Private ruling: Employee share schemes
Date of advice: 14 April 2023
Published: 5 June 2023
Date scheme commenced: 1 January 2022

Ruling: Q1: Will Company A as head company of the income tax consolidated group (TCG) obtain a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the irretrievable cash contributions made to the trustee (the Trustee) of the Trust for Australian employees to fund the subscription for, or acquisition on-market of Company A's shares in respect of Company A's Employee Share Plans (the Plans)? | A1: Yes. | Q2: Will Company A obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by it in relation to the on-going administration of the Trust and section 40-880 of the ITAA 1997 in relation to implementation costs of the Trust for Australian employees? | A2: Yes. | Q3: Will irretrievable cash contributions made by TCG to the Trustee, to fund the subscription for or acquisition on-market of Company A's shares by the Trust for Australian employees, be deductible to TCG at a time determined by section 83A-210 of the ITAA 1997? | A3: Yes - where the contributions are made before the acquisition of the relevant ESS interests. | Q4: If the Trust satisfies its obligation under the Plans by subscribing for new shares in Company A, will the subscription proceeds be included in the assessable income of TCG under section 6-5 or 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA 1997? | A4: No. | Q5: Will the provision of Awards by TCG to employees under the Plans be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A5: No. | Q6: Will the irretrievable cash contributions made by TCG to the Trustee, to fund the subscription for or acquisition on-market of Company A shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | A6: No. | Q7: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A and other employer entities within TCG by the amount of tax benefit gained from irretrievable cash contributions made by TCG to the Trustee, to fund the subscription for or acquisition on-market of Company A's shares? | A7: No. This private rulings for questions 1 to 4 inclusive each apply for the following periods: 1 January 2022 to 30 June 2022 Income tax year ended 30 June 2023 Income tax year ended 30 June 2024 Income tax year ended 30 June 2025 Income tax year ended 30 June 2026 This private rulings for questions 5 to 7 inclusive each apply for the following periods: Fringe benefits tax year ended 31 March 2022 Fringe benefits tax year ended 31 March 2023 Fringe benefits tax year ended 31 March 2024 Fringe benefits tax year ended 31 March 2025 Fringe benefits tax year ended 31 March 2026

Relevant facts and circumstances: The Company A Employee Share Trust Deed (Trust Deed) as provided to the Commissioner on <<FIXME>>. The Plan Rules provided to the Commissioner on 25 October 20XX consisting of: • Company A Employee Share Option Plan Rules (ESOP Rules) • Employee Equity Plan Rules (EEP Rules) The template invitation letters provided to the Commissioner on 25 October 20XX for grants of: • Deferred tax options under the Company A Employee Share Option Plan (ESOP) • Start up options under the ESOP • Rights under the Company A Employee Equity Plan (EEP) If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Background Company A was listed on the ASX in 20XX. Company A and its subsidiaries is one of Australia's fastest growing online service provider. It offers these services in Australia and US markets. It has lodged a notification to the ATO forming a tax consolidated group with its wholly owned Australian subsidiaries in 20XX. As such, all references to TCG are to the tax consolidated group. The performance of TCG is strongly correlated with the quality of its employees. Accordingly, TCG is committed to maintaining a remuneration policy that ensures employee reward is aligned with the achievement of TCG's overall strategic objectives, outcomes and creation of value for shareholders. TCG rewards key employees with a mix of remuneration commensurate with their position and responsibilities. Remuneration structures are reviewed regularly to ensure that: The remuneration of key employees at TCG is comprised of the following elements: (a) Fixed remuneration, which includes base pay and other benefits; and (b) Performance linked remuneration, which consists of performance rights or options. TCG implemented the Employee Share Option Plan (ESOP) to reward, retain and motivate employees and to encourage participation by employees of TCG through share ownership. Under the ESOP TCG has granted options. In 20XX, TCG implemented a new Employee Equity Plan ( EEP) as an omnibus plan under which various types of incentive awards can be offered to employees, including rights, options and restricted shares. Performance Rights have been offered to employees under the EEP and it is anticipated that additional awards will be offered in future under the EEP. TCG maintains a strong focus on the attraction, retention and motivation of staff to facilitate continued growth of TCG over the short to medium term. The retention of outstanding people is an ongoing challenge faced by many companies operating in the listed environment. Accordingly, TCG is continually evaluating ways to improve the scope and implementation of incentive programs to its employees. Fundamental to this growth strategy is the establishment of The Trust to administer the ESOP, the EEP and any future equity plans. The Trust Deed was executed in 2021. The ESOP and EEP (collectively known as the Plans) provide TCG the flexibility to offer rights, options or restricted shares (collectively known as Awards) to executive directors and non-executive directors, employees and contractors of TCG or its subsidiaries. Although the Plans allow flexibility for the Awards to be provided with or without a grant price and with or without an exercise price, the Awards provided under the Plans that are the subject of this ruling are those offered to employees at a discount to market value. The Plans are administered in accordance with the terms summarised below. Company A Employee Share Option Plan The ESOP was designed to assist in the reward, retention and motivation of eligible participants (Participants) and align the interests of Participants with shareholders of the group. Under the ESOP, TCG can grant options which represent rights to acquire shares in Company A (Shares) subject to payment of an exercise price.. The ESOP allows options to be settled in cash at the discretion of the Board, where such ability has been provided for in the invitation letter to the relevant employee. The purpose of the ESOP, as outlined in the plan rules, is to "assist in the reward, retention and motivation of Participants" and "align the interests of Participants with shareholders of the Company". The ESOP broadly operates as follows: 1.Participants may receive a grant of options under the ESOP. 2. Participants are full-time, part-time employees, executive or non-executive directors of the TCG or subsidiaries (see Eligible Participants in the ESOP rules) 3. Invitations sent to the Participants outline: 4. Participants may not dispose of their options, unless the relevant dealing is effected by force of law on death or legal incapacity to the Participant's legal personal representative or the Board determines otherwise. (see the ESOP rules) 5. Participants will not be entitled to voting rights or rights to receive dividends until the options are exercised and the Participant holds Shares. (see the ESOP rules) 6. Options may be exercised when all applicable vesting conditions and any applicable exercise conditions have been satisfied, by delivery of an exercise notice and the payment of any exercise price applicable. (see the ESOP rules) 7. As soon as practicable after the valid exercise of an option, TCG must issue, allocate or cause to be transferred to that Participant the number of Shares to which the Participant is entitled (Equity Settled). Where permitted in the relevant Invitation and subject to Board approval, TCG may pay a cash amount to the Participant equal to the value of the Shares which would have otherwise been granted to the participant if the options had been Equity Settled (Cash Settled). (see the ESOP rules) 8. Where a Participant ceases employment then (see the ESOP rules): 9. Options which have not yet been exercised must be forfeited immediately on the date the Board determines that any applicable vesting condition or exercise condition has not been, or cannot be, met by the relevant date. (see the ESOP rules) 10. Where a Participant acts fraudulently or dishonestly, or wilfully breaches his or her obligations; the Board may deal with or take any actions, in relation to options, Shares resulting from the exercise of options or cash settlement proceeds so as to ensure no unfair benefit is obtained by the Participant. (see of the ESOP rules) 11. Shares acquired by Participants as a result of exercising their options may be subject to a disposal restriction, where the Participant must not dispose of their Shares unless the disposal is in accordance with the ESOP, the relevant Invitation, the shareholders deed and any securities trading policy. 12. The ESOP allows TCG to use an employee share trust to facilitate the allocation of Shares to a Participant (i.e. the Trustee to subscribe for and / or acquire shares to be held on behalf of the Participants under the ESOP and to hold any Shares under the plan rules on such terms and conditions as by the Board in its absolute discretion). (see the ESOP rules) 13. All Shares issued under the ESOP will rank pari passu in all respects with the shares of the same class from the date of issue. (see the ESOP rules) Company A Employee Equity Plan The EEP allows the Board to make offers to eligible participants (Participants) to acquire ordinary shares in Company A or rights to Shares. The incentives that may be granted under the EEP are as follows: The purpose of the EEP, as outlined in the Introduction of the plan rules, is to allow the Board to make Offers to Eligible Employees to acquire securities in Company A and to otherwise incentivise employees. The Plan broadly operates as follows: 1.Participants may receive a grant of Rights, Options or Restricted Shares under the EEP. 2. Certain performance, service or other conditions may need to be satisfied before an award may vest (Vesting Conditions or Performance Hurdles). Additional conditions may need to be satisfied before a Participant may exercise a vested award (Exercise Conditions). The Board has the discretion to waive any Vesting Conditions and Exercise Conditions. (the EEP Rules) 3. Awards are granted pursuant to an invitation letter (Invitation) made under the EEP. The number of awards to which a Participant may be eligible to receive will be set out in the Invitation made to a Participant. 4. Invitations sent to the Participants will outline the following as per the EEP Rules: 5. Participants must not sell, transfer, assign, encumber, swap, hedge or otherwise deal (Deal) with their awards unless the Board determines otherwise. 6. The Participant will not be entitled to voting rights, rights to receive dividends, bonus issues and to participate in rights issues until their Rights and Options vest and are exercised and the Participant holds Shares, or unless the Participant holds Restricted Shares. 7. Rights will vest when all Vesting Conditions and all other relevant conditions have been satisfied. Options may be exercised when all Vesting Conditions and all other relevant conditions have been satisfied, and following the payment of any exercise price applicable. (the EEP Rules) 8. Restricted Shares will vest and become Shares where the Vesting Period and other relevant conditions, including Vesting Conditions, have been satisfied. (the EEP rules) 9. The Board may determine that the vesting of Rights or the exercise of Options will be satisfied by a cash payment to the Participant in lieu of an allocation of Shares (Cash Settled). Where Rights are Cash Settled, the cash payment will be the market value of the Shares in respect of which Rights have vested. Where Options are Cash Settled, the cash payment will be the market value of the Shares in respect of which Options have been exercised, less any exercise price that would otherwise have been payable. (the EEP rules) 10. In some circumstances, the Board may determine at the time an offer is made that a dividend equivalent payment will be paid to a Participant who becomes entitled to an allocation of Shares following the vesting or exercise of Rights or Options. The payment will be approximately equal to the amount of dividends that would have been payable to the Participant had they been the owner of the Shares during the Vesting Period (Dividend Equivalent Payment). The Dividend Equivalent Payment amount may be satisfied through the allocation of Shares or the payment of cash. A cash-settled Dividend Equivalent Payment would not be paid through the Trust. (the EEP rules) 11. Where a Participant ceases employment then the Board, in its discretion, may determine that some or all of a Participant's unvested awards, as applicable: b. are forfeited; c. vest (immediately or subject to conditions); d. are only exercisable for a prescribed period and will otherwise lapse; and/or e. are no longer subject to some of the restrictions (including any Vesting Condition) that previously applied, as a result of the Participant ceasing to be employee of the group. (the EEP rules) 12. Where a Participant prior to vesting of the awards has acted fraudulently or dishonestly or otherwise inappropriately, the Board may determine that any unvested Rights or Options, vested but unexercised Options, or Restricted Shares and/or Shares allocated under the EEP will lapse or be deemed to be forfeited. (the EEP rules) 13. The EEP allows TCG to use an employee share trust to facilitate the allocation of Shares to a Participant (i.e. allows the Trustee to subscribe for and / or acquire Shares to be held on behalf of the Participants under the EEP and to hold any Shares under the EEP on such terms and conditions as determined by the Board in its absolute discretion). (the EEP rules) 14. All Shares issued under the EEP on the vesting or exercise of awards will rank pari passu in all respects with the shares of the same class from the date of issue (the EEP rules). Rights, Options and Restricted Shares offered under the EEP, and options offered under the ESOP, are collectively referred to as "Awards". Company A Employee Share Trust The Company A Employee Trust was established in 2021 as a sole purpose trust for the purpose of holding Shares for the satisfaction of Awards under the rules of the Plans (refer the Trust Deed). The Board may do all things necessary for the establishment, administration, operation, and funding of an employee share trust and may, in its absolute discretion, require that a Participant's Shares are held in the employee share trust. For completeness, the Trust will not be involved in the process of satisfying any Cash Settled Awards under the Plans or any future equity plans. The EST will only be used to acquire Shares for the purpose of satisfying Equity Settled Awards. Any Cash Settled Awards will be settled outside the Trust directly by TCG. The Trust provides TCG with greater flexibility to accommodate the incentive arrangements of TCG both now and into the future as the group continues to expand its operations. The Trust provides capital management flexibility for TCG, in that the Trust can use the contributions made by TCG either to acquire shares in Company A on market, or alternatively to subscribe for new shares in Company A. Similarly, it provides an arm's length vehicle through which Shares in Company A can be acquired and held on behalf of employees. In effect, this aspect allows Company A to satisfy Corporations Law requirements relating to companies dealing in their own shares. Company B, an independent third party, is the Trustee of the Trust, and will operate the Trust in accordance with Company A Employee Share Trust Deed (Trust Deed). Broadly, the Trust will broadly operate as follows: Contributions to the Trust TCG does not and will not pay cash contributions to the Trust prior to the issue of Awards under the Plans to Participants. TCG, where possible, will wait until the Awards vest (and to receive the exercise notice from Participants where relevant) before providing the Trust with the cash necessary to acquire shares to satisfy the acquisition or subscription of shares related to those Awards. In the event that Restricted Shares are granted, the Company will also typically wait until grant of Restricted Shares to make related contributions to the Trust. However, where it makes commercial sense to do so, TCG may make cash contributions to the Trust prior to the Awards vesting, and where relevant, Awards being exercised by the Participants or in the event that Restricted Shares are granted to Participants, prior to grant. In this case, TCG will contribute to the Trust enough funding to enable purchase of shares in advance of when Awards are likely to be exercised or in the case of Restricted Shares, prior to the grant. This allows the Trustee to have enough shares in the Trust ahead of when they need to be allocated to Participants, and avoids delays in times such as blackout trading periods.


Reasons for decision: Detailed Reasoning - Questions 1 to 4 - application of the single entity rule in section 701-1: The consolidation provisions of the Income Tax Assessment Act 1997 (ITAA 1997) allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1 the subsidiary members of an income tax consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period that they are members of the income tax consolidated group with the head company of the group being the only entity recognised for income tax purposes. The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997. As a consequence of the SER, the actions and transactions of the subsidiary members of the Company A income tax consolidated group (TCG) are treated, for income tax purposes, as having been undertaken by Company A as the head company of the TCG. | Detailed Reasoning - Questions 5 to 7: The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986. The Commissioner has therefore provided a ruling to Company A, Company C, Company D as the employing entities in the TCG. Legislative references in the following are to provisions of the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated. | Detailed Reasoning - Question 1: For present purposes, subsection 8-1(1) will allow 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, pursuant to 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. TCG carries on a business of online services which produces assessable income. TCG operates an employee share scheme (ESS) as part of its remuneration strategy. Under the Plans, TCG grants options, shares or rights (Awards) to employees and makes irretrievable contributions to the Trust (in accordance with the Plan Rules and the Trust Deed) which the Trustee will use to acquire shares (either on-market or by subscription) for allocation to Participants to satisfy their Awards. | Detailed Reasoning - Incurred in carrying on a business: TCG must provide the Trustee with all the funds required to act as requested (the Trust Deed). The contributions made by TCG are irretrievable and non-refundable to the TCG in accordance with the Deed as all funds provided are not repayable (refer to the Trust Deed) and the Trustee cannot conduct activities which are not connected to or for the purposes of an employee share scheme plan (refer to the Trust Deed). Additionally, the Trustee agrees that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" (refer to the Trust Deed). TCG has granted (and will in the future grant) Awards under the Plans as part of its remuneration and reward program for Participants. The costs incurred by TCG for the acquisition of shares to satisfy Awards that arise as part of these remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of its employees. | Detailed Reasoning - Not capital or of a capital nature: The costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for employees of TCG. Costs incurred are likely to be in relation to more than one grant of Awards (rather than being one-off). This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of TCG. While the contributions may 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 considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature. Accordingly, TCG will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee of the Trust to acquire shares in Company A to satisfy ESS interests issued pursuant to the Plans. | Detailed Reasoning - Question 2: Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. TCG carries on a business of online services to produce assessable income. TCG operates an employee share scheme as part of its remuneration strategy. TCG incurs on-ongoing administration costs for operating the Employee Share Scheme (ESS) such as: • legal and tax fees associated with obtaining advice in relation to the Trust Deed • employee plan record keeping • production and dispatch of holding statements to employees • costs incurred in the acquisition of Shares on market, such as brokerage costs and the allocation of such Shares to Participants • other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income. Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company (as confirmed in Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' (TD 2022/8)). Section 40-880 allows a deduction for certain business related capital expenditure. Limitations and exceptions are in subsections 40-880(3) to (9). Relevantly, the business needs to be carried on for a taxable purpose and as stated above TCG carries on a business of online services to produce assessable income. Therefore as per paragraphs 4 to 9 of TD 2022/8 the implementations costs including the services provided by TCG's accounting, tax and legal advisors and legal and tax fees associated with amending the Trust Deed are deductible to TCG under section 40-880. | Detailed Reasoning - Question 3: Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contribution provided to the trust to purchase shares in excess of the number required to grant the relevant Awards to the employees arising in the year of income from the grant of Awards, under an employee share scheme. 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 . The ESOP is an employee share scheme for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (i.e. a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees (i.e., Participants) in relation to their employment with TCG. The EEP is an employee share scheme for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (i.e. a beneficial interest in a share) are provided to employees (i.e., Participants) in relation to their employment with TCG. However, both these plans also include securities that can be cash settled and these are discussed below under indeterminate rights. These Plans contain a number of interrelated components which includes the provision of irretrievable cash contributions by TCG to the Trustee of the Trust. These contributions enable the Trustee to acquire Company A shares for the purpose of enabling each Participant to acquire ESS interests as per the Plans. The irretrievable cash contribution can only be deducted from the assessable income of TCG in the income year when the relevant beneficial interest in a share in Company A, or beneficial interest in a right to a beneficial interest in a share in Company A, is acquired by a Participant under the Plans. | Detailed Reasoning - Indeterminate rights: Rights granted under either ESOP or EEP can be indeterminate rights for the purposes of section 83A-340where the invitation indicates the right can be settled by either a share or making a payment of a cash equivalent amount. In this circumstance, the Right is not a right to acquire a beneficial interest in a share unless and until the time when the Board determines it will be satisfied by the provision of a share. Once it is determined that it will be satisfied by provision of a share (or the number of shares that the right represents is determined), section 83A-340 operates to treat these Rights as though they had always been rights to acquire beneficial interests in shares. If irretrievable contributions are provided to the Trustee before these Rights are acquired (and they do subsequently become ESS interests), then section 83A-340 operates to deem the Rights to always have been ESS interests. Where this occurs, section 83A-210 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1. In such a case, a deduction for the contribution to fund the Rights would be available to TCG in the income year in which Participants acquire the Rights. Note, as per the facts, where the Rights do not become an ESS interest because they are ultimately satisfied in cash, the outgoing will not flow through the Trust. If they did flow through the Trust, the Trust would not satisfy the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997. | Detailed Reasoning - Ordinary Income: Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. 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 contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Here, Company A is issuing the Trustee with new shares in itself. The character of the newly issued share is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also 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. Accordingly, when Company A receives subscription proceeds from the Trustee where the Trustee has subscribed for new shares in Company A to satisfy obligations to Participants, that subscription proceeds received is a capital receipt. That is, it will not be on revenue account, and will not be 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. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Subsection 20-20(3) establishes that an amount received by you as 'recoupment' of a loss or outgoing is an 'assessable recoupment' if you can deduct the loss or outgoing for an earlier income year under a provision listed in section 20-30. Recoupment is defined in subsection 20-25(1) to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of a loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. So far as a deduction under section 8-1 allowed for bad debts or rates or taxes is concerned, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. However, the receipt by Company A made in return for issuing shares to the Trustee would not be a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes to which section 20-30 could apply. Therefore, the subscription proceeds will not be an assessable recoupment under section 20-20. | Detailed Reasoning - Capital Gains Tax: Section 102-20 states that you make a capital gain or loss if and only if a CGT event happens. No CGT events occur when the Trust satisfies its obligations by subscribing for new shares in Company A. The relevant CGT events that may be applicable when the subscription proceeds are received by Company A are CGT events D1 (creating a contractual or other rights) and H2 (receipt for event relating to a CGT asset). However, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case, Company A is issuing shares, being equity interests as defined in section 974-75, to the Trustee, therefore CGT event D1 does not happen. In relation to CGT event H2, paragraph 104-155(5)(c) also states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. Therefore, CGT event H2 does not occur. Since no CGT event occurs, there is no amount that will be assessable as a capital gain to TCG. Therefore, when the Trust satisfies its obligations under the Plans by subscribing for new shares in Company A, the subscription proceeds will not be included in the assessable income of TCG under section 6-5 or section 20-20, nor trigger a CGT event under Division 104. | Detailed Reasoning - Question 5: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. 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 subsection 136(1) of the FBTAA excludes the following from being a 'fringe benefit': (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997 ) to which Subdivision 83A-B or 83A-C of that Act applies; The Commissioner accepts that the Plans are an employee share schemes. Specifically, the Awards provided under the Plans are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests as they are provided at a discount. Accordingly, the provision of Awards under the Plans will not be subject to FBT on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. In addition, when an option is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the option and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). | Detailed Reasoning - Indeterminate rights under the Plans: At the time the Awards are granted under the Plans, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because those Rights may be satisfied in cash instead of Shares. Hence, they may not be ESS interests within the meaning of subsection 83A-10(1). However, where the Awards are ultimately satisfied with shares instead of cash, the indeterminate rights will, pursuant to section 83A-340, be treated as if they had always been ESS interests. In these circumstances, they will constitute the acquisition of ESS interests acquired under an ESS within the meaning of subsection 83A-10(2) to which Subdivision 83A-B or 83A-C applies. Accordingly, the Awards that are satisfied with shares will be excluded from the definition of a fringe benefit by paragraph 136(1)(h) of the FBTAA. Where an employee's indeterminate rights are ultimately satisfied with cash instead of shares, the granting of the Awards 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. | Detailed Reasoning - Question 6: One benefit excluded from being a 'fringe benefit', pursuant to paragraph (ha) of 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 the ITAA 1997. 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 is relevant. To qualify as an employee share trust, a trustee's activities must be limited to those described in paragraphs 130-85(4)(a), (b) and (c). Paragraph 130-85(4)(a) and (b) are satisfied because: • the Trust acquires shares in a company, namely Company A and • the Trust ensures that ESS interests as defined in subsection 83A-10(1) (being options/rights/shares in Company A) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the 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 to acquire the shares) are not considered to be merely incidental. In the present case, the Trust is in line with the definition of an employee share trust under section 130-85(4) because: • the Trust acquires shares in a company, namely Company A • the sole purpose being the acquisition, holding, and ongoing administration of holding Company A shares under the Plans for the benefit of the Participants (see the Trust Deed). • the Trustee is not permitted to carry out activities that are not connected to or for the purpose of the Plans established by TCG (see the Trust Deed) • The Commissioner accepts that the other activities undertaken by the Trustee will be merely incidental to this purpose 130-85(4)(c) • 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 the employees in accordance with the Trust Deed and the Plans • the Trust Deed indicates that Company A and the Trustee agree the Trust will be managed and administered so that it satisfies the definition of 'employee share trust' for the purpose of subsection 130-85(4) (the Trust Deed). Therefore, the cash contribution made by TCG to fund the subscription for or acquisition on-market of Company A shares by the Trust will not be a fringe benefit. | Detailed Reasoning - Question 7: PS LA 2005/24 Application of General Anti-Avoidance Rules explains the application of Part IVA or other general anti-avoidance rules to an arrangement, including the operation of section 67 of the FBTAA (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. Paragraph 191 of PS LA 2005/24 states: 191. The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. Irretrievable cash contributions made by TCG to the Trust will not be a fringe benefit defined in subsection 136(1) of the FBTAA as explained in the reasons for question 6. As a result, the FBT liability of Company A or its Australian subsidiaries is not any less than it would have been but for the existence of the arrangement. The Commissioner will not make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of Company A or its Australian subsidiaries by the amount of the tax benefit gained from the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares.

remuneration is competitive by market standards; | rewards are linked to strategic goals and performance; and | accountabilities and deliverables are clearly defined to minimise potential conflicts of interest and promote effective decision-making. | the number of options for which that Participant may apply; | the grant fee (if any) for each option or how such fee is to be calculated; | any restrictions on the manner of delivery of the Shares following exercise of the options; | whether the options must be Equity Settled or may, at the discretion of the Board, be Equity Settled or Cash Settled (see the ESOP rules); and | any other supplementary terms and conditions considered relevant by the Board. | The Participant may retain any vested and unexercised options, unless the Board exercises its absolute discretion to require that the Participant sell some or all of the vested and unexercised options to a person or entity nominated by the Board for an amount equal to the fair market value of the options; and | All unvested options will be forfeited on a date determined by the Board, unless the Board provides express written consent that some or all of the Participant's unvested options may be retained. Where the Board determines that the Participant may retain unvested options, those options will be held subject to the same terms and conditions that the Participant held those options prior to ceasing employment. | Rights to Shares subject to satisfaction of applicable conditions including any Vesting Conditions (Rights); | Options to acquire Shares subject to an agreed exercise price, other applicable exercise procedures and any other applicable conditions including any Vesting Conditions (Options); or | Shares subject to restrictions on Dealing, Vesting Conditions and/or other restrictions or conditions (Restricted Shares). | the type and number of awards being offered, or the method by which the number will be calculated; | the amount (if any) that will be payable for the grant of awards; | any Vesting Conditions or other conditions that apply, including any vesting period; | the procedure for exercising an Option (including any exercise price that will be payable) following vesting and the period(s) during which it may be exercised; | where the Board has made a determination that the vesting of Rights and/or exercise of Options (as applicable) will only be satisfied through an allocation of Shares; | the circumstances in which Rights and/or Options will lapse, Shares (including Restricted Shares) allocated under the EEP may be forfeited or a Participant's entitlement to awards may be reduced; | how awards may be treated in the event that the Participant ceases employment, and any discretions retained by the Board in this regard; and | any restrictions (including the period of restriction) on dealing in relation to a Restricted Share or Share allocated to the Participant under the EEP. | Company A must provide the Trustee with the funds required for the purchase of shares in accordance with the Plans (refer to the Trust Deed). | All funds provided by Company A are considered accretions to the corpus of the Trust and are not repayable (refer to the Trust Deed). | The Trustee is not permitted to carry out activities which are not matters connected to or for the purposes of an employee share scheme plan (refer to the Trust Deed). | Irretrievable cash contributions are made regularly and progressively to the Trust in accordance with the rules of the Plans and the Trust Deed. | Company A and the Trustee agree that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" for the purposes of subsection 130-85(4) of the ITAA 1997 (refer to the Trust Deed). | These funds are used by the Trustee to acquire shares in Company A either on-market or via a subscription for new shares in Company A based on written instructions from Company A (refer to the Trust Deed). | Where the Plans' Rules stipulate that the shares are to be held by the Trustee on behalf of Participants, the Trustee will hold Company A shares as shares in respect of a Participant(s) (i.e. on an allocated basis) (refer to the Trust Deed). | Where the Plans' Rules include that the shares may be held by the Trustee on behalf of Participants or employees, the Trustee will hold Company A shares as unallocated shares for Participants generally (refer to the Trust Deed). | After a disposal restriction period lapses, the Trustee must transfer the relevant number of shares into the name of the relevant employee or any third party as directed by the relevant employee (i.e. legal title) upon a withdrawal notice being submitted to the Trustee (refer to the Trust Deed). | The Trustee can sell shares on behalf of a Participant where permitted to do so by the Participant (refer to the Trust Deed). | Legal and tax fees associated with obtaining advice in relation to the Trust Deed, including reviewing and amending the Trust Deed from time to time; | implementation costs, including the services provided by TCG's accounting, tax and legal advisors. | Reasons for decision: These reasons for decision accompany the Notice of private ruling for Company A, Company C and Company D. | This is to explain how we reached our decision. This is not part of the private ruling.