Private ruling: Employee Share Scheme
Date of advice: 7 May 2024
Published: 17 June 2024
Ruling period: Income tax years ending 30 June 20XX to 30 June 20XX | This ruling applies for the following period for questions 4 to 6 : | Fringe benefit tax years ending 31 March 20XX to 31 March 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Will Company A as head company of the Company A income tax consolidated group ( Company A TCG ) be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable cash contributions made by Company A to Trustee (the Trustee ) as trustee of the Company A Trust ( Trust ) to fund the subscription for, or on-market acquisition of fully paid ordinary shares in Company A ( Shares ), to satisfy the issue of Incentive Rights and Shares under the Company A Plan A and Company A Plan B ( Plans )? | A3: Yes. | Q2: Will the Commissioner seek to make a determination Part IVA of the Income Tax Assessment Act 1936 ( ITAA 1936 ) applies to deny, in part or in full, any deduction claimed by Company A for the irretrievable cash contributions made to the Trust to fund the subscription for, or acquisition on-market of Shares by the Trustee, under the Plans or costs incurred by Company A in relation to the ongoing administration of the Trust? | A4: No. | Q3: Will the provision of Incentive Rights and Shares to employees of Company A under the Plans constitute a fringe benefit within the meaning of subsection 136(1) of Fringe Benefit Tax Assessment Act 1986 ( FBTAA )? | A5: No. | Q4: Will the irretrievable cash contributions made by Company A to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of Shares under the Plans constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A6: No. | Q5: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount to the Company A by the amount of tax benefit gained from irretrievable cash contribution made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Shares by the Trustee? | A7: No.

Relevant facts and circumstances: Background Company A is an Australian public company. Company A is the head company of the Company A income tax consolidated group (Company A TCG). The Plans Company A established Plan A and Plan B to provide eligible employees of the Company A Group with incentive to contribute to company performance for the benefit of all Company A shareholders (collectively, the Plans, or Plan Rules). The Plans are administered by Company A's board of directors (the Board) or by any persons to whom the Board delegates any of its power of discretions to under the Plan Rules. Where Participants are granted Incentive Rights under the Plans, subject to certain conditions being satisfied, Participants will be entitled to receive Shares in Company A. While the Plans are not restricted to Australian tax-resident employees and the term "Participants" is a reference to "primary participant" (as the term is defined under section 1100L of the Corporations Act 2001 (Cth)) in relation to Company A, the scope of this ruling is limited to the Incentive Rights and Shares granted under the Plans to Participants who are Australian tax-resident employees of members of the Company A TCG who engage in activities that derive income assessable in Australia. Offer In its discretion, the Board may, nominate any Employee for participation in the Plan and determine the number of Incentive Rights to be offered to the Employee, in the form of a: • Performance Right: being an Incentive Right which has conditions relating to the performance of Company A or the Company A Group or a Participant • Retention Right: being an Incentive Right which has conditions relating solely to the continued employment of an Employee during a period of assessment (Vesting Period) • STI Right: being an Incentive Right which is granted to a Participant following achievement of certain short term incentive right hurdles based on the performance of Company A, the Company A Group, any member of the Company A Group or a Participant (as part of that Participant's short term incentive payment). An invitation to participate in the Plan (Invitation) may be made by the Board at any time, in any form, and on any conditions, or subject to any restrictions as the Board decides. The Invitation must be in writing and include: • the name of the Employee • a description, and the number of Incentive Rights offered • the type of Incentive Rights offered • the terms (including any conditions and restrictions) determined by the Board • the time by which, and the manner in which, the Invitation is to be accepted • the date on which the Incentive Rights will be granted to a Participant who accepts the Invitation (Grant Date) After the acceptance of an Invitation by the Participant, Company A must, subject to any conditions set out in the Invitation: • grant the number and type of Incentive Rights specified in the Invitation to the Participant on the Grant Date • record the Participant as entitled to the number of Incentive Rights granted. Where a Participant accepts an Invitation and is granted Incentive Rights, that Participant will be bound by the Plan A Rules or the Plan B Rules (as the case may be), and any terms, conditions and restrictions specified in the Invitation. An Invitation is not transferable, and an Employee may only accept an offer of Incentive Rights in the Employee's name and not on behalf of any other person unless the Invitation provides that the offer may be renounced in favour of and accepted in the name of a Nominee who must be a related person. A Participant may not: • dispose of an Incentive Right (or grant any security interest or option or swap over it), and, or • transfer, encumber or otherwise deal with (including by way of hedging activities which includes any dealing in a derivative instrument intended to "lock in" profit related to, or any other transaction intended to limit the economic risk of holding) an Incentive Right. Rights Attaching to Incentive Rights The grant of an Incentive Right does not confer any right or interest, whether legal or equitable, in a Share until the Vesting Conditions in respect of such Incentive Right have been satisfied or waived by the Board at its discretion, so that the Incentive Right has vested. Until such time the Vesting Conditions attached to an Incentive Right are satisfied or waived by the Board in its discretion, that Incentive Right remains unvested (Unvested Incentive Right). Vesting Conditions Vesting Conditions are the criteria determined by the Board for: • assessing the performance of Company A and/or a Participant in relation to a Performance Rights, or • assessing or satisfying any other condition specified by the Board as a pre-condition to vesting for the purpose of and in accordance with clause 7 in relation to an STI Right or a Retention Right. An Invitation must specify the Vesting Conditions applicable to a grant of Incentive Rights in addition to: • the period or periods over which Vesting Conditions will be assessed (Vesting Period) • the period or periods (if any) over which the Vesting Conditions will be tested • the standard or standards against which the Vesting Conditions will be measured • the manner in which a Vesting Condition will be assessed. Subject to the Plan Rules, the Board may at any time by written notice to a Participant (Vesting Notice): • vary or waive a Vesting Condition • determine whether a Vesting Condition in respect to some or all of a Participant's Incentive Rights have been satisfied. When an Incentive Right has vested, it becomes a Vested Incentive Right. As soon as possible after the date the Incentive Right has vested, the Board will give a Vesting Notice to the Participant which will contain details of the number of Vested Plan Shares that have vested. Those Vested Plan Shares will either be directly issued by Company A or be allocated to the Participant in the Trust. Dealing Restrictions Where Vested Plan Shares are held in the Trust, or are subject to a holding lock, until the Trustee transfers Vested Plan Shares to a Participant or any holding lock ceases or is removed, the Participant may not: • dispose of (or grant any security interest or option or swap over) those Vested Plan Shares (or require the Trustee to do so), and, or • transfer, encumber or otherwise deal with (including by way of hedging activities which includes any dealing in a derivative instrument intended to "lock in" profit related to, or any other transaction intended to limit to economic risk of holding) those Vested Plan Shares (or require the trust to do so), including the Participant's beneficial interest in those Vested Plan Shares. Company A and the Trustee may implement any procedure they consider appropriate to restrict the Participant from disposing of any Vested Plan Shares that are subject to restrictions under the Plan Rules. Subject to any Applicable Law and the Plan Rules, a Participant may request the Trustee to transfer a Vested Plan Share to the Participant on or at any time after the Vesting Date (Withdrawal Notice). Upon receipt of a Withdrawal Notice, the Trustee will transfer Shares as requested, provided that it first receives confirmation from Company A that the Participant has complied with all relevant terms and conditions of issue and such transfer is permitted. Until any such transfer, the Trustee will retain possession of and remain registered as the holder of any Vested Plan Shares. Lapse or Forfeiture A Participant will automatically forfeit his or her interest in an Incentive Right if: • a Vesting Condition in relation to some or all of a Participant's Incentive Rights is not satisfied • the period or periods (if any) for satisfaction of that Vesting Condition have expired. The Board may deem any Unvested Incentive Rights held by the Participant to have lapsed or any Vested Plan Shares already held by, or on behalf, of the Participant to be forfeited, if in the opinion of the Board, a Participant: • acts fraudulently or dishonestly • breaches his or her duties or obligations, or any policy or code of conduct to the Company A Group • violates any law or regulation or governmental or judicial order • steals, misappropriates, embezzles, or wrongfully converts assets or diverts opportunities of the Company A Group • wrongfully discloses any confidential information of the Company A Group • undertakes any action which has or may affect the reputation or standing of the Company A Group or bring the Company A Group or its directors or management into disrepute • undertakes any other action which the Board determines should give rise to a lapse or forfeiture under the Plan Rules. Where, in the opinion of the Board, a Participant's Incentive Rights vest (or may vest) as a result of fraud, dishonesty, breach of obligations or improper conduct of another employee of the Company A Group and, in the opinion of the Board, the Incentive Rights would not otherwise vest (or have vested), then the Board may determine that the Incentive Rights have not vested (or will not vest) and may determine: • where the Incentive Rights have not yet vested or Shares have not been allocated upon exercise of an Incentive Right, that the Incentive Rights have not vested and reset any Vesting Conditions applicable to the Incentive Rights • where Vested Plan Shares are already held by, or on behalf of, the Participant, that the Vested Plan Shares are forfeited by the Participant and may, at the discretion of the Board, reissue any number of Incentive Rights to the Participant subject to new Vesting Conditions in place of the forfeited Vested Plan Shares. Trust On XX March 20XX, Company A established the Trust under a deed entered between Company A and the Trustee. The Trust Deed has been amended to align more closely with tax guidance issued by the Australian Taxation Office related to employee share trusts and schemes. The Trustee is an independent third party. The Trust Deed states that the objective and activities of the Trust are limited to managing the Plans, operating solely for the purpose of subscribing for, purchasing or otherwise acquiring, allocating, holding and delivering Shares under the Plan for the benefit of Eligible Employees. Subject to the Trust Deed and in accordance with the objects of the Trust, the Trustee's powers include the ability to: • enter into and execute all contracts, deeds and other documents • subscribe for, purchase or otherwise acquire Shares, rights or privileges • sell or otherwise dispose of Shares, Vested Plan Shares, rights or privileges • receive dividends or distributions on Shares or Vested Plan Shares and to apply those amounts • sell or transfer Shares or Vested Plan Shares and apply the proceeds of sale • sell any rights relating to Shares or Vested Plan Shares and apply the proceeds of sale • delegate the exercise of all or any of the rights, powers or discretions and execute any power of attorney or other instrument necessary to affect that delegation • employ or engage, and at its discretion, remove or suspend custodians, trustees, manager, employees or other agents and determine the powers and duties to be delegated to them, and pay any remuneration to them as it thinks fit • rely on any document provided by a Participant, the form of which has been approved by Company A, whether signed by the Participant or otherwise • take and act upon advice or any opinion of any legal practitioner or other professional adviser without being liable in respect of act done in accordance with such advice or opinion • open and operate any bank account, retain on current or deposit account at any bank any money which it considers proper, and making regulation including the signing and endorsing of cheques with accounts • undertake activities that involve bookkeeping, preparing financial, tax and regulatory statements and other recording-keeping and administrative actions necessary to operate the Trust • borrow money for purpose of acquiring Shares or rights in Company A where no security is provided over the assets of the Trust and the interest payable on such a loan is not more than arm's length commercial rates • do all acts and things which the Trustee in its discretion considers necessary or expedient for administration, maintenance and preservation of the Trust and the Fund in accordance with the Trust Deed and in the performance of its obligations. Funding Company A will make irretrievable cash contributions to the Trustee in relation to Australian resident employees of the Company A TCG who participate in the Plans. Company A is responsible for the on-going and recurrent costs associated with administering the Trust, including: • brokerage fees • accounting and audit fees • tax compliance costs • bank charges • record keeping fees. Company A will pay to the Trustee from Company A's own resources such fees and reimburse such expenses incurred by the Trustee as Company A and the Trustee agree from time to time. The Trustee is entitled to retain for its own benefit any such fee or reimbursement. The Trustee is not entitled to receive from the Account any fees, commission, or other remuneration. The Trustee is not entitled to receive from the Trust or any Participant any fees or remuneration other than reasonable disbursements including brokerage and tax levied or incurred in connection with the Trust. The Trustee must open and maintain an account in respect of a Participant which contains a written record of the Vested Plan Shares held by the Trustee on behalf of a Participant (Account). Each Account must record the number, date of acquisition and price of Vested Plan Shares, and the number of bonuses issued to a Participant in respect of its Vested Plan Shares (Bonus Shares). The Trust shall be administered in a way that satisfies the definition of 'employee share trust' for the purposes of subsection 130-85(4) of the ITAA 1997. Neither the Trustee nor Company A may use as security Shares or Vested Plan Shares held by the Trustee. Nothing in the Trust Deed confers or is intended to confer on Company A any charge, lien or any other proprietary or beneficial interest in the Shares acquired by the Trustee under the Trust Deed. Company A and all of the entities deemed to be controlled by Company A are prohibited from benefiting under the Trust Deed and are not eligible to acquire a beneficial interest in the Shares held by the Trust. Acquisition and allocation of Shares The Trustee may, upon direction by Company A, acquire Shares from time to time. These Shares may be held for the purpose of granting Vested Plan Shares to Participants from time to time, and are to be funded prior to settlement of their acquisition either from the Fund or by a payment from Company A to the Trustee. All funds provided to the Trustee by Company A shall be irretrievable cash contributions to the Fund. Shares subscribed for or acquired are to be registered in the name of the Trustee on subscription or acquisition and are considered to be Trust property to be held subject to the Trust Deed. The Trustee must allocate Vested Plan Shares to the Account established for a Participant under the terms of the Plan Rules in accordance with written directions from Company A provided the Trustee holds sufficient Shares in the Fund or receives sufficient payment from Company A to acquire the relevant Shares. • in the ordinary course of trading (or otherwise) on a financial market • by subscribing for new Shares on terms (including the issue price (if any)) determined by Company A. Subject to Applicable Law, if the Trustee holds Vested Plan Shares on behalf of any Participant: • the Participant may direct the Trustee in writing, to vote on their behalf and how to exercise their voting rights • the Trustee must only exercise voting rights attached to the Participant's Vested Plan Shares in accordance with the Participant's directions. Subject to the Trust Deed, the Applicable Law and the Plan Rules: • a Participant is entitled to receive all Cash Dividends paid in respect of their allocated Vested Plan Shares • the Trustee must pay all Cash Dividends received in respect of Vested Plan Shares to the relevant Participant without deductions. Subject to the Trust Deed and the Plan Rules, a Participant is entitled to any Bonus Shares, being Shares which accrue in respect of their Vested Plan Shares held by the Trustee, and are issued to that Participant, as part of a bonus issue. Bonus Shares must be held by the Trustee on the terms and conditions of the Trust Deed, on behalf of the relevant Participant, who will be the beneficial owner of the Bonus Shares. Upon allotment to the Trustee, Bonus Shares: • are deemed to be Vested Plan Shares for the purposes of the Trust Deed • will be deemed to be acquired on a date determined by Company A. Rights issues Subject to the Plan Rules, the Trustee must notify a Participant in writing of any rights to acquire Shares or securities issued, or to be issued, by Company A (Share Rights) which accrue to their allocated Vested Plan Shares. The Participant may provide the Trustee with written instructions to either: • sell some or all of the Share Rights to the extent those Share Rights are renounceable and to the extent permitted by the Applicable Law • acquire some or all of the securities in Company A to which the Share Rights relate to the extent permitted by the Applicable Law. If a Participant does not give written instructions under the Trust Deed, the Trustee is entitled to sell the Share Rights. In accordance with the Trust Deed, regardless of whether instructed by the Participant or not, the Trustee: • must pay to the Participant the proceeds of the sale after deduction of the costs and expenses • has no obligation to maximise the sale price of the Share Rights • may aggregate Share Rights to be sold • may attribute to a sale price to each Share Right sold equal to the average price for each Share Right sold. If the Trustee acquires a specified number of securities pursuant to the Share Right on behalf of the Participant. The Trustee must transfer those securities to the Participant. Where the Trustee holds Shares that are not Vested Plan Shares, the Trustee may at the price and otherwise on the terms determined by the Trustee: • sell any of the Shares on the ASX or by private treaty at the price and otherwise on the terms determined by the Trustee, provided that the Trustee may not engage in trading activities in relation to Shares other than purchasing and selling Shares to satisfy obligations under the Plan Rules • participate in new issues of securities such as bonus issues or entitlement issues, subject in all cases to clause 4.1 of the acquisition • if Company A offers to buy back any Shares from shareholders generally, accept the offer on terms consistent with those applicable to shareholders generally, provided that the Trustee may not engage in trading activities in relation to Shares other than purchasing and selling Shares to satisfy obligations under the Plan Rules. The balance of the Net Income of the Trust for a Year of Income to which no Participant is presently entitled to may be accumulated by the Trustee as an Accretion to the Trust. The Trustee must not vote in respect of any Shares which are not Vested Plan Shares. Income and capital distributions Subject to the Plan Rules, 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 Vested Plan Shares held by the Trustee on behalf of the Participant • the proceeds of sales arising from any sale of Vested Plan Shares by the Trustee on behalf of the Participant • transactions or events related to the Vested Plan Shares or distributions arising from Vest Plan Shares held by the Trustee on behalf of the Participant. The balance of the Net Income for a Year of Income to which no Participant is presently entitled may be applied, in whole or in part: • to meet any reasonable costs and expenses incurred by the Trustee in the execution or purported execution of the Trust or any powers, authorities or discretions vested in the Trustee (including, but not limited to, administration, trust, financial and audit expenses) • to acquire Shares in accordance with the Plan Rules Subject to the Trust Deed and Plan Rules, the Trustee may apply any income received by the Trustee in relation to any: • Shares or other Fund assets in which the Trustee has an equitable interest and to which no Participant is presently entitled to, to acquire Shares in accordance with the Trust Deed, and to meet the reasonable costs and expenses incurred by the Trustee to administer the Trust. Vested Plan Shares it holds on behalf of a Participant in the manner directed by the Participant.


Reasons for decision: Summary: Company A is entitled to deduct an amount under section 8-1 in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or on-market acquisition of Shares to satisfy the issue of Incentive Rights and Shares under the Plans. | 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 provides services and carries on a business for the purpose of gaining or producing assessable income. Company A operates an employee share schemeas part of its employee remuneration strategy. Under the Plans, Company A grants Incentive Rights and Shares to Participants and makes irretrievable cash contributions to the Trustee (in accordance with the Plans and the Trust Deed) which the Trustee will use to acquire Shares for allocation to Participants. | Detailed Reasoning - Incurred in carrying on a business: Company A must provide the Trustee with any funds required by the Trustee to comply with its obligations to acquire Shares under the Trust Deed. The cash contributions made by Company A to the Trustee are irretrievable as: • all funds received by the Trustee from Company A will constitute accretions to the corpus of the Trust and will not be repaid to Company A, except otherwise as consideration for where the Trustee subscribes for Shares in accordance with the Trust Deed, the Plans, or relevant terms of participation • nothing in the Trust Deed confers, or is intended to confer, on Company A any encumbrance, proprietary right or proprietary interest in the Shares acquired by the Trustee. Company A has granted (and will grant in the future) ESS interests as part of its employee remuneration program for Participants. The costs incurred by Company A for the acquisition of Shares by the Trustee to satisfy grants of ESS interests to Participants arise as part of these remuneration arrangements, and contributions to the Trust are part of an ongoing series of payments in the nature of the remuneration of those employees. 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 employee share scheme for employees of the Company A TCG. Costs incurred are likely to be in relation to more than one grant of ESS interests, and Company A intends to continue satisfying the ESS interests using Shares acquired by the Trust. This indicates that the irretrievable cash contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the irretrievable cash contributions may be viewed to secure an 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 not considered to have a lasting quality as the contributions which form the Trust's funds is permanently dissipated with a relatively short period of contributions being made. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied. | Summary: Irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or on-market acquisition of, Shares to satisfy Incentive Rights and Shares issued by the Trustee under the Plans, 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 by Participants. | 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, will be deductible in that income year for the purposes of section 8-1. 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 time an employer incurred the outgoing to be the time the ESS interest is acquired by a beneficiary, rather than the time the employer makes the contribution to the trust, if the contribution was made before the ESS interests are acquired. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income tax - Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust. Each Plan is an ESS for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (that is a beneficial interest in a share or a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees in relation to their employment with Company A. The ESSs contain 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 through the Plans, to acquire ESS interests. The deduction for the irretrievable cash contributions made in respect of a Share 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 acquire a beneficial interest in a Share, is acquired by Participants of the Plans. Shares that are purchased by the Trustee to satisfy its obligations under the Plans, and subsequently allocated to Participants under the Plans are ESS interests for the purpose of section 83A-210. | Summary: Irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or on-market acquisition of, Shares to satisfy Incentive Rights and Shares issued by the Trustee under the Plans, will be deductible to Company A under section 8-1 in the income year when the contributions are made, if the contributions are made after the acquisition of the relevant ESS interests by Participants. | Detailed Reasoning - Detailed reasoning: Consistent with the analysis in Question 2a (above), where contributions are made after the acquisition of the relevant ESS interests, irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or on-market acquisition of Shares to satisfy ESS interests issued under the Plans, will be deductible in the income year in which the contributions are made by Company A under section 8-1. | Summary: Part IVA of the ITAA 1936 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 on-market of Shares by the Trust to the extent those contributions have been made to satisfy ESS interests issued to Participants. Part IVA of the ITAA 1936 will not apply to deny, in part or in full, deductions claimed by Company A in respect of the costs incurred by it for the ongoing administration of the Trust to the extent those costs relate to Participants who are employees of the Company A TCG. | 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 be obtained but for section 177F, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A are met. The Commissioner also accepts that ongoing expenses associated with the administration of an employee share scheme are deductible under section 8-1 (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an employee share scheme ). In this case, the employee share 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 employee share trust 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 Incentive Rights and Shares to employees of Company A under the Plans will not constitute 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 definition. Paragraph (h) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA excludes a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the ITAA 1997) to which Subdivision 83A-B or 83A-C applies. The Commissioner accepts that Incentive Rights and Shares granted to Participants under the Plans are ESS interest granted under an employee share scheme to which Subdivision 83A-B or 83A-C applies. Participants acquire the ESS interests in lieu of future salary or wages they otherwise would earn (in line with subparagraph 83A-105(4)(a)(i)) (Taxation Ruling TR 2001/10: Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements ). Accordingly, the provision of Incentive Rights and Shares to employees of Company A under the Plans will not constitute a 'fringe benefit' by virtue of paragraph (h) in subsection 136(1) of the FBTAA. | Summary: The irretrievable cash contributions made by Company A to the Trustee, to subscribe for, or acquire on-market, Shares under the Plans will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefit taxes 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. One benefit excluded from being a fringe benefit, under paragraph (ha) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA, is a benefit constituted by the acquisition of money or property by an 'employee share trust' within the meaning of 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 employee share trust, a trustee's activities must be limited to: • obtaining shares or rights in a company (paragraph 130-85(4)(a)) • ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b)), or • activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(c)). Paragraph 130-85(4)(a) and (b) are satisfied because: • the Trust acquires shares in a company, namely Company A • the Commissioner accepts the Plans are each an ESS under which ESS interests are provided to Participants, and • the Trust ensures that ESS interests (as defined in subsection 83A-10(1)) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those Shares to Participants in accordance with the Trust Deed and the Plans. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13 Income tax: what is an 'employee share trust'? Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan for a purpose other than to acquire shares in the employer company) 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 paragraphs 130-85(4)(a) and (b). The other activities undertaken by the Trustee are merely incidental under paragraph 130-85(4)(c). Therefore, the irretrievable cash contributions made by Company A, to fund the subscription for, or acquisition on-market of, Shares under the Plans will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA. | Summary: The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregated fringe benefit taxable amount to Company A or any employer entities within the Company A Group, by the amount of tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or on-market acquisition of, Shares by the Trustee. | 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 fringe benefits taxes than would be payable but for entering into the arrangement. Without the provision of a fringe benefit, no amount will be subject to fringe benefits taxes. The benefits provided to the Trustee by way of irretrievable cash contributions to the Trust under the Plans are excluded from the definition of a fringe benefit for the reasons provided in response to Question 5. As these benefits have been excluded from the definition of a fringe benefit, the fringe benefits tax 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 of Company A by the amount of tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for, or on-market acquisition of Shares.

Will irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or on-market acquisition of, Shares to satisfy Incentive Rights and Shares issued by the Trustee under the Plans, be deductible to Company A at the time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the acquisition of the relevant ESS interests by Participants? | Question 2b: Will irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or on-market acquisition of, Shares to satisfy Incentive Rights and Shares issued by the Trustee under the Plans, be deductible to Company A under section 8-1 of the ITAA 1997 in the income year when the contributions are made, if the contributions are made in the same income year or in a year that is after the acquisition of the relevant ESS interests by Participants?