Private ruling: Employee Share Trust - Trustee
Published: July 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the non-refundable cash contributions made by Ausco to the Trustee of the Employee Share Trust (EST) be assessable income of the EST? | A1: No | Q2: In respect of shares acquired by the Trustee of the EST under the terms of the Performance Rights Plan (the PRP), will any capital gain or capital loss made by the Trustee under CGT Event E5 (section 104-75 ITAA 1997) be disregarded when Participants become absolutely entitled to shares in Ausco? | A2: Yes | Q3: In respect of shares disposed of by the Trustee of the EST under the terms of the PRP, will the Trustee make a capital gain or capital loss under CGT Event E7 (section 104-85 ITAA 1997) when the Participants 'acquire' the shares? | A3: No

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 Ausco is an Australian listed company. Employer Remuneration and Incentive Programme The objective of Ausco's executive remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework conforms to market practice and aligns executive and director rewards with achievement of strategic objectives and the creation of value for shareholders. Ausco's remuneration structure for executive and non-executive employees utilises fixed and variable components. In addition to a base salary, employees are largely remunerated through 'at risk' variable short-term incentive ( STI ) based payments, including commissions and bonuses payable from the Profit Share Bonus Pool ( Profit Share Bonus Payments ). Ausco engaged external executive remuneration experts to assist with a review and update of the existing remuneration policies and practices. After consultation with external experts, the Board came to the view that a bonus based on profits (rather than revenue) would best align employee performance with shareholder interest. The key modification to the existing policies and procedures will be an increase in the profit pool from 30% to 40% of pre-tax profits, as well as the establishment of long-term incentives ( LTI ) through the introduction of the Ausco Performance Rights Plan (the PRP ). Under the PRP, eligible employees will receive Rights ( Rights ) that will vest into Shares equivalent to 25% of the employee's Profit Share Bonus Payment. The PRP will result in the Profit Share Bonus Payments to be made as a combination of cash payments (75%) and Shares (25%). Ausco envisages the PRP will continue to be a part of its remuneration strategy for the foreseeable future. Use of the EST to Facilitate the PRP It is increasingly common for Australian listed companies to use a trust to facilitate the provision of shares to employees as part of equity based employee incentive and retention strategies. In summary, the commercial benefits of using the EST for the employer include: • Providing Ausco with capital management flexibility by being able to direct the Trustee of the EST to either buy shares on-market or to subscribe for an issue of new shares in Ausco (thereby providing flexibility to manage the dilution of existing shareholdings if required). • Providing a single vehicle for the administration of the PRP and any plans which Ausco introduces in the future, and for the convenient outsourcing of the administration to a third party administrator (the Trustee) who efficiently oversees such plans as part of their business. This outsourcing will free up internal resources. • Providing an arm's-length vehicle (through the use of a third party Trustee) for acquiring and holding shares in Ausco. This assists Ausco in meeting Corporations Law requirements and managing risks associated with dealing in its own shares and potential insider trading issues. Operation of the PRP 1. Ausco has provided a copy of the PRP Rules. 2. The purpose of the PRP is to align Employee compensation with returns to shareholders and assist with staff retention. It is targeted at Ausco executives whose responsibilities provide them with the opportunity to significantly influence long-term shareholder value. The vesting of the Rights is subject to satisfaction of performance hurdles and a service condition as set out in the invitation letter to eligible employees. 3. Broadly, the PRP operates as follows: a. Responsibility for the establishment and operation of the PRP rests with the Board of Directors of Ausco ( the Board ). (PRP Rules) b. The PRP operates on the basis of an annual cycle, correlated to the company's financial year. At or prior to the commencement of a financial year selected employees will be issued with an invitation for the grant of a Performance Right (Right). The Right represents a right to be issued or transferred a number of ordinary shares in Ausco in the future for no consideration calculated to reflect 25% of the employee's total profit share bonus earned for that financial year (Invitation Letter). c. Rights are granted for nil consideration, unless otherwise determined by the Board. (PRP Rules) d. A Right granted to a Participant under the PRP may not be transferred, mortgaged, charged or otherwise dealt with or by a Participant, other than in accordance with the terms of the PRP, and will lapse immediately if dealt with in such a way, unless the Board consents to such action or the assignment or transfer occurs by legal operation upon the death or legal incapacity to a Participant's legal personal representative. (PRP Rules) e. Subject to applicable laws, in the event of any reconstruction of capital (including consolidation, subdivision, reduction, return or cancellation) of the issued capital of the company, the number of Rights which a Participant has, may be adjusted by the Board on any basis in its absolute discretion to minimise any advantage or disadvantage accruing to Participants. (PRP Rules) f. Where a Change of Control Event (PRP Rules) occurs, the Board may determine the manner in which any or all of a Participant's unvested Rights will be dealt with. g. If a Participant ceases employment with Ausco and at the date of cessation of employment has any Rights which remain unvested, those unvested Rights will automatically be forfeited, subject to the overriding discretion of the Board (PRP Rules). The discretion of the Board will not be exercised on a routine basis to allow Participants voluntarily ceasing employment to receive their unvested Rights. h. Upon the vesting of a Right: i. The Board must instruct the Trustee to subscribe for, acquire and/or allocate the number of shares in respect of which the Participant was entitled (Trust Deed); and ii. Ausco, or the Trustee (by instruction from Ausco), must notify the Participant that the Trustee holds the shares on the Participant's behalf (PRP Rules). a. All shares issued, transferred and/or allocated upon vesting of the Rights will rank pari passu in all respects with shares then on issue (PRP Rules). b. Subject to satisfaction of any Service and/or Disposal Restriction, a Participant may submit a Withdrawal Notice to Ausco in respect of some or all of the shares the Trustee holds on behalf of the employee (PRP Rules). At this point, if the Board approves the Withdrawal Notice, Ausco must direct the Trustee to transfer legal title of the shares to the Participant in accordance with the terms of the approved Withdrawal Notice (Trust Deed). c. Where the Trustee holds shares on behalf of a Participant: i. the dividends payable on those shares will be paid by Ausco to the Trustee, and the Trustee will then pay any such dividends to the Participant (PRP Rules); ii. the Participant may exercise any voting rights attaching to those Shares held by the Participant (or the Trustee for and on behalf of the Participant) (PRP Rules). Operation of the Employee Share Trust 1. Ausco have provided a copy of the Ausco Employee Share Trust Deed (the Trust Deed). 2. The EST is intended to operate as follows: a. The EST is being established for the sole purpose of obtaining shares for the benefit of Participants, including subscribing for, acquiring, holding and delivering Shares under the PRP (Recitals of the Trust Deed). b. The EST will be funded by contributions from Ausco (i.e. for the purchase of shares in accordance with the PRP) (Trust Deed). c. These funds will be used by the Trustee of the EST to acquire the shares in Ausco either on-market or via a subscription for new shares in Ausco (Trust Deed), based on notification from Ausco (Trust Deed). d. Shares acquired by the Trustee will be allocated to the relevant employees and held on trust on their behalf immediately upon the vesting of Rights held by employees under the PRP (Trust Deed). e. Ausco may contribute funding to the EST and instruct the Trustee to acquire shares prior to the vesting of Rights held by employees under the PRP (Trust Deed). In these circumstances it is the intention of Ausco to allocate these shares to employees within 12 months from the date that the Trust first acquires the shares. f. The total period from the date that funds are contributed by Ausco to the EST to the date that shares are allocated to the employees by the Trustee upon the vesting of Rights held under the PRP will be less than 7 years (in accordance with paragraph 178 of Draft Taxation Ruling TR 2014/D1 Income Tax: employee remuneration trust arrangements (TR 2014/D1)) g. The structure of the EST and the PRP are such that shares may be dealt with at any time after the Restriction Period lapses, in the following manner: i. Shares allocated to each employee will generally be transferred into the name of the employee (i.e. legal title) upon a Withdrawal Notice being lodged with and approved by the Board (Trust Deed); or ii. The Trustee can sell shares on behalf of the employee, where permitted to do so by the employee, resulting in a cashless exercise for them. That is, the employee receives proceeds on sale of shares by the EST less the exercise price (if any) and any brokerage costs (Trust Deed). a. the Trustee is an external entity and has been appointed as Trustee acting in an independent capacity on behalf of the beneficiaries of the EST in accordance with the terms of the Trust Deed. Ausco will pay the Trustee's costs of operation to the extent they relate to the operation of the EST which will facilitate Ausco's PRP. Assumptions • The EST will be established in a manner consistent with the terms of the Trust Deed provided. • The PRP and the EST are administered in accordance with their terms. • Performance Rights acquired by Participants will be subject to Subdivision 83A-B or 83A-C of the ITAA 1997. • The EST will only acquire shares in respect of the future vesting or exercise of Performance Rights issued to Participants. That is, the EST will not acquire shares to satisfy the future vesting or exercise of Performance Rights not already on issue. • The scheme described in this Ruling does not involve a financial arrangement to which Division 230 of the ITAA 1997 applies, or part of such an arrangement.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 95(1) | Income Tax Assessment Act 1997 Subsection 6-5(1) | Income Tax Assessment Act 1997 Subsection 6-10(1) | Income Tax Assessment Act 1997 Subsection 6-10(2) | Income Tax Assessment Act 1997 Subsection 130-85(4) | Income Tax Assessment Act 1997 Subsection 83A-10(1) | Income Tax Assessment Act 1997 Section 104-75 | Income Tax Assessment Act 1997 Section 130-90 | Income Tax Assessment Act 1997 Subdivision 130-D | Income Tax Assessment Act 1997 Subsection 130-85(1) | Income Tax Assessment Act 1997 Subsection 130-90(1) | Income Tax Assessment Act 1997 Subsection 130-90(2) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(a) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(b) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(c) | Income Tax Assessment Act 1997 Paragraph 130-90(1)(d) | Income Tax Assessment Act 1997 Subsection 83A-10(2) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 Subdivision 83A-B

Reasons for decision: Summary: No. The non-refundable cash contributions made by Ausco to the Trustee of the EST will not be assessable income of the EST. | Detailed Reasoning - Detailed reasoning: The basic trust assessing provisions are contained in Division 6 in Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 95(1) of the ITAA 1936 defines net income of a trust as the total assessable income of the trust calculated as if the trustee were a resident taxpayer in respect of that income, less all allowable deductions. Subsection 6-5(1) of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts, which is also called ordinary income. Subsection 6-10(1) of the ITAA 1997 provides that assessable income also includes some amounts that are not ordinary income. Subsection 6-10(2) of the ITAA 1997 details that amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income are called statutory income. An employee share trust (EST) is defined in subsection 130-85(4) of the ITAA 1997 as follows: 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 iii. other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b) An employee share scheme (ESS) is defined in subsection 83A-10(1) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees (including past or prospective employees) in relation to the employees' employment. A trust will satisfy the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997, and be an EST as defined, where the activities of the trustee of the trust are limited to managing an employee share plan and the general administration of the trust. The Recitals to the Trust Deed states: The Company wishes to establish a trust for the sole purpose of obtaining Shares for the benefit of Participants, including subscribing for or acquiring, allocating, holding and delivering Shares under the Performance Rights Plan and other employee equity plans for the benefit of Participants. The Trust Deed contains a Sole Activities clause as follows: | Detailed Reasoning - Sole activities test: Without limiting the generality of …, the Company and the Trustee agree that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" for the purposes of subsection 130-85(4) of the ITAA 1997. The Trust Deed provides the following Limitation on Trustee clause: | Detailed Reasoning - Limitation on Trustee: Despite any other provision of this Deed, the Trustee: (a) is not permitted to offer, issue or acquire any Share or any right to any Share if to do so would contravene any Applicable Law and is not obliged to offer, issue or acquire any Share or any right to any Share where compliance with any Applicable Law would in the opinion of the Trustee or the Board be unduly onerous or impractical; (b) is not permitted to carry out activities that are not matters or things which are necessary or expedient to administer and maintain the Trust and the Trust Assets or for the purpose of giving effect to, and carrying out, the trusts, powers and discretions conferred on the Trustee by this Deed or the law; (c) is not permitted to carry out activities which result in the Participants being provided with additional benefits other than the benefits that arise from this Deed, the relevant Plan Rules and/or relevant Terms of Participation; and (d) may not use any Trust Assets or Trust Shares as security. The Trust Deed provides the following Notice from the Company clause: | Detailed Reasoning - Notice from the Company: (a) Where the terms of the relevant Plan Rules and relevant Terms of Participation for a Participant include that Shares are to be held by the Trustee on behalf of Participants, the Board must by notice in writing instruct the Trustee to subscribe for, purchase and/or allocate a number of Shares specified in the notice, to be held by the Trustee as Trust Shares in respect of an identified Participant or Participants. The above terms and conditions set out in the Trust Deed confirm that the Trust is an 'employee share trust' as defined in subsection 130-85(4) of the ITAA 1997. It is also noted that under another clause of the Trust Deed, all funds received by the Trustee will constitute accretions to the corpus of the Trust and will not be repaid to the Company and no Participant shall be entitled to receive such funds. The non-refundable cash contributions made by Ausco to the Trustee of the trust are to be used in accordance with the Trust Deed and Draft Plan Rules for the sole purpose of and under the ESS. Consequently, the contributions constitute capital receipts to the Trust and are not assessable under section 6-5 of the ITAA 1997 (ordinary income) or section 6-10 of the ITAA 1997 (statutory income). This corresponds with the view expressed in ATO Interpretative Decision ATO ID 2002/965 Income Tax - Trustee not assessable on employer contributions made to it under the employer's employee share scheme (ATO ID 2002/965). The Trust Deed provides a Remuneration clause as follows: | Detailed Reasoning - Remuneration: The Trustee is not entitled to receive from the Trust any fees, commission or remuneration in respect of its performance of its obligations as trustee of the Trust. The Company may pay to the Trustee from the Company's own resources any fees, commission or remuneration and reimburse any expenses incurred by the Trustee as the Company and the Trustee may agree from time to time. The Trustee is entitled to retain for its own benefit any such remuneration reimbursement. Any such receipts will be assessable income of the Trust in contrast to the non-refundable cash contributions made to facilitate the acquisition of Ausco shares. | Summary: Yes. In respect of shares acquired by the Trustee of the EST under the terms of the PRP, any capital gain or capital loss made by the Trustee under CGT Event E5 (section 104-75 ITAA 1997) will be disregarded when Participants become absolutely entitled to shares in Ausco. | Detailed Reasoning - CGT event E5: Section 104-75 of the ITAA 1997 provides that CGT event E5 happens at the time a beneficiary becomes 'absolutely entitled' to a CGT asset of a trust as against the Trustee. Section 130-90 of the ITAA 1997 operates to ensure that any capital gain or loss made by an EST is disregarded if it arises as a result of the beneficiary of the trust becoming absolutely entitled to an employee share scheme share (CGT event E5), or as a result of a disposal of an employee share scheme share or right to a beneficiary (CGT event E7). In determining whether a beneficiary is absolutely entitled to the asset, any legal disability (i.e. beneficiary under 18) is ignored. In Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25) the Commissioner stated his view that the core principle underlying the concept of absolute entitlement in the CGT rules is the ability of a beneficiary who has a vested and indefeasible interest in the entire trust asset to be transferred to them or as they so direct. Subdivision 130-D of the ITAA 1997 treats an employee who acquires an ESS interest through an 'employee share trust' to be 'absolutely entitled' to the share or right to which the ESS interest relates from the time that they acquire the ESS interest (subsection 130-85(1) of the ITAA 1997). The Trust Deed states that the Trustee declares and agrees that each participant, in accordance with the terms of the relevant Plans and/or relevant terms of participation, is the beneficial owner of those Trust Shares held by the Trustee on their behalf and absolutely entitled to all other benefits and privileges attached to, or resulting from holding those Trust Shares. Subsections 130-90(1) and 130-90(2) of the ITAA 1997 state: | Detailed Reasoning - 130-90(1): Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if: (a) the CGT event is CGT event E5 or E7; and (b) the CGT event happens in relation to a *share; and (c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d) the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. | Detailed Reasoning - 130-90(2): Subsection (1A) or (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens. | Detailed Reasoning - Employee share trust: As detailed in question 1, the terms and conditions set out in the Trust Deed confirm that the Trust is an 'employee share trust' as defined in subsection 130-85(4) of the ITAA 1997. Paragraph 130-90(1)(a) of the ITAA 1997 CGT event E5 is the CGT event that will apply under the terms of the PRP at the time the Participant becomes absolutely entitled to the shares. Under the terms of the Trust Deed, the Trustee is required to deal with the shares in accordance with the relevant Plan Rules. The relevant Plan Rules have a number of conditions that may restrict the Participant's access to the shares. These restrictions may affect a Participant's absolute entitlement to the shares as against the Trustee. When the Participants are no longer restricted by any of the conditions under the Plan Rules from calling for and receiving the shares, then the Participants will become absolutely entitled to the shares and CGT event E5 happens, and paragraph 130-90(1)(a) of the ITAA 1997 will be satisfied. Paragraph 130-90(1)(b) of the ITAA 1997 Section 995-1 of the ITAA 1997 defines a share to mean a share in the capital of a company. An ordinary share held by the Trustee and to which a Participant is entitled upon exercise of a Performance Right is a share in the capital of Ausco. Accordingly, paragraph 130-90(1)(b) is satisfied as CGT event E5 happens in relation to a share for the purposes of that paragraph. Paragraph 130-90(1)(c) of the ITAA 1997 Paragraph130-90(1)(c) is satisfied as a Participant will have acquired a beneficial interest in a share (in Ausco) by exercising a Performance Right granted under the Plan. Paragraph 130-90(1)(d) of the ITAA 1997 The term 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997. Subsection 83A-10(2) states: An employee share scheme is 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;…. in relation to the employees' employment. For the purposes of subsection 83A-10(2) of the ITAA 1997, section 995-1 of the ITAA 1997 defines the term 'scheme' as follows: | Detailed Reasoning - scheme means:: (a) any *arrangement; or (b) (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. The PRP is an employee share scheme for the purposes of Division 83A of the ITAA 1997 as it is an arrangement under which an ESS interest i.e. a beneficial interest in a right to acquire a beneficial interest in a share of Ausco, is provided to eligible employees in relation to their employment by Ausco. The rights are acquired for no more than nominal consideration. Accordingly, prima facie Subdivision 83A-B of the ITAA 1997 will apply to the performance rights acquired as pursuant to subsection 83A-20(1) of the ITAA 1997 the ESS interest will be acquired under an employee share scheme (for the reasons stated in the preceding paragraph) at a discount. However, Subdivision 83A-B will not apply if Subdivision 83A-C applies. Whether a participant is ultimately taxed upfront on some or all of any discount received (under Subdivision 83A-B of the ITAA 1997) or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C of the ITAA 1997), will depend on which of the additional requirements in subdivision 83A-B of the ITAA 1997 or subdivision 83A-C of the ITAA 1997 have been satisfied. Under either circumstance paragraph 130-90(1)(d) of the ITAA 1997 will be satisfied. Accordingly, all the conditions in subsection 130-90(1) of the ITAA 1997 are satisfied. Provided that the beneficiary does not acquire the beneficial interest in the share for more than its cost base in the hands of the EST at the time that CGT event E5 happens, subsection 130-90(2) of the ITAA 1997 is also satisfied. Under these circumstances, section 130-90 of the ITAA 1997 will operate to disregard any capital gain or loss made by the Trustee or a beneficiary of the EST on any share when a participant becomes absolutely entitled to that share. | Summary: No. In respect of shares disposed of by the Trustee of the EST under the terms of the PRP, the Trustee will not make a capital gain or capital loss under CGT Event E7 (section 104-85 ITAA 1997) when the Participants 'acquire' the shares. | Detailed Reasoning - CGT event E7: Section 104-85 of the ITAA 1997 provides that CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 of the ITAA 1997 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it in the trust capital. The time of CGT event E7 is when the asset is disposed of by the trustee to the beneficiary (subsection 104-85(2) of the ITAA 1997). As discussed in the answer to Question 2, section 130-90 of the ITAA 1997 operates to ensure that any capital gain or loss made by an EST is disregarded if it arises as a result of a beneficiary of the trust becoming absolutely entitled to an employee scheme share (CGT event E5), or as a result of a disposal of an ESS share or right to a beneficiary (CGT Event E7). As discussed in question 1, the EST is an employee share trust within the meaning of subsection 130-85(4). In regard to the PRP, the transfer of trust shares is contained in the Trust Deed, which states: | Detailed Reasoning - Sales of Trust Shares by Trustee: Subject to clause …, if the relevant Plan Rules and/or relevant Terms of Participation permit, the Trustee may at the direction of the Participant, sell any of the Trust shares to which the Participant is entitled. On sale of any such Trust Shares, subject to any Plan Rules and/or relevant Terms of Participation, the Trustee must apply the proceeds of sale (and pay to the Participant any other monies held on the account for the Participant): (a) first, in payment of any brokerage and other costs and expenses of the sale incurred by the Trustee (including an amount sufficient to meet the Tax liability (if any) incurred by the Trustee or paid by the Trustee resulting from that sale); and (b) second, the balance (if any) in payment to the relevant Participant. | Detailed Reasoning - Trustee to transfer: Subject to clause …, the Trustee must do all things required by it to transfer legal title in Trust Shares to a Participant on whose behalf Trust Shares are held or to any third party as directed by the relevant Participant (and pay to the Participant any other monies held on the account for the Participant): (a) where required to do so, or permitted, by the relevant Plan Rules and/or relevant Terms of Participation as soon as reasonably practicable; (b) if the Trust is terminated under clause …; or (c) otherwise where the Board in its discretion determines. Upon transfer of the legal title in those trust shares, in accordance with the relevant Plan Rules, CGT event E7 will occur at the time legal title in the shares is transferred either to the Participant, or a third party as directed by the Participant. A capital gain arises to the Trustee if the market value of the share at the time of disposal to the Participant is more than the share's cost base (subsection 104-85(3) of the ITAA 1997). A capital loss arises to the Trustee if the market value of the share at the time of disposal to the Participant is less than the share's reduced cost base (subsection 104-85(3) of the ITAA 1997). As discussed in the answer to question 2, in regards to the PRP, paragraphs 130-90(1) (a) to (d) will be satisfied. Provided a participant in the Plan does not acquire the beneficial interest in the share for more than its cost base in the hands of the EST, at the time that CGT event E7 happens, subsection 130-90(2) of the ITAA 1997 will also be satisfied. This will not occur as the Participant will receive the beneficial interest in the share for nil consideration, unless determined otherwise by the Board. Under these circumstances, section 130-90 will operate to disregard a CGT event E7 capital gain or capital loss made by the Trustee or a beneficiary of the EST.

Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.