Private ruling: Employee share plan
Date of advice: 10 May 2019
Published: June 2019
Ruling period: XXXX
Date scheme commenced: XXXX

Ruling: Q1: Will the Company obtain an income tax deduction, pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for irretrievable cash contributions made by the Company or any subsidiary member of the Company Tax Consolidated Group (TCG) to the Trustee of the Company’s employee share trust (Trust) (the Trustee) to fund the subscription for, or acquisition on-market, of the ordinary shares in the Company (Shares) by the Trust? | A1: Yes | Q2: Will the Company obtain an income tax deduction under section 8-1 of the ITAA 1997 in respect of the costs incurred by the Company or any subsidiary member of the Company TCG in relation to the implementation and on-going administration of the Trust? | A2: Yes | Q3: Are irretrievable cash contributions made by the Company or any subsidiary member of the Company TCG to fund the subscription for, or acquisition on-market, of the Shares by the Trustee to satisfy Options or Performance Rights issued pursuant to the relevant Company employee share plans (the Plans), deductible under section 8-1 of the ITAA 1997 to the Company at a time determined by section 83A-210 of the ITAA 1997, where the contributions are made before the acquisition of the relevant Options or Performance Rights? | A3: Yes | Q4: If the Trust satisfies its obligation under the Plans by subscribing for new Shares, will the subscription proceeds be included in the assessable income of the Company under sections 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 Commissioner make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company or any subsidiary member of the Company TCG to the Trustee to fund the subscription for, or acquisition on-market, of the Shares by the Trust? | A5: No

Relevant facts and circumstances: 1. The Company is an Australian resident company. 2. The Company is the head company of the Company TCG. 3. The Employer Entities for the group are subsidiary members of the Company TCG. 4. The Company operates the Plans as part of its remuneration strategy. The Plans are operated pursuant to a number of governance documents. 5. The Company and subsidiary members of the Company TCG pay for all the on-going administration costs of the Trust. 6. The Company and members of the group are not beneficiaries of the Trust or have, at any time, any legal or beneficial entitlement to any of the Shares held by the Trustee. 7. The Plans operate as follows: ● The Company established the Trust by executing the trust deed (Trust Deed) to facilitate the acquisition, holding and allocation of the Shares to eligible employees (Participants) in accordance with the Trust Deed. ● The Company or any subsidiary member of the Company TCG may make irretrievable cash contributions to the Trustee to enable the Trustee to acquire Shares in order to satisfy the grants of Options or Performance Rights. The contributions will be determined in accordance with certain protocols. ● The offer of Options or Performance Rights to Participants is subject to certain conditions. ● When a Participant satisfies the conditions of the Options and Performance Rights, the Trustee releases the Shares to the Participant. ● Once the Shares are transferred to a Participant by the Trustee, the Participant becomes absolutely entitled to such Shares. ● The Trustee holds all the Shares pursuant to the Plans on capital account.

Relevant legislative provisions: Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 20-20 | Income Tax Assessment Act 1997 Section 83A-210 | Income Tax Assessment Act 1997 Division 104

Reasons for decision: Detailed Reasoning - Application of the single entity rule in section 701-1: The consolidation provisions allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1 of the ITAA 1997 the subsidiary members of a consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period they are members of the consolidated group with the head company of the group being the only entity recognised for income tax purposes. The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997. As a consequence, the actions and transactions of the subsidiary members of the Company TCG are treated for income tax purposes as having been undertaken by the Company as the head company of the Company TCG. | Detailed Reasoning - Questions 1 and 2: The Company or any subsidiary member of the Company TCG’s irretrievable cash contributions to the Trustee and the costs incurred in relation to the ongoing administration of Trust are expenses directly related to the production of the Company’s assessable income. Furthermore, they are not outgoings of capital or of a capital nature. Therefore, the Company is entitled to deductions under section 8-1 of the ITAA 1997 for the irretrievable cash contributions made by the Company or any subsidiary member of the Company TCG and the costs incurred in relation to the implementation and on-going administration of the Trust. | Detailed Reasoning - Question 3: If the Company or any subsidiary member of the Company TCG provides cash contributions to the Trustee before the time the ultimate beneficiary acquires the ESS interest (issued an Option or granted a Performance Right) then section 83A-210 of the ITAA 1997 will apply. The effect is that Company can only deduct the amount of the cash contributions in the income year when an Option or a Performance Right is granted to an employee. However, section 83A-210 will not apply to a deduction for irretrievable cash contributions provided by the Company or any subsidiary member of the Company TCG to the Trustee if the contributions are made at or after the time the ultimate beneficiary acquires the ESS interest (being when they are issued an Option or granted a Performance Right). That is, those cash contributions can be deducted by the Company under section 8-1 in the income year in which they are made to the Trustee. | Detailed Reasoning - Question 4: If the Trust satisfies its obligation under the Plans by subscribing for new Shares, the Subscription proceeds will not be included in the assessable income of the company under sections 6-5 or 20-20 of the ITAA 1997, or trigger a CGT event under Division 104 of the ITAA 1997. | Detailed Reasoning - Question 5: The Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company or any subsidiary member of the Company TCG to the Trustee to fund the subscription for, or acquisition on-market, of the Shares by the Trust.