Private ruling: Employee share schemes
Date of advice: 13 January 2023
Published: 6 March 2023
Ruling period: For Questions 1 to 4 and 8 | Relevant income tax years ending 30 June 20XX | For Questions 5, 6A, 6B and 7 | Relevant fringe benefit tax years ending 31 March 20XX
Date scheme commenced: In a particular income year

Ruling: Q1: Will Company X be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the irretrievable cash contributions made by it to the Trustee to fund the subscription for, or acquisition on-market of, Shares by the Trust? | A1: Yes. | Q2: Will Company X be entitled to deduct an amount under section 8-1 of the ITAA 1997 in respect of costs incurred by it in relation to the on-going administration of the Trust? | A2: Yes. | Q3: Will the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition on-market of, Shares by the Trustee be deductible to Company X at a time determined by section 83A-210 of the ITAA 1997, to the extent those contributions are made before the acquisition of Awards by the Participants? | A3: Yes. | Q4: If the Trustee satisfies its obligation under the Plans by subscribing for new Shares, will the subscription proceeds be included in the assessable income of Company X under sections 6-5 or 20-20, or trigger a CGT event under Division 104, of the ITAA 1997? | A4: No. | Q5: Will the provision of Awards by Company X to Participants of Company X under the Plans constitute a 'fringe benefit' within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A7: No. | Q6: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company X by the amount of tax benefit gained from irretrievable cash contributions made by it to the Trustee, to fund the subscription for, or acquisition on-market of, Shares? | A8: No. | Q7: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by Company X in respect of the irretrievable cash contributions made by it to the Trustee to fund the subscription for, or acquisition on-market of, Shares by the Trustee? | A9: No.

Relevant facts and circumstances: Company X Limited 1. Company X is an Australian public company and its shares have been listed on the Australian Securities Exchange. 2. Company X carries on a business for the purpose of gaining or producing assessable income. Company X Employee Share Trust 3. The Company X Employee Share Trust (the Trust) was established under the trust deed (Trust Deed) between Company X and trustee for the Trust (Trustee). Employee Share Schemes (ESS) 5. The Plans provide Company X with the flexibility to offer rights to acquire a share in Company X (Rights), options which carry an entitlement to receive a share in Company X (Options) and/or shares in Company X (Shares) (collectively, Awards) to its employees, and independent contractors (that meet the requirements in section 83A-325 of the ITAA 1997) (Participants). 6. For the purposes of this ruling, the Participants are limited to those who were / are directly employed only by Company X at the time of the granting or issue of the Awards (both Australian and foreign residents). This ruling applies to all Awards under the Plans.. The Plans 7. Under the Plans: a. although some Awards may be granted to Participants for a fee, the Participants receive the Awards for no consideration b. the Awards may not be transferred or disposed of by the Participant without the prior consent of the board of Company X (the Board) c. Options and Rights will only vest and be exercisable if applicable performance hurdles and/or vesting conditions have been satisfied d. in the case of an Option, following vesting, the vested Option is exercisable by the Participant within the specified exercise period and an exercise price may be payable to exercise vested Options e. in the case of a Right, a vested Right is automatically exercised f. upon the vested Options or Rights being exercised, Company X will instruct the Trustee to subscribe for, acquire and/or allocate the number of Shares for which the Participant is entitled and hold those Shares on behalf of the Participant, and g. the Board has to discretion to determine that some or all of the vested Awards may be acquired or cancelled for cash consideration, rather than be exercised. The cash consideration will be provided by Company X and not by the Trust. 8. The Trust was implemented as an Employee Share Trust (EST) for the purpose of delivering and holding Shares on behalf of Participants. The Plans allows Company X to provide funds to the Trustee to subscribe for and/or acquire and hold the Shares on behalf of Participants and pay for services provided by the Trustee. Trust Deed 9. The Trust operated under the Trust Deed as follows: a. the Shares are held by the Trustee on behalf of Participants, including all benefits relating to the Shares b. each Participant is the beneficial owner of the Shares held by the Trustee on their behalf and is absolutely entitled to all other benefits attached to or resulting from holding, those Shares c. the Trust assets (including unallocated Shares) are to be held by the Trustee on trust for the Participants in accordance with the terms of the Deed, the relevant Plans and terms of participation until termination of the Trust d. the Trustee will, as soon as reasonably practicable, acquire, allocate and deliver Shares for the benefit of a Participant provided that the Trustee receives sufficient payment to subscribe for or purchase Shares and/or has sufficient unallocated Shares available e. nothing in the Trust Deed confers or is intended to confer on Company X any charge, lien or any other proprietary right or interest in the Shares acquired by the Trustee in accordance with the Trust Deed f. neither Company X nor the Trustee will be entitled to obtain any beneficial interest in the Trust assets, other than in respect of the Trustee's right of indemnity g. Company X 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 section 130-85(4) of the ITAA 1997 and in accordance with Taxation Determination TD 2019/13 h. the Trustee is not entitled to receive from the Trust any fees, commission or renumeration in respect of its performance of its obligations and Company X may pay to the Trustee from its own resources any fees, commission or remuneration and reimburse any expenses incurred by the Trustee as Company X and the Trustee may agree from time to time i. Company X is required to indemnity the Trustee in respect of liabilities, costs and expenses incurred by the Trustee in performing its obligations or in the execution of its powers, other than a liability, cost or expense arising out of gross negligence, dishonesty fraud or wilful breach of trust j. the Trustee can recover any costs, expenses or other liabilities of the Trust from Company X k. the Trustee may subscribe for, purchase and/or allocate Shares to be held by the Trustee in respect of relevant Participants l. Company X may instruct the Trustee to acquire Shares to be held by the Trustee on trust in respect of identified Participants or for Participants generally as unallocated Share m. Company X must provide the Trustee with the funds required for the purchase of Shares n. all funds received by the Trustee constitutes accretions to the corpus of the Trust and cannot be repaid to Company X o. funds received by the Trustee from Company X may be paid to Company X where the Trustee subscribes for new Shares p. where an amount paid by Company X to the Trustee in respect of the acquisition of Shares is in excess of the amount required by the Trustee, the Trustee may apply the amount to acquire other Shares or deposit the funds into any account opened and operated by the Trustee q. on termination of the Trust, the Trustee must not pay any balance of the Trust assets to Company X or to any member of the Company X group, and r. no member of the Company X group can be a beneficiary of the Trust. Amended Trust Deed 10. The Trust Deed was amended by a Deed of Variation executed by Company X and the Trustee (Amended Trust Deed). Under the Amended Trust Deed: a. any dividends, bonus shares or other benefits received by the Trustee in respect of any forfeited shares or any proceeds of sale of any forfeited shares cannot be repaid to Company X b. no amendment may be made to the Trust Deed which may prevent the Trustee from satisfying the requirements of subsection 130-85(4) of the ITAA 1997 or entitle any member of Company X group to any benefit under the Trust Deed c. the Trustee is no longer able to subscribe for, purchase or otherwise acquire, or sell or otherwise dispose of, privileges d. the Trustee must not grant any security or encumbrances over the Trust assets at any time. 11. Company X has confirmed that the Trustee has not undertaken any of the activities of the Trust Deed that may have resulted in the Trust not satisfying the definition of an 'employee share trust' in subsection 130-85(4) of the ITAA 1997. Contributions to the Trust 13. Company X has not and will not pay cash contributions to the Trust prior to the issue or acquisition of Awards. 14. Where it makes commercial sense to do so in the future, Company X maymake cash contributions to the Trust prior to the offer being made to the Participant or prior to the acceptance of the offer by the Participant. On-going administration costs 15. Company X will incur the following on-going administration costs in respect of the on-going administration and management of the Trust: (a) Employee plan record keeping (b) Production and dispatch of holding statements to employees (c) Costs incurred in the acquisition of Shares on market, such as brokerage costs and the allocation of such shares to Participants (d) Annual audit of the financial statements, and (e) Preparation of the annual income tax return of the Trust.

Relevant legislative provisions: Part IVA of the ITAA 1936 | Subsection 177A(1) of the ITAA 1936 | Section 177C of the ITAA 1936 | Subsection 177C(1) of the ITAA 1936 | Section 177CB of the ITAA 1936 | Subsection 177CB(2) of the ITAA 1936 | Subsection 177CB(3) of the ITAA 1936 | Subsection 177D(2) of the ITAA 1936 | Paragraph 177D(2)(a) of the ITAA 1936 | Paragraph 177D(2)(b) of the ITAA 1936 | Paragraph 177D(2)(c) of the ITAA 1936 | Paragraph 177D(2)(d) of the ITAA 1936 | Paragraph 177D(2)(e) of the ITAA 1936 | Paragraph 177D(2)(f) of the ITAA 1936 | Paragraph 177D(2)(g) of the ITAA 1936 | Paragraph 177D(2)(h) of the ITAA 1936 | Section 177F of the ITAA 1936 | Subsection 177F(1) of the ITAA 1936 | Section 6-5 of the ITAA 1997 | Section 8-1 of the ITAA 1997 | Subsection 8-1(1) of the ITAA 1997 | Paragraph 8-1(1)(b) of the ITAA 1997 | Paragraph 8-1(2)(a) of the ITAA 1997 | Section 20-20 of the ITAA 1997 | Section 20-30 of the ITAA 1997 | Division 83A of the ITAA 1997 | Subsection 83A-10(1) of the ITAA 1997 | Subsection 83A-10(2) of the ITAA 1997 | Section 83A-35 of the ITAA 1997 | Subsection 83A-105(1) of the ITAA 1997 | Section 83A-205 of the ITAA 1997 | Section 83A-210 of the ITAA 1997 | Section 83A-340 of the ITAA 1997 | Subdivision 83A-B of the ITAA 1997 | Subdivision 83A-C of the ITAA 1997 | Section 102-20 of the ITAA 1997 | Division 104 of the ITAA 1997 | Paragraph 104-35(5)(c) of the ITAA 1997 | Paragraph 104-155(5)(c) of the ITAA 1997 | Subsection 130-85(4) of the ITAA 1997 | Paragraph 130-85(4)(a) of the ITAA 1997 | Paragraph 130-85(4)(b) of the ITAA 1997 | Paragraph 130-85(4)(c) of the ITAA 1997 | Subsection 974-75(1) of the ITAA 1997 | Section 67 of the FBTAA | Subsection 136(1) of the FBTAA | Paragraph 136(1)(f) of the FBTAA | Paragraph 136(1)(g) of the FBTAA | Paragraph 136(1)(h) of the FBTAA | Paragraph 136(1)(ha) of the FBTAA | Paragraph 136(1)(j) of the FBTAA | Paragraph 136(1)(k) of the FBTAA | Paragraph 136(1)(l) of the FBTAA | Paragraph 136(1)(la) of the FBTAA | Paragraph 136(1)(lb) of the FBTAA | Paragraph 136(1)(lc) of the FBTAA | Paragraph 136(1)(ld) of the FBTAA | Paragraph 136(1)(le) of the FBTAA | Paragraph 136(1)(m) of the FBTAA | Paragraph 136(1)(ma) of the FBTAA | Paragraph 136(1)(mb) of the FBTAA | Paragraph 136(1)(n) of the FBTAA | Paragraph 136(1)(p) of the FBTAA | Paragraph 136(1)(q) of the FBTAA | Paragraph 136(1)(r) of the FBTAA | Paragraph 136(1)(s) of the FBTAA

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise indicated. Paragraph 8-1(1)(b) 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 paragraph 8-1(2)(a), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. In Magna Alloys & Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180, the Full Federal Court stated that an outgoing is necessarily incurred in carrying on a business where, viewed objectively, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income. Company X carries on a business for the purpose of gaining or producing assessable income and operates the Plans as part of its remuneration strategy. The Plans provide for the use of a trust for the purposes of acquiring and holding Shares on behalf of and delivering those Shares to Participants. Company X must provide the Trustee with any funds required by the Trustee in order to purchase, subscribe for and allocate Shares under the Plans. The Trustee is not obliged to act unless it receives sufficient payment from Company X. Therefore, there is sufficient nexus between the cash contributions made by Company X to the Trustee and Company X's remuneration arrangements with its employees, which directly relate to the business carried on by Company X for the purpose of producing Company X's assessable income. However, for the cash contribution made by Company X to the Trustee to be deductible under section 8-1, the contribution must be a permanent loss or outgoing to which Company X has definitely committed itself and there should be no circumstance in which Company X can retrieve any of the contributions ( Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339 and Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650 ( Spotlight )). The cash contributions made by Company X to the Trustee are irretrievable and non-refundable to Company X as both the Trust Deed and Amended Trust Deed (the Deeds) do not contain any clauses which allow any trust funds to be returned to Company X from the Trust for purposes other than acquiring Shares to implement the Plans. Therefore, the cash contributions made to the Trustee are necessarily incurred by Company X in carrying on its business. The advantage provided by each payment to the Trustee does not have a lasting quality because it forms part of the overall remuneration of Company X's employees, Furthermore, the contributions are a recurring outlay (rather than a once-off payment). Therefore, it can be concluded that the cash contributions are not capital, or of a capital nature ( Sun Newspapers Limited v Federal Commissioner of Taxation [1938] HCA 73 and Spotlig ht at paragraph 71). Based on the above analysis, Company X will be entitled to a deduction under section 8-1 in respect of the irretrievable cash contributions made by it to the Trustee to fund the subscription for, or acquisition on-market, of Shares to satisfy the issue of Shares to the Participants pursuant to the Plans. All legislative references are to the ITAA 1997 unless otherwise indicated. As discussed above in Question 1, for a deduction to be allowable under subsection 8-1(1), there must be sufficient nexus between the loss or outgoing and the gaining or producing of assessable income. As explained above, Company X carries on a business for the purpose of gaining or producing assessable income and operates the Plans as part of its remuneration framework. Under the Deeds, Company X may pay the Trustee from its own resources any expenses incurred by the Trustee and the Trustee has the right to recover expenses of the Trust from Company X. Therefore, Company X's regular on-going administration costs are necessarily incurred in operating its remuneration framework for the purpose of carrying on its business to gain or produce assessable income. Accordingly, Company X will be entitled to deduct such costs in relation to the on-going administration of the Trust under section 8-1 (Taxation Determination TD 2022/8 Income Tax: deductibility of expenses incurred in establishing and administering an employee share scheme ) . All legislative references are to the ITAA 1997 unless otherwise indicated. Section 83A-210 applies to determine the timing of the deduction of contributions provided under an ESS arrangement, but only if the contribution is made before the ESS interest is acquired by the ultimate beneficiary under the ESS. The effect of section 83A-210 is to deem the timing an employer incurred the outgoing to be the time when the ESS interest is acquired by the ultimate beneficiary, rather than the time when the employer makes the contribution to the trust (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 ) . To the extent any irretrievable cash contributions are made by Company X to the Trustee before the Participant acquires the Award under the Plans, section 83A-210 will apply to modify the timing of any deduction claimed by Company X to the time when the Award is acquired by the Participant. In circumstances where contributions are made by an employer at a time other than before the employee acquires the ESS interest, section 83A-210 has no application and the general rule under section 8-1 applies to determine the income year in which the amount is deductible. To date, Company X has not paid cash contributions to the Trustee prior to the offer of Awards under the Plans to Participants. However, where it makes commercial sense to do so in the future, Company X maymake cash contributions to the Trustee prior to the offer being made to the Participant or prior to the acceptance of the offer by the Participant. An ESS is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees of a company, or a subsidiary of the company, in relation to the employee's employment. An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. Shares granted under the Plans are beneficial interests in a share in Company X. Therefore, they are ESS interest for the purposes of subsection 83A-10(1) at the time they are granted to the relevant employee (Participant). Under some of the Plans, the Board may in its discretion determine that some or all of the vested Awards be acquired or cancelled for cash consideration, rather than be exercised. On this basis, at the time these Awards are acquired by the Participants, they are not rights to acquire a beneficial interest in a share, but are indeterminate rights pursuant to section 83A-340. Once the Board determines that it will not exercise its discretion and will satisfy the Awards by the provision of Shares, section 83A-340 operates to treat the indeterminate right as if it had always been a right to acquire a beneficial interest in shares, and therefore an ESS interest for the purposes of section 83A-210. Awards under the Plans which are rights to acquire a beneficial interest in a share of Company X are not indeterminate rights. Therefore, they are ESS interests for the purposes of subsection 83A-10(1) at the time they are granted to the Participants. Accordingly, the Plans satisfy the definition of an ESS for the purposes of subsection 83A-10(2) because it is a scheme under which ESS interests in Company X (that is, Awards that are settled with Shares) are provided to employees of Company X (Participants) in relation to their employment. For completeness, where the Awards do not become ESS interests because they are ultimately satisfied through cash settlement, Company X has confirmed that that any cash payments will not flow through or involve the Trust. If they did flow through the Trust, the Trust would not satisfy paragraph 130-85(4)(c). All legislative references are to the ITAA 1997 unless otherwise indicated. | Detailed Reasoning - Section 6-5: Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. The expression 'income according to ordinary concepts' is not a defined term. However, case law has identified certain factors to be taken into consideration. The characterisation of the subscription proceeds received by Company X from the Trustee can be determined by the character of the right or thing disposed of in exchange for the subscription proceeds ( GP International Pipecoaters v. Federal Commissioner of Taxation [1990] HCA 25). Where Company X issues the Trustee with new shares in itself, the character of the newly issued share is one of capital. Therefore, the receipt of the subscription proceeds takes the character of share capital, which is capital in nature. Accordingly, the subscription proceeds should not be treated as ordinary income assessable in the hands of Company X under section 6-5. | Detailed Reasoning - Section 20-20: Section 20-20 relevantly provides for the assessment of recoupments received by way of insurance or indemnity, or if it is a recoupment of a loss or outgoing that is deductible because of a provision listed in the table in section 20-30. The subscription proceeds received by Company X from the Trustee would not represent an amount received by way of insurance or indemnity as there is no insurance contract, and the receipt does not arise because of a statutory or contractual right of indemnity nor in the nature of compensation. None of the provisions listed in the table in section 20-30 are relevant to a receipt of subscription proceeds. Therefore, the subscription proceeds received by Company X from the Trustee will not constitute an assessable recoupment under section 20-20. | Detailed Reasoning - Division 104: A capital receipt will only be included as an assessable net capital gain if it arises as a result of a CGT event (section 102-20). The only CGT events that may have possible application to the receipt of the subscription proceeds are CGT event D1 (Creating a contractual or other rights) and/or CGT event H2 (Receipt for event relating to a CGT asset). However, paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that CGT events D1 and H2 do not apply if a company issues or allots equity interests or non-equity shares in the company. As the ordinary shares of Company X constitute 'equity interests' as defined in subsection 974-75(1), neither CGT event D1 nor H2 will occur. Accordingly, the subscription proceeds will not be assessable as a capital gain to Company X under Division 104. | Detailed Reasoning - Question 5: All legislative references are to the FBTAA unless otherwise indicated. A 'fringe benefit' is defined in subsection 136(1) 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' under paragraphs 136(1)(f) to (s). Paragraph 136(1)(h) provides that a fringe benefit does not include: ...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... As discussed above, the Plans are ESSs within the meaning of subsection 83A-10(2) of the ITAA 1997 because they are schemes under which ESS interests are provided to the employees of Company X in relation to their employment. As discussed above, the Awards granted under the Plans that may be satisfied in cash instead of Shares are indeterminate rights. However, where the indeterminate rights are ultimately satisfied with Shares instead of cash, section 83A-340 of the ITAA 1997 will operate to treat those Awards to have always been ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997. In these circumstances, the Plans will constitute an ESS within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which ESS interests are provided to employees of Company X in relation to their employment. Awards granted under the Plans for nil consideration are acquired by the employees at a discount and therefore are ESS interests to which Subdivision 83A-B of the ITAA 1997 will apply, unless the conditions in subsection 83A-105(1) of the ITAA 1997 are satisfied, in which case Subdivision 83A-C of the ITAA 1997 will apply. Accordingly, the exclusion in paragraph 136(1)(h) will apply and the provision of Awards under the Plans will not constitute a 'fringe benefit' within the meaning of paragraph 136(1). Therefore, the provision of Awards under the Plans to the employees of Company X, where those Awards are satisfied with Shares, will not constitute a 'fringe benefit' within the meaning of paragraph 136(1)(h) (ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee Share Scheme: indeterminate rights not fringe benefits ). For completeness, where the indeterminate rights are ultimately satisfied with cash instead of Shares, the granting of the right will be viewed as a series of steps in the payment of salary or wages which are excluded from the definition of a 'fringe benefit' by paragraph 136(1)(f). | Detailed Reasoning - Question 6A: All legislative references are to the FBTAA unless otherwise indicated. Paragraph 136(1)(ha) provides that a benefit constituted by the acquisition of money or property by an EST (within the meaning of the ITAA 1997) does not constitute a fringe benefit. Subsection 130-85(4) of the ITAA 1997 provides that an EST 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 (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). In Company X's case, paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are satisfied because the Trust: (a) acquires shares in a company, namely Company X, and (b) ensures that ESS interests (being the Awards that are not cash settled) are provided under an ESS (that is, the scheme established by the Plans) by allocating Shares to Participants in accordance with the Trust Deed and the Plans. Paragraph 130-85(4)(c) of the ITAA 1997 provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b) of the ITAA 1997. The Commissioner's views on the types of activities that are and are not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'?. According to paragraph 13 of TD 2019/13, the following activities are not 'merely incidental' as they are not a natural incident or consequence of administering an ESS: • provision of additional benefits to participants and/or employees, over and above the delivery of the ESS interests or resulting shares and any dividend equivalent payment that accrues directly from the employee's ESS interest • engaging in trading activities in relation to shares in the employer company, other than purchasing and selling shares to satisfy obligations under the ESS, and • providing security over any of the trust's assets. However, paragraph 6 of TD 2019/13 provides that, whilst the relevant trust documents may include powers and/or duties that are broad-reaching, the mere existence of those powers or duties in the trust document does not, of itself, mean that the trustee has breached the requirements to be an EST. In examining whether the requirements of subsection 130-85(4) of the ITAA 1997 are met, it is necessary to examine the actual activities that the trustee has undertaken. While the Trust Deed contained powers and/or duties that were not merely incidental (prior to the Amended Trust Deed), the Commissioner is satisfied that the Trust established pursuant to the Trust Deed meets the definition of an EST on the basis that the Trustee has not in fact breached the requirements to be an EST in subsection 130-85(4) of the ITAA 1997. Further, Company X has confirmed that where vested Awards are to be cash settled, any cash payments will be made by Company X directly to the Participant and will not flow through the Trust. Accordingly, irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed to fund the subscription for, or acquisition on-market of, Shares will not constitute a 'fringe benefit' within the meaning of subsection 136(1) as the exclusion in paragraph 136(1)(ha) will apply. | Detailed Reasoning - Question 6B: All legislative references are to the ITAA 1997 unless otherwise indicated. The Amended Trust Deed contains only powers and/or duties that are merely incidental as required by subsection 130-85(4)(c). Accordingly, the Commissioner is satisfied that the Trust established by the Amended Trust Deed is an EST as defined in subsection 130-85(4). Further, Company X has confirmed that where the Awards are ultimately satisfied through cash settlement, any cash payments will not flow through or involve the Trust. Therefore, the irretrievable cash contributions made by Company X to the Trustee pursuant to the Amended Trust Deed to fund the subscription for, or acquisition on-market of, Shares will not constitute a 'fringe benefit' within the meaning of subsection 136(1) as the exclusion in paragraph 136(1)(ha) of the FBTAA will apply. | Detailed Reasoning - Question 7: All legislative references are to the FBTAA unless otherwise specified. As discussed above, the irretrievable cash contributions made by Company X to the Trustee (pursuant to the Deeds) will not be fringe benefits within the meaning of subsection 136(1), nor would the grant of ESS interests (or cash payments) to Participants under the Plans if an EST was not used. Therefore, the fringe benefits liability is not any less than it would have been but for the existence of the arrangement (i.e., the EST). In conclusion, the Commissioner will not seek to make a determination that section 67 applies to increase the aggregate fringe benefits amount by the amount of the tax benefit gained from irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition of on-market of, Shares by the Trustee pursuant to the Plans. | Detailed Reasoning - Question 8: All legislative references are to the ITAA 1936 unless otherwise indicated. Part IVA is the general anti-avoidance provision which gives the Commissioner the discretion to cancel a 'tax benefit' that has been obtained, or would but for section 177F be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a deduction may be available where an employer provides money or other property to an EST where the conditions of Division 83A of the ITAA 1997 are met. In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the EST arrangement Therefore, having regard to the eight factors set out in subsection 177D(2), the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company X to obtain a tax benefit.

Will the irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed to fund the subscription for, or acquisition on-market of, Shares constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA? | Will the irretrievable cash contributions made by Company X to the Trustee pursuant to the Amended Trust Deed to fund the subscription for, or acquisition on-market of, Shares constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA? | As part of its remuneration framework, Company X established multiple ESS plans to reward performance and retain and motivate employees (the Plans). | The Trust Deed is applicable for the period of the income tax year to a period of the income tax year and the Amended Trust Deed is applicable from a period of the income tax year.