Private ruling: Employee share scheme
Date of advice: 18 January 2024
Published: 26 February 2024
Ruling period: Income years ended 30 June 20XX to 30 June 20XX | This ruling applies for the following periods for questions 6 to 8 | Income years ended 31 March 20XX to 31 March 20XX
Date scheme commenced: 8 November 20XX

Ruling: Q1: Will Company A obtain an income tax deduction, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of irretrievable cash contributions made by Company A to the Trustee of the Company A Limited Employee Share Trust (the Trust) to fund the subscription for or acquisition on-market of ordinary shares in Company A (Shares) by the Trust under the Company A Plan (Plan), to the extent the contributions are made to satisfy Awards granted under the Plan to Participants that are employees of Company A? | A4: Yes. | Q2: Will irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Shares by the Trust under the Plan, in respect of Participants that are employed by Company A, be deductible to Company A at a time determined by section 83A-210 of the ITAA 1997 if the contributions are made before the acquisition of the relevant ESS interests? | A5: Yes. | Q3: If the Trustee of the Trust satisfies its obligations under the Plan 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 section 20-20 of the ITAA 1997 or trigger a capital gains tax (CGT) event under Division 104 of the ITAA 1997? | A6: No. | Q4: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Shares by the Trust under the Plan? | A7: No. | Q5: Will the provision of Performance Rights and Share Appreciation Rights by Company A to employees of Company A under the Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A8: No. | Q6: Will the irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Shares by the Trust under the Plan be treated as a fringe benefit within the meaning of section 136(1) of the FBTAA? | A9: No. | Q7: Will the Commissioner make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A, by the amount of tax benefit gained from irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Shares by the Trustee? | A10: No.

Relevant facts and circumstances: Background Company A is a Australian Public Company. Company A and its wholly owned Australian subsidiaries (including those subsidiaries who employ staff that participate in Company A's employee share plans (Subsidiary Employer Entities) have not elected to form an income tax consolidated group. The scope of this ruling is limited to Share Appreciation Rights and Performance Rights granted under the Plan to Australian tax-resident employees of Company A who participate under the Plan described below. The Plan The Plan commenced operation on [DATE], being the date of Shareholder approval. Company A established the Plan to assist in the reward, retention and motivation of Eligible Employees, link the reward of eligible employees to Shareholder value creation, and align the interest of Eligible Employees with shareholders by providing an opportunity to receive equity interests in Company A. Company A may, at its discretion, determine that an Eligible Employee may participate in the Plan, and grant or allocate to Eligible Employees the right to receive a number of Plan Shares, in the form of: • Performance Rights where one right entitles a Participant to one Plan Share, • Share Appreciation Rights where one right entitles a Participant to the number of Plan Shares as calculated under the Plan, or • a combination of both (collectively referred to as Awards) and Subject to any Vesting Conditions, Performance Hurdles and/or Exercise Conditions (if any) being satisfied, waived by the Board or deemed to have been satisfied under the Plan rules. Offer Eligible Employees are issued an Invitation Letter by the Board to apply for a specified number of Awards, which will vest according to specified performance criteria. The terms and conditions of Awards offered or granted under the Plan will be set out in the Invitation Letter which will state the following: • the number and type of Award(s) • the Grant Date • the Fee (if any) • in the case of a Share Appreciation Right, the Initial Market Value, • the Exercise Conditions (if any), and the Exercise Period (if any). • the Term and Expiry Date (if applicable) • the Vesting Conditions (if any) and the Performance Hurdles (if any) • whether Exercised Awards, upon exercise and at the discretion of the Board will be settled as either: i. Equity Settled, or ii. Cash Settled, • any applicable disposal restrictions • any rights attaching to the Awards and or Plan Shares, and • agreement with the Eligible Employee for the Company to supply details to third parties where required by law. An Eligible Employee, or Nominated Party, may accept the Offer by providing an Application within the time period specified in the Invitation to the person specified in the Invitation Letter. An Eligible Employee may only submit an Application in their own name, and not behalf of any other person or entity. If permitted in the Invitation Letter or the Board exercises its absolute discretion to provide its approval, the Eligible Employee may nominate a Nominated Party to be granted the Awards set out in their Invitation. Where no approval has been provided or such a nomination is not permitted in the Invitation, the Board may reject an Application submitted in the name of that Nominated Party. Following receipt of the completed Application, the Board may accept the Application in whole or in part and issue the relevant number of Awards to the Eligible Employee or Nominated Party and provide a Certificate. The Board will determine, and include in the Invitation letter, any Vesting Conditions, Performance Hurdles and/or Exercise Conditions attached to the Awards. Awards granted cannot be assigned, transferred, encumbered with a security interest or otherwise disposed of by a Participant unless this occurs by law upon death of a Participant. Performance Rights Performance Rights will Vest once the Board has determined that the applicable Vesting Conditions and Performance Hurdles have been satisfied (or are waived by the Board) and Company A has issued the Vesting Notification to the Participants informing them that those Performance Rights have Vested. The Participant is deemed to have exercised the Performance Rights, once they have been issued a Vesting Notification, provided all Exercise Conditions specified by the Board in either the Invitation Letter or Vesting Notification have been satisfied. Once the Performance Rights have been exercised, within 10 business days Company A will issue, allot and/or transfer the Participant the number of Plan Shares to which they are entitled, or cash settled the Performance Rights where permitted by the Invitation letter. Where the Board determines that any Performance Rights will be cash settled, the cash payment made to the Participant will be equal to the value of the Plan Shares that would have been issued to the Participants, less any funds required to be withheld for tax or super, and/or for the Exercise Price (if any) for the Performance Rights. Share Appreciation Rights Share Appreciation Rights will vest once the Board has determined that the applicable Vesting Conditions and Performance Hurdles have been satisfied (or are waived by the Board) and Company A has issued the Vesting Notification to the Participants informing them that those Share Appreciation Rights have vested. The Participant is deemed to have exercised the Share Appreciation Rights, once they have been issued a Vesting Notification, provided all Exercise Conditions specified by the Board in either the Invitation Letter or Vesting Notification have been satisfied. Once the Share Appreciation Rights have been exercised, within 10 business days Company A will issue, allot and/or transfer the Participant the number of Plan Shares to which they are entitled, or cash settled the Performance Rights where permitted by the Invitation letter. Where the Board determines that any Share Appreciation Rights will be cash settled, the cash payment made to the Participant will be equal to the value of the Plan Shares that would have been issued to the Participants, less any funds required to be withheld for tax or super, and/or for the Exercise Price (if any) for the Share Appreciation Rights. Restrictions on disposal of shares The Board may determine, prior to the Invitation being made, whether there are any restrictions on the disposal of, the granting of any Security Interest in or over, or otherwise dealing with, Shares held by a Participant. Where there are restrictions on shares, a Participant may not transfer, encumber or otherwise dispose of, or have a Security Interest granted over the Plan Shares unless all restrictions have been met, the Board has waived any restrictions, or consent has been obtained from the Board which may impose any new terms on transfer, encumbrance or disposal. Lapse or forfeiture of Rights Unvested Awards will lapse, unless otherwise determined by the Board, on the earlier of: Vested Awards that have not been exercised will lapse, unless otherwise determined by the Board, on the earlier of: Trust On [DATE], Company A established the Trust under a deed entered into between Company A and the Trustee. The trustee is an independent third party. The recitals of the Trust Deed state that the sole activities of the Trust will be subscribing for, acquiring, holding and transferring Shares in connection with equity incentive plans established by Company A for the benefit of participants in those plans. Trust Assets means cash (including the Settlement Sum), ESS Interests (as defined in section 83A-10 of the ITAA 1997), and income of the Trust and includes Accretions in respect of the relevant Trust Asset. The Trustee has the powers to do all things a trustee is permitted to do by law in respect to the Trust, Trust Shares and Trust Assets, including to: - acquire additional shares for the purpose of a Plan - pay any necessary and incidental costs of administering the Trust in accordance with paragraphs 130-85(4)(a), (b) and (c) of the ITAA 1997, or - pay interest on loans provided to the Trust for the acquisition of Shares or rights to Shares in the Company. 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 purpose of section 130-85(4) of the ITAA 1997. The Trustee's activities in its capacity as trustee will be limited to the relevant Plan Rules and relevant Terms of Participation. Acquisition and transfer of Shares The Board may instruct the Trustee by way of a Dealing Notice, and subject to the Trustee having or receiving sufficient funds or having sufficient capital, to: a) purchase or subscribe for the required number of Shares on behalf of the relevant Participant(s) b) allocate any Unallocated Shares to one or more Participants The Trustee must hold all Trust Assets (including any Unallocated Shares) on trust in accordance with the Trust Deed. Nothing in the Trust Deed confers or intends to confer on Company A any charge, lien, or any other proprietary right or beneficial interest in the Trust Assets. Funding Company A (or any of the Subsidiary Employer Entities where such a direction has been provided by Company A) must provide, or cause the provision to the Trustee of any funds required by the Trustee to comply with its obligations to acquire Shares under the Trust Deed. All funds provided to the Trustee will constitute Accretions to the corpus of the Trust and are not repayable to the Company except otherwise as consideration for the subscription by the Trustee for Shares. The Trustee may recover from the Trust Assets (excluding Allocated Shares, Unallocated Shares and dividends from Allocated Shares) all reasonable disbursements actually incurred by the Trustee in performing its duties, or alternatively, may seek reimbursement from the Company of reasonable expenses incurred by the Trustee for managing the Trust. Where Company A makes cash contributions to the Trustee on behalf of the Subsidiary Employer Entities (as employer of the relevant individual(s) who are or will be Participants to the Plan), those costs will be recharged to the relevant Subsidiary Employer Entities without any margin applied, and will be recognised as an expense in the relevant entities profit and loss statement. Company A will incur various costs in relation to the on-going administration of the Trust, including: In addition, Company A incurs costs relating to the establishment of, and tax affairs for, the Trust, and will recharge these amounts without a margin applied to the Subsidiary Employer Entities to the extent they relate to the Subsidiary Employer Entities' employees) (collectively referred to as Recharge Amounts). Recharge Amounts will be settled between Company A and the relevant Subsidiary Employer Entities via an interest-free intercompany loan with no mark-up being applied to the amounts being reimbursed. The Recharge Amounts relating to the ongoing administration, establishment, or tax affairs of the trust will be recognised as an expense in the relevant Subsidiary Employer Entities profit and loss statement. Allocation of Shares The Board may instruct the Trustee by way of Dealing Notice to allocate the specified number of Plan Shares to a specified Participant or Participants. The specified Participant(s) will become the beneficial owner of the Allocated Plan Shares. Each Participant must not assign, transfer, sell, or grant an encumbrance over an interest in that Allocated Share of that Participant during any applicable Restriction Period. After the expiry of the Restriction Period and subject to the guidelines set by the Board, the relevant Plan Rules and the relevant Terms of Participation, a Participant may give the Trustee a Withdrawal Notice requiring the Trustee to transfer some or all of the Participant's Allocated Shares to the Participant (or their nominated third party). The Trustee must do all things required to transfer some or all of the Participant's Allocated Shares and pay any monies held on account for the Participant, subject to: Unallocated Shares The Trustee must deal with Unallocated Shares in the manner set out in a Dealing Notice. In respect to the Unallocated Shares held by the Trustee, the Trustee must: ­ if an Unallocated Share is a Forfeited Share, dispose of any Forfeited Share, or ­ participate in a Rights Issue in respect to the Unallocated Shares. The Trustee may also apply capital receipts, dividends or other distributions received from an Unallocated Share or Rights Issue in respect of that Unallocated Share to purchase further Shares to be held on trust for the purposes of the Trust. The Board may from time to time specify that certain Unallocated Shares be held by the Trustee for a particular Plan. Income and capital distributions Subject to Applicable Law, the relevant Plan Rules and relevant Terms of Participation, a Participant is presently entitled to so much of the Net Income of the Trust for a Year of Income which is attributable to: • the Participant's Allocated Shares • the proceeds of sales arising from the sale by the Trustee of rights under a Rights Issues relating to that Participant's Allocated Shares, and • transactions or events related to that Participant's Allocated Shares or property related to or arising from that Participant's Allocated Shares. The only Trust Assets that may be disposed of or otherwise transferred to beneficiaries are Shares to Participants who are absolutely entitled to those Shares.

Relevant legislative provisions: ITAA 1997 | section 6-5 | section 8-1 | section 20-20 | section 25-5 | section 40-880 | section 83A-210 | section 102-20 | paragraph 104-35(5)(c) | paragraph 104-155(5)(c) | section 130-85(4) | ITAA 1936 | Part IVA | section 177A | section 177C | section 177D | section 177F | FBTAA 1986 | section 67 | subsection 136(1) | TD 2019/13 | TD 2022/8 | ATO ID 2010/103

Reasons for decision: Summary: Company A is entitled to deduct an amount under section 8-1 in respect of irretrievable cash contributions it makes to the Trustee to fund the subscription for, or on-market acquisition of Shares to satisfy the issue of Shares by the Trustee to Participants of the Plan, to the extent that the contributions are made to satisfy Awards granted under the Plan to Participants that are employees of Company A. | Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) allows you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, under subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Company A carries on a business. Company A operates an Employee Share Scheme (ESS) as part of its remuneration strategy. Under the Plan, Company A will grant Performance Rights or Share Appreciation Rights to Participants and make irretrievable cash contributions to the Trustee which the Trustee will use to acquire Shares for allocation to Participants (in accordance with the Plan and the Trust Deed). | Detailed Reasoning - Incurred in gaining or producing assessable income or in carrying on a business: Under the Plan, Company A will grant ESS interests (that is a beneficial interest in a right to acquire a beneficial interest in a share) to Eligible Employees as part of Company A's employee reward and remuneration program. The cash contributions made by Company A to the Trustee are irretrievable and non-refundable as: The costs incurred by Company A to facilitate the Trustee's acquisition of Shares to satisfy grants of ESS interests arise as part of Company A's employee reward and remuneration arrangements, and contributions to the Trust are part of an ongoing series of payments in the nature of remuneration. The Commisioner accepts that the granting of Awards under the Plan is to incentivise employees and in turn, is likely to result in the gaining or production of the assessable income of Company A as a result of the employee's increased performance and productivity. The Commissioner accepts there is sufficient nexus between: a) the irretrievable cash contributions made by Company A to the Trustee to satisfy the granting of Awards under the Plan to its own employees, and b) its own income earning activities. Therefore, subsection 8-1(1) is satisfied. | Detailed Reasoning - Not capital or of a capital nature: The costs will be an outgoing incurred for periodic funding of an ESS for employees of Company A. Costs incurred are likely to be in relation to more than one grant of Shares, and Company A intends to satisfy outstanding Share issues using the Shares acquired by the Trust. This indicates that the irretrievable cash contributions made by Company A to the Trustee are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the irretrievable cash contributions may secure and enduring or lasting benefit for the employer that is independent of the year to year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be comparatively small. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied. Accordingly, Company A will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee to acquire Shares to satisfy Awards granted to its' employees under the Plan. | Summary: Company A will be entitled to deduct an amount under section 8-1 in respect of the costs incurred in relation to the on-going administration of the Trust to the extent these costs relate to Company A employees. | Detailed Reasoning - Detailed reasoning: As discussed at Question 1, subsection 8-1(1) allows you to deduct from your assessable income any loss or outgoing to the extent it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, under subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Company A incurs on-going administration costs in operating the Trust and has appointed the Trustee to administer the Trust. The costs are regular and recurrent which are deductible under section 8-1 as they are costs necessarily incurred by Company A in administering the ESS while carrying on its business for the purpose of gaining or producing its assessable income. That is there is a sufficient nexus These costs are not capital or of a capital nature as the loss or outgoing are regular, recurrent and part of the ordinary employee remuneration costs of Company A (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' ). Accordingly, Company A will be entitled to deduct an amount under section 8-1 in respect of the costs incurred in relation to the on-going administration of the Trust to the extent those costs relate to Company A employees. | Summary: Company A will be entitled to deduct an amount under section 40-880 for costs incurred in relation to the establishment or amendment of the Trust, to the extent these costs relate to Company A employees. | Detailed Reasoning - Detailed reasoning: Tax Determination TD 2022/8 " Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' "sets out the Commissioner's views on the deductibility of expenses in establishing and administering an ESS. Establishment expenses are outgoings associated with the creation of an ESS and include fees and start-up costs incurred to establish or implement the employee share trust (EST) and the ESS Plan Rules. Section 40-880 allows deductions for certain business capital expenditure that fall outside the scope of the deduction provisions of the income tax law. It requires the expenditure to be capital and in relation to the business. As this expenditure relates to remuneration of employees of the employer company who work within that business, the expenditure must be incurred in relation to that business. Section 40-880 contains limitations and exceptions in subsections 40-880(3) to (9) which may prevent a deduction being allowed. Subsection 40-880(3) indicates that the expenditure is only deductible to the extent that the business is carried on for a taxable purpose. The other limitations and exceptions in subsections 40-880(4) to (9) do not prevent the expenses from being deductible under section 40-880. Therefore, establishment and amendment expenses incurred in relation to the Plan or the Trust, where they relate to Company A's employees, are deductible in equal proportions over five years under section 40-880 to the extent the business carried on is for a taxable purpose. | Summary: Company A will be entitled to deduct an amount under section 25-5 for costs incurred on legal, tax and accounting advice in respect of costs incurred by Company A in managing the tax affairs of the Trust. | Detailed Reasoning - Detailed reasoning: Section 8-10 states that if more than one income tax deduction provision applies to an amount, the most appropriate provision should be used (i.e. the specific provision should override the general provision). Division 12 sets out particular types of deductions that are dealt with by a specific provision of either the ITAA 1936 or the ITAA 1997. Section 25-5 of the ITAA 1997 is one such provision listed in Division 12 dealing with tax-related expenses. Subsection 25-5(1) allows a deduction for tax-related expenses, such as, managing your tax affairs. Subsection 25-5(4) denies deductions under section 25-5(1) for capital expenditure, however, states that expenditure will not be considered capital merely because the tax affairs concerned relate to matters of a capital nature, and provides the following example: Example: Under this section, you can deduct expenditure you incur in applying for a private ruling on whether you can depreciate an item of property. Company A may incur tax related costs in managing the tax affairs of the Trust arising from the drafting and lodgement of a private ruling application with the Australian Taxation Office. The Commissioner accepts that these amounts, would not constitute as capital expenditure due to the operation of subsection 25-5(4). To the extent Company A incurs costs in managing its tax affairs, including costs arising from the preparation and submission of a private ruling application in relation to the Trust's tax affairs, they are tax-related expenses deductible by Company A under subsection 25-5(1) when it lodges the income tax return for Company A. | Summary: Irretrievable cash contributions made Company A to the Trustee, to fund the subscription for, or acquisition on-market of, Shares by the Trustee in respect of grants of Share Appreciation Rights and Performance Rights under the Plan, in respect of Participants directly employed by Company A, will be deductible to Company A under section 8-1 at a time determined by section 83A-210 if the contributions are made before the acquisition of the relevant ESS interests. | Detailed Reasoning - Detailed reasoning: It is often the case that an outgoing will be both incurred and paid in the same year of income, and as such, the amount is deductible in that income year for the purposes of section 8-1. However, section 83A-210 modifies this rule in certain circumstances in respect of contributions provided by an employer to a trust to purchase shares under an ESS. The effect of section 83A-210 is to deem the timing an employer incurred the outgoing to be the time when the ESS interest is acquired by the ultimate beneficiary, rather than the time when the employer makes the contribution to the trust. Further information is available in ATO Interpretive Decision ATO ID 2010/103 Income Tax - Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . The Plan is an ESS for the purpose of subsection 83A-10(2) as it is a scheme under which ESS interests are provided to employees in relation to their employment or engagement with Company A. The ESS contains a number of interrelated components which include the provision of irretrievable cash contributions by Company A to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly as part of the Plan, to acquire ESS interests. The deduction for the irretrievable cash contributions, to the extent they relate to the employees of Company A, can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a Share, or beneficial interest in a right to a beneficial interest in a Share, or beneficial interest in an entitlement to acquire a beneficial interest in a Share, is acquired by the Participant under the Plan. | Detailed Reasoning - Indeterminate rights under the Plan: The Commissioner accepts that Share Appreciation Rights and Performance Rights provided under the Plan are indeterminate rights for the purposes of section 83A-340. That is because the Share Appreciation Rights and Performance Rights can be settled by either Shares or by making a payment of a cash equivalent amount in lieu of a Share, to be determined at a future time at the discretion of the employer. Accordingly, an award of Share Appreciation Rights or Performance Rights under the Plan are not rights to acquire a beneficial interest in Shares unless, and until the time it is determined by the Board that they will be satisfied by the provision of Shares. Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, where it is ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to receive is determined), the indeterminate right will, under section 83A-340, be treated as if it had always been an ESS interest. Section 83A-210 applies equally to contributions made in respect of ESS interests and indeterminate rights. Therefore, an irretrievable cash contribution in respect of an indeterminate right is taken to have been paid at the acquisition time of the ESS interest. If an indeterminate right becomes an ESS interest, deductible contributions made in respect of those rights can be claimed in the income year when the ESS interest is deemed to have been acquired under section 83A-340 (this will be the year in which the indeterminate right was granted to an employee). Once this has been established, such contributions can be matched to ESS interests issued to the employee, and where necessary, the relevant earlier income year assessments can be amended to allow the deduction (Item 28 of subsection 170(10AA)). It is important to note that an indeterminate right which is satisfied by the provision of cash never becomes an ESS interest and the contribution to the Trust in respect of the provision of that right is permanently deferred. However, where that ESS interest is subsequently issued to another participating employee, that employee becomes the 'ultimate beneficiary' and the deduction is available in the income year that participating employee acquired that ESS interest. Once it is determined that they will be satisfied by provision of Shares, section 83A-340 operates to treat these rights as though they had always been rights to acquire beneficial interests in shares (therefore, an ESS interest) for the purposes of section 83A-210. If irretrievable contributions are provided to the Trustee before these rights are acquired (and they do subsequently become ESS interests by virtue of section 83A-340), section 83A-210 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1 to be the income year in which Participants originally acquired the Shares Appreciation Rights or Performance Rights under the Plan. | Summary: If the Trust satisfies its obligations under the Plan by subscribing for new Shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5, section 20-20 or trigger a CGT event under Division 104. | Detailed Reasoning - Section 6-5: Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In an ESS, where the trustee subscribes to the company for an issue of shares and pays the full subscription price for the shares, the company receives a contribution of share capital from the trustee. The character of the subscription proceeds received by Company A from the Trust can be determined by the character of the right or thing disposed of in exchange for the receipt. Where Company A issues the Trust with new shares in itself, the character of the newly issued share is one of capital. Therefore, the receipt of the subscription proceeds takes the character of share capital and is of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee . When Company A receives subscription proceeds from the Trustee where the Trustee has subscribed to new shares in Company A to satisfy its obligations to Participants in the Plan, those subscription proceeds received are a capital receipt and will not be treated as ordinary income under section 6-5. | Detailed Reasoning - Section 20-20: Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year. Company A will receive an amount for the subscription of shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance. The amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Therefore, the receipt of the subscription proceeds does not constitute an assessable recoupment under subsection 20-20(2). Subsection 20-20(3) provides that an amount received by you as a 'recoupment' of a loss or outgoing, except by way of insurance or indemnity, is an 'assessable recoupment' if you can deduct the loss or outgoing is deductible in the current or a prior income year because of a provision listed in the table in section 20-30. None of the provisions listed in section 20-30 are relevant to the current circumstances. Therefore, the subscription amount also does not constitute an assessable recoupment under subsection 20-20(3). | Detailed Reasoning - Division 104: A capital receipt will only be included as an assessable net capital gain only if it arises as a result of a CGT event (section 102-20). The only CGT events that may have possible application to the receipt of the subscription proceeds are CGT event D1 (Creating a contractual or other rights) and CGT event H2 (Receipt for event relating to a CGT asset) or both. Paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that CGT event D1 and CGT event H2 do not apply if a company issues or allots equity interest or non-equity shares in the company. As the Shares constitute an "equity interest" (see subsection 974-75(1)), neither CGT event D1 nor CGT event H2 will occur. Since no CGT event occurs, the subscription proceeds will not be assessable as a capital gain to Company A. | Summary: Part IVA will not apply to deny, in part or in full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition of Shares by the Trust. | Detailed Reasoning - Detailed reasoning: Part IVA is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a deduction may be available where an employer provides money or other property to an EST where the conditions of Division 83A are met. In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2), the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company A to obtain a tax benefit | Summary: The provision of Performance Rights and/or Share Appreciation Rights under the Plan to employees of Company A will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition. In particular, paragraph (h) of the 'fringe benefit' definition excludes a benefit constituted by the acquisition of an ESS interest under an ESS (within the meaning of the ITAA 1997) to which Subdivision 83A-B or 83A-C applies. | Detailed Reasoning - Indeterminate rights: The Commissioner accepts that the Plan is an ESS as a Share Appreciation Right or Performance Right granted under the Plan are an ESS interest under paragraph 83-10(1)(b), being a beneficial interest in a right to acquire a share in a company. The Commissioner also accepts that Share Appreciation Rights and a Performance Rights granted under the Plan that may be satisfied in cash instead of Shares are indeterminate rights. At the time that Awards are granted under the Plan, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because those Awards may be satisfied in cash instead of Shares. Hence, they may not be ESS interests within the meaning of subsection 83A-10(1). Where the Awards are ultimately satisfied with Shares instead of cash, section 83A-340 will operate to treat those Awards to have always been ESS interests within the meaning of subsection 83A-10(1). In these circumstances, the Plan will constitute an ESS within the meaning of subsection 83A-10(2) because it is a scheme under which ESS interests are provided to employees of Company A in relation to their employment. Subsection 83A-20(1) is the key condition that an ESS interest must meet for Subdivision 83A-B or 83A-C to apply. Subsection 83A-20(1) states: This Subdivision applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. As Participants may acquire Share Appreciation Rights and Performance Rights under the Plan at a discount or for nil consideration (i.e. at a discount), Subdivision 83A-B will apply to those Share Appreciation Rights or Performance Rights (unless Subdivision 83A-C applies instead). Accordingly, the provision of Awards under the Plan will not be subject to fringe benefits taxes on the basis that they are acquired by Participants under an ESS (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 a fringe benefit in subsection 136(1) of the FBTAA. When Share Appreciation Rights and Performance Rights granted under the Plan are exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the Share Appreciation Right and Performance 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 the exercise of rights granted under an employee share scheme ). For completeness, where the Award granted under the Plan is ultimately satisfied with cash instead of Shares, the granting of the Share Appreciation Right or Performance Right under the Plan will be viewed as a series of steps in the payment of salary or wages, and not a separate benefit to the payment of salary or wages which are excluded from the definition of a fringe benefit by paragraph 136(1)(f) of the FBTAA. This outcome is consistent with ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee share scheme: indeterminate rights not fringe benefits . | Summary: The irretrievable cash contributions made by Company A to the Trustee pursuant to the Trust Deed, to fund the subscription for the subscription for or acquisition on-market of Shares will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA by virtue of the exclusion in paragraph 136(1)(ha) of the FBTAA on the basis that the Trust Deed satisfies the definition of an employee share trust in subsection 130-85(4). | Detailed Reasoning - Detailed reasoning: An employer's liability to FBT arises under section 66 of the FBTAA, which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the definition. Paragraph 136(1)(ha) of the FBTAA excludes from the definition of 'fringe benefit': (ha) a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997); Therefore, for the irretrievable cash contributions to be excluded from the definition of 'fringe benefit', the Trust must be an 'employee share trust' as defined in subsection 130-85(4). In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that are relevant. To qualify as an EST, a trustee's activities must be limited to: In the present case, paragraphs 130-85(4)(a) and (b) are satisfied because: Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? (TD 2019/13). Activities that involve 'investing in assets other than shares or rights to shares in the employer company' or that result in employees being provided additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered to be merely incidental. In the present case, the objects of the Trust are for the sole purpose of undertaking activities that are in line with the definition of an employee share trust under section 130-85(4), including paragraph 130-85(4)(c). The other activities undertaken by the Trustee under the Trust Deed are merely incidental to managing the Plan. Therefore, paragraph 136(1)(ha) of the FBTAA applies to exclude the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or acquisition of, Shares by the Trust from being a fringe benefit. | Summary: The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A by the amount of tax benefit gained from the irretrievable cash contributions made by Company A to the Trust. | Detailed Reasoning - Detailed reasoning: Section 67 of the FBTAA is a general anti-avoidance provision of the FBTAA. Subsection 67(1) of the FBTAA is satisfied where a person, or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer, or the eligible employer and another employer, to obtain a tax benefit. The Commissioner will only make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less FBT than would be payable but for entering into the arrangement. As stated above in response to question 7, without the provision of a fringe benefit, no amount will be subject to FBT. The irretrievable cash contributions made by Company A to the Trustee (pursuant to the Trust Deed) will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA for the reasons outlined in response to question 7. As these benefits have been excluded from the definition of a fringe benefit, the FBT liability is not any less than it would have been but for the arrangement. The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount by the amount of the tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or acquisition of Shares.

Question 2(a): Will Company A obtain an income tax deduction under section 8-1 of the ITAA 1997, in respect of costs incurred by Company A in relation to the on-going administration of the Trust, to the extent these costs relate to Company A's employees? | Question 2(b): Will Company A obtain an income tax deduction under section 40-880 of the ITAA 1997, in respect of costs incurred by Company A in relation to the establishment or amendment of the Trust, to the extent these costs relate to Company A's employees? | Question 2(c): Will Company A obtain an income tax deduction under section 25-5 of the ITAA 1997, in respect of costs incurred by Company A in relation to managing the tax affairs of the Trust? | the cessation of employment or office of a Participant | the Board determining a Participant has acted fraudulently, dishonestly or wilfully breached their duties to Company A | if a Participant is a Nominated Party, a change of control occurring without obtaining the prior written consent of from Company A | the Vesting Conditions, Performance Hurdles and/or Exercise Conditions are not determined by the Board (acting reasonably) to be satisfied by the relevant time period (as provided for in either the Invitation Letter or otherwise determined under the Plan Rules) | the Board determines the Vesting Conditions, Performance Hurdles and/or Exercise Conditions have not been met and cannot be met prior to the Expiry Date, or | the Expiry Date, that is either the date 15 years from the Grant Date of any Awards or any other date determined by Board and as specified in the Invitation. | for Vested but unexercised Awards if a Participant is a Bad Leaver. | if any Exercise Conditions are not determined by the Board to be satisfied by the relevant time, or | the expiry of the relevant Exercise Period. | enter into and execute all agreements, deeds and documents | subscribe for, acquire, hold, dispose or otherwise deal with Trust Assets for the purpose of, and as authorised under, the Trust Deed and to do all things incidental to these activities | take and act upon any advice or opinion of any legal practitioner or any other professional advisor | open and operate any bank account, retain on current or deposit account at any bank any money it considers proper | borrow money for the purpose of acquiring Shares or rights in the Company, where no security is provided over the assets of the Trust and the interest payable on the loan is not more than arm's length commercial rates | receive dividends in respect to Unallocated Shares and any interest from bank accounts and using those funds to: | employee plan record keeping | production and dispatch of holding statements to employees | provision of annual income tax return information for employees | costs incurred in the acquisition of shares on market (e.g. brokerage costs and the allocation of such Shares to Participants) | management of employee termination | other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust, and | taxation fees associated with the drafting and lodgement of the private ruling application with the ATO. | a valid Withdrawal Notice being provided and approved by the Board | requirement to do so by the relevant Plan Rules or Terms of Participation | termination of the Trust, or | if the Trustee determines so, following a written instruction from the Board. | if instructed by the Board: | hold any bonus shares issued in respect of Unallocated Shares. | all funds received by the Trustee will constitute Accretions to the corpus of the Trust and will not be repaid, other than as consideration for Shares under the terms of the Trust Deed, the Plan or relevant Terms of Participation | nothing in the Trust Deed confers, or is intended to confer, on Company A any security interest, proprietary right or proprietary interest in the Company A Shares acquired by the Trustee. | obtaining shares or rights in a company (paragraph 130-85(4)(a)) | ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b) | other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(c)). | the Trust acquires shares in Company A | as stated above in response to question 3, the Commissioner accepts that the Plan is an ESS under which ESS interests are provided to Participants | the Trustee ensures that ESS interests (as defined in subsection 83A-10(1)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating Shares to Participants in accordance with the Trust Deed and the Plan.