to make a determination in respect of Part IVA under subsection 177F(1) of the ITAA 1936, three requirements must be met: 1. there must be a scheme within the meaning of section 177A of the ITAA 1936 2. a tax benefit must arise based on whether a tax effect would have occurred, or might reasonably be expected to have occurred, if the scheme had not been entered into or carried out, and 3. having regard to the matters in subsection 177D(2) of the ITAA 1936, the scheme is one to which Part IVA of the ITAA 1936 applies. On the basis of an analysis of these three requirements, the Commissioner will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by Company A for the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, shares in Company A. | Detailed Reasoning - Question 6: The liability of an employer to fringe benefits tax (FBT) arises under section 66 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. Under the FBTAA, the calculation of the fringe benefits taxable amount is made by reference to the taxable value of each fringe benefit provided. Without the provision of a 'fringe benefit', no amount will be subject to FBT. In general terms, 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. The provision of rights Certain benefits however are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA. Paragraph (f) of the definition of 'fringe benefit' relevantly states that a fringe benefit does not include: (f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936 ; or Paragraph (h) of the definition of 'fringe benefit' relevantly states that a fringe benefit does not include: (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997 ) to which Subdivision 83AB or 83AC of that Act applies. The Commissioner accepts that the LTIP and GESS are employee share schemes, that the rights provided under the LTIP and GESS are, or may later become in the case of indeterminate rights, ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests. Accordingly, the provision of rights pursuant to the LTIP and GESS will not be subject to fringe benefits tax either on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA or on the basis that they are a payment of salary or wages (in the case of rights which are ultimately satisfied with cash) and are thereby excluded from the definition of fringe benefit by paragraph 136(1)(f) of the FBTAA (refer to ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee share scheme: indeterminate rights not fringe benefits). The provision of Company A shares As mentioned above, in general terms, 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. The meaning of the phrase 'in respect of' was considered by the Full Federal Court in J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22. Heerey, Merkel and Finkelstein JJ at page 410 stated: Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material , rather than a , causal connection or relationship between the benefit and the employment. The situation is similar to that which existed in Federal Commissioner of Taxation v. McArdle 89 ATC 4051; (1988) 19 ATR 1901 where an employee was granted valuable rights in respect of his employment which he subsequently surrendered in return for a lump sum payment. Davies, Gummow and Lee JJ noted that what had occurred under the surrender agreement was not the granting of a valuable benefit, but the exploitation of rights received from the employer in previous years. When an employee of Company A or its subsidiaries participates in one of the LTIP or GESS, they obtain a right (being a right to acquire a beneficial interest in a share in Company A) and this right constitutes an ESS interest. When this right is subsequently exercised, any benefit received would be in respect of the exercise of the right, and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme). Therefore, the benefit that arises to an employee upon the exercise of a vested right under the LTIP and GESS (being the provision of a share in Company A) will not give rise to a fringe benefit as a benefit has not been provided in respect of the employment of the employee. | Detailed Reasoning - Question 7: Paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA states that a fringe benefit does not include: (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 ); Subsection 995-1(1) of the ITAA 1997 states that the expression an 'employee share trust' has the same meaning given by subsection 130-85(4) of the ITAA 1997. Subsection 130-85(4) of the ITAA 1997 states: An employee share trust , for an employee share scheme, is a trust whose sole activities are: (a) obtaining shares or rights in a company; and (b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of: (i) the company; or (ii) a subsidiary of the company; and (a) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). Paragraphs 130-85(4)(a) and (b) of the ITAA 1997 The beneficial interest in a share received by a Participant when an ordinary share in Company A is provided to them under the terms of the Deed is an ESS interest within the meaning of subsection 83A-10(1) of the ITAA 1997. Subsection 83A-10(2) of the ITAA 1997 defines an employee share scheme as being 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 employees' employment. The LTIP and GESS are employee share schemes within the meaning of subsection 83A-10(2) of the ITAA 1997 because they are schemes under which rights to acquire ordinary shares in Company A (being ESS interests) are provided to employees in relation to the employee's employment. Company A has established the Trust to acquire ordinary shares in Company A and to allocate those shares to employees in order to satisfy ESS interests acquired by those employees under the LTIP and GESS. The beneficial interest in the Company A share is itself provided under an employee share scheme because it is provided under the same scheme under which the rights are provided to employees in relation to their employment. Paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are therefore satisfied because: • the Trust acquires shares in a company, namely Company A; and • the Trust ensures that ESS interests (as defined in subsection 83A-10(1) of the ITAA 1997, being beneficial interests in the shares of Company A), are provided under an employee share scheme (as defined in subsection 83A-10(2) of the ITAA 1997) by allocating those shares to the employees in accordance with the Deed and LTIP or GESS. Paragraph 130-85(4)(c) of the ITAA 1997 Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 will also require that the Trustee undertake incidental activities that are a function of managing the LTIP and GESS. ATO Interpretative Decision ATO ID 2010/108 Income Tax - Employee share trust that acquires shares to satisfy rights provided under an employee share scheme and engages in other incidental activities sets out a number of activities which are merely incidental for the purposes of paragraph 130-85(4)(c) of the ITAA 1997: • the opening and operation of a bank account to facilitate the receipt and payment of money; • the receipt of dividends in respect of shares held by the trust on behalf of an employee, and their distribution to the employee; • the receipt of dividends in respect of unallocated shares and using those dividends to acquire additional shares for the purposes of the employee share scheme; • dealing with shares forfeited under an employee share scheme including the sale of forfeited shares and using the proceeds of sale for the purposes of the employee share scheme; • the transfer of shares to employee beneficiaries or the sale of shares on behalf of an employee beneficiary and the transfer to the employee of the net proceeds of the sale of those shares; • the payment or transfer of trust income and property to the default beneficiary on the winding up of the trust where there are no employee beneficiaries; and • receiving and immediately distributing shares under a demerger. Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered to be merely incidental. Under Clause 4.3 of the Deed: … Company A 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 section 130-85(4) of the Income Tax Assessment Act 1997 . Paragraph 130-85(4)(c) of the ITAA 1997 is satisfied as all other activities undertaken by the Trustee are merely incidental to managing the LTIP and GESS. Conclusion The Trust satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997 as: • the Trust acquires shares in a company (being Company A); • the Trust ensures that ESS interests (as defined in subsection 83A-10(1) of the ITAA 1997, being beneficial interests in the shares of Company A), are provided under an employee share scheme (as defined in subsection 83A-10(2) of the ITAA 1997) by allocating those shares to the employees in accordance with the Deed, LTIP and GESS; and • the Deed does not provide for the Trustee to participate in any activities which are not considered to be merely incidental to a function of administering the Trust. Paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA therefore excludes the contributions to the Trustee from being a fringe benefit. Accordingly, the irretrievable cash contributions made by Company A or any subsidiary member of the Company A tax consolidated group to the Trustee to fund the subscription for, or acquisition on-market of, Company A shares, will not constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Question 8: As mentioned in the answer to question 5, PS LA 2005/24 has been written to assist those who are contemplating the application of Part IVA or other general anti-avoidance rules to an arrangement, including in a private ruling. It succinctly explains the operation of section 67 of the FBTAA 1986. Notably, paragraphs 145 - 148 of PS LA 2005/24 state: 145. Section 67 is the general anti-avoidance provision in the FBTAA 1986. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA 1986 is virtually identical to the definition of 'scheme' in section 177A of Part IVA. 146. Subsection 67(1) of the FBTAA 1986 is satisfied where a person or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer or the eligible employer and another employer(s) to obtain a tax benefit. 147. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 differs from paragraph 177D(b) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose. 148. Subsection 67(2) of the FBTAA 1986 provides that a tax benefit arises in respect of a year of tax in connection with an arrangement if under the arrangement: (i) a benefit is provided to a person; (ii) an amount is not included in the aggregate fringe benefits amount of the employer; and (iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into. The Commissioner would only seek to make a determination under section 67 of the FBTAA 1986 if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. The point is made effectively in Miscellaneous Taxation Ruling MT 2021 Fringe Benefits Tax-Response to questions by major rural organisation under the heading "Appendix, Question 18" where, on the application of section 67 of the FBTAA 1986, the Commissioner states: …As mentioned in the explanatory memorandum to the FBT law, section 67 may only apply where there is an arrangement under which a benefit is provided to a person and the fringe benefits taxable amount in respect of that benefit is either nil or less than it would have been but for the arrangement... Further, paragraph 151 of PS LA 2005/24 states: 151. The approach outlined in this practice statement (refer to paragraphs 69 to 113) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA 1986. The provision of benefits to the Trustee of the Trust in the form of irretrievable contributions to the Trust and to Participants as Rights under the LTIP and GESS Rules (including Company A shares received by Participants on their vesting) are excluded from the definition of a fringe benefit for the reasons given above in questions 6 and 7. As these benefits have been excluded from the definition of a fringe benefit, no fringe benefit arises and no fringe benefits tax will be payable by using the Trust arrangement. As there would be no fringe benefits tax payable without the use of the Trust (and nor is it likely 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. The Commissioner will not seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount of Company A, or any subsidiary member of the Company A tax consolidated group, by the amount of the tax benefit gained from the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, shares in Company A.

These reasons for decision accompany the Notice of private ruling for COMPANY A.