Private ruling: Employee Share Scheme
Date of advice: 6 April 2016
Published: May 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020

Ruling: Q1: Will the irretrievable contributions made pursuant to the Share Rights Plans to Company B (Trustee), as trustee of the Company A Employee Share Trust (Trust), to fund the acquisition of Company A shares by the Trustee in accordance with the Company A Employee Share Trust Deed, be assessable income of the Trust under sections 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will a capital gain or capital loss that arises for the Trustee of the Trust at the time the Participants become absolutely entitled to Company A shares under the Share Rights Plans be disregarded under section 130-90 of the ITAA 1997 if the Participants acquire the Company A shares for the same or less than the cost base of the Company A shares in the hands of the Trustee? | A2: Yes.

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 Company A (Company A), is the head entity of the Company A tax consolidated group. Company A provides a range of engineering and construction services. In addition to wages and salaries, Company A's offers its employees share rights to acknowledge and encourage employees to reach short-term and long-term performance goals. Company A considers that this remuneration strategy aligns executive remuneration with shareholders' interests. Company A operates a Short Term Incentive Plan (STIP), Long Term Incentive Plan (LTIP) and Performance Incentive Plan (PIP), in this document collectively referred to as the Share Rights Plans. The Share Rights Plans are administered by the Company A Employee Share Trust (the Trust). The Company A Employee Share Trust Deed (the Deed) dated on a specific date (and amended pursuant to a deed of variation dated on a specific date) established the Trust. Company A Short Term Incentive Plan (STIP) Company A operates the STIP. The Short Term Incentive Plan Rules (STIP Rules) govern the STIP. Clause 24 of the STIP Rules, relevantly defines the following terms: Performance Measurement Period: The financial year ending 30 June each year, unless otherwise determined by the Board. Under Clause 5 of the STIP Rules, Company A can make an offer to Eligible Employees to participate in the STIP. The offer is to specify the Performance Measurement Period, Performance Criteria and the weighting for each Performance Criteria. Clause 7 of the STIP Rules, defines the Financial and Safety Performance Hurdles the STIP Participants are aiming to achieve. The achievement of these hurdles is determinative of the extent to which Participants are able to claim the short term incentive (STI) award under the offer made by Company A. Clause 12 of the STIP Rules states, that unless otherwise determined by the Board the STI award will consist of cash to the extent that a Participant meets their target. An additional STI award is available for achieving a benchmark over and above the target. The Rules refers to this benchmark as the 'stretch'. To the extent that a Participant meets the stretch component, the STI award is to be paid 50% in cash and 50% in Company A shares. Clause 12 further states that the Trust holds shares awarded upon the achievement of performance hurdles for the benefit of the Participant, subject to a two-year restriction period (Restriction Period) in which the Participant cannot dispose of the Company A shares. Further, forfeiture of the Company A shares will occur if before the end of the Restriction Period: • there is a material misstatement in, or omission from, the financial statements of Company A; or • the Participant resigns or the Participant's employment is terminated for cause. Clause 12 also stipulates that at the discretion of the Board other terms may attach to restricted shares. The Board has exercised its power to attach additional terms to restricted shares. These are contained within the Terms of STI Restricted Shares (the STI Terms). Relevantly the STI Terms state: • upon expiration of the Restriction Period shareholders will be free to deal with their STI Restricted Shares in accordance with the Company A securities Trading Policy. • STI Restricted Shares will rank equally, aside from the Restriction Period and forfeiture conditions, with other Company A ordinary fully paid shares with the same voting rights and dividend entitlements. Company A Long Term Incentive Plan (LTIP) The Long Term Incentive Plan Rules (LTIP Rules) govern the LTIP. LTIP covers the discretionary allocation of Performance Rights by the Board to selected Executive Directors employed by Company A. Clause 7 of the LTIP Rules relevantly states, that offers to participate in the LTIP will specify: • the number of performance rights the Participant is invited to accept • the performance criteria (performance hurdles) and vesting date of each performance right Clause 12 states that at the discretion of the Board performance hurdles are set and the extent to which the Participant achieves the performance hurdles determines the number of Performance Rights that ultimately vest. Under Clause 13, the extent to which performance hurdles are not met results in the lapse of the proportionate number of Performance Rights. Under Clause 15(a), upon satisfying the vesting conditions, eligible employees are entitled to be issued or transferred Company A shares. Under Clause 15(b), the LTIP Rules permit Company A to satisfy its obligations on the vesting of each Performance Right by paying a cash amount equal to the market value of an Company A share. Under Clause 17, termination of employment results in the forfeiture of unvested Performance Rights, subject to their absolute discretion of the Board to do otherwise. In the event of termination of employment due to death, a pro-rata number of Performance Rights will lapse, determined by the length of time remaining in the performance period, subject to the discretion of the Board to act otherwise. Under Clause 18, the Board may exercise its discretion to determine that a Restriction Period, limiting the ability of a Participant to dispose of or otherwise deal with the Company A shares, will apply to some or all of the Company A shares issued after the vesting date. Under Clause 24, forfeiture of unvested Performance Rights will occur if Company A dismisses an employee for committing any act or fraud, theft or serious misconduct in relation to the affairs of any group company. The Company A Performance Incentive Plan (PIP) Company A has implemented the PIP with offers made to employees from 24 November 2015. The PIP will replace the STIP and the LTIP. In the future Company A will make both long-term and short-term incentive awards under the PIP. The Performance Incentive Plan Rules (PIP Rules) govern the PIP. Clause 13.1 of the PIP Rules relevantly defines the following terms: Conditions means one or more conditions contingent on performance, service, or time elapsed since grant that must be satisfied before a Conditional Right vests, as determined by the Board; Conditional Right means a right to receive Shares that is subject to the Conditions determined by the Board, calculated on the basis set out in the terms of an offer, which may include a formula for calculating the relevant number of Shares and includes a Performance Right; Share Appreciation Right, Deferred Share Right and Option. Deferred Share Rights means, subject to the Conditions determined by the Board, a right to receive a Share as part of a short term incentive arrangement; Option means, subject to the Conditions determined by the Board, a right to receive a Share and any further amounts specified in the offer following payment of any required Exercise Price. Performance Right means, subject to the Conditions determined by the Board, a right to receive a Share plus any further amounts specified in the offer; Share Appreciation Right means, subject to the Conditions determined by the Board, a right to receive a reward value based on the increase in the Share price any further amounts specified in the offer, with this value to be converted into Shares at the end of the Period in accordance with the formula specified in the relevant offer letter; Under Clause 3.1 of the PIP Rules, the Board at its absolute discretion may extend an invitation to grant Conditional Rights to eligible employees. Clause 3.3 of the PIP Rules stipulates that any vesting conditions attached to Conditional Rights need to be stated at the time the invitation is made to employees to participate. Further, the Board must stipulate when the Conditional Rights will vest and become exercisable. Under Clause 4.1 Conditional Rights will not vest until the Board waves or the employee meets the vesting conditions attached to the Conditional Rights. Under Clause 4.2, lapse of unvested Conditional Rights occurs where there is failure to satisfy Conditions as outlined in the terms of the grant or invitation. Under Clause 4.3, the Conditional Rights will entitle the Participant to a number of fully paid ordinary shares in Company A (which may be subject to a formula outlined in the terms of the grant, offer or invitation) subject to the terms attaching to the Conditional Rights. The Board may at its discretion award a cash amount equivalent to the Market Price of a Company A share on the vesting date. Under Clause 4.4, the Participant can exercise a vested Conditional Right at any time up to and including the Expiry Date defined in Schedule 1 of the Offer Letter by delivering an Exercise Notice and paying the Exercise Price. Under Clause 7, forfeiture of unvested Conditional Rights occurs if there is a cessation of employment. Under Clause 8, forfeiture, lapse of Conditional Rights and potential clawback of Company A shares and other cash awards granted in exchange for Conditional Rights occurs if a Participant commits an act that is fraudulent, dishonest, in breach of their obligations to the group or makes a material misstatement in a financial statement. Company A Employee Share Trust Deed (the Deed) Company A established the Company A Employee Share Trust (the Trust) in accordance with the Deed dated 26 June 2012 and amended pursuant to a deed of variation dated 17 December 2015. Clause 1.1 relevantly defines the terms: Employee Share means a Share issued to or acquired by and held by the Trustee (who holds legal title only to the Share) in accordance with the Rules and this document, and includes: (a) where applicable, each Bonus Share and each Rights Issue Share; and (b) any security issued to the Trustee on acceptance of an offer made under a takeover bid in respect of that Share. Participant means, in the case of a Plan, an Eligible Employee who accepts an Invitation. Rules means, in respect of an Employee Share, the rules of the Plan that governs the issue to, or acquisition by, the Trustee of that Employee Share, and the relevant Participant's rights to that Employee Share (as amended from time to time, if such amendment is contemplated by the rules of that Plan), as amended by any rules set out in the Invitation in respect of that Employee Share. Clause 2.6(a) of the Deed states: (a) The Trustee declares that: (i) the Fund is held by the Trustee for and on behalf of the Participants on the terms and conditions of this document; (ii) in respect of each Participant: (A) the Employee Shares held by the Trustee on behalf of that Participant; (B) prior to their distribution in accordance with clause 9.4, the proceeds of sales arising from the sale by the Trustee of Rights Issue Shares on behalf of that Participant; and (C) all other benefits and privileges related to or arising from Employee Shares held by the Trustee on behalf of that Participant, will at all times be held by the Trustee on trust for and on behalf of that Participant on the terms of this document and subject to the relevant Rules and relevant Terms of Participation. Under clause 2.7 of the Deed, it is impermissible for any member of the Company A tax consolidated group to have a beneficial interest in the Trust. The purpose of the Trust as established by the Deed is to acquire shares in Company A, on market or subscribe for new shares, for Australian employees of Company A pursuant to the Share Rights Plans and other Company A incentive plans that may be in place from time to time. Clause 2.10 of the Deed, states the objectives of the trust: (a) The intention of the Trust is to: (i) obtain and hold Shares as Employee Shares for the Participants; (ii) deal with Employee Shares and the Fund in respect of Employee Shares; and (iii) deliver Employee Shares as Shares to the Participants, in accordance with the directions of the Company and subject to: (i) the directions of the relevant Participant; (ii) the relevant Rules; (iii) the relevant Terms of Participation; and (iv) the terms of this document, except where it would be required to incur a cost, expense or liability in so doing for which it is not fully indemnified. (b) Without limiting any other provision of this document, it is intended that the activities of the Trustee will include: (i) receiving funds and holding those funds on trust on the terms and conditions of this document; (ii) subscribing for or acquiring Shares on the terms and conditions of this document; (iii) allocating and re-allocating Employee Shares on the terms and conditions of this document; (iv) holding Employee Shares on the terms and conditions of this document; (v) delivering Employee Shares and Shares (together with all rights in respect of the Employee Shares or Shares, as the case may be and if any) on the terms and conditions of this document; (vi) administering the Plan in a manner agreed with the Company; and (vii) any ancillary activities relating to (i) to (vi). Under Clause 3.1(b) of the Deed, Company A will issue Company A shares to the Trustee or direct the Trustee to acquire Company A shares. The Trustee holds these Company A shares as Employee Shares on behalf of the Participants for the purposes of the Rules of the relevant Share Rights Plan. Clause 3.2 of the Deed states that the Trustee is required to subscribe in Shares and hold those Shares as Employee Shares under the terms of the Deed. Under Clause 3.3 of the Deed, the Trustee allocates the Company A shares acquired to the relevant Participant after receiving notification to do so from Company A. Under Clause 4 of the Deed, the Trustee can sell shares, subject to any restrictions in either the Deed or the relevant Share Right Plan Rules, to which a Participant is entitled where that Participant has instructed the Trustee to do so. Under Clause 8(a), Company A must provide the Trustee with all funds required by the Trustee to enable it to subscribe for or acquire Company A shares that it is directed to subscribe for or acquire. Company A must also provide sufficient funds to pay any tax, fees or other associated expenses of the acquisition, allocation, surrender or delivery of Employee Shares. Under Clause 8(b), Funds received by the Trustee from Company A constitute accretions to the corpus of the Trust and the Trustee cannot repay the funds to Company A except to subscribe for Company A shares in accordance with the Deed and the Rules of the relevant Share Rights Plan or Terms of Participation as defined. No Participant is entitled to receive such funds. Under Clause 13, upon termination of the Trust, the Trustee must distribute any consideration or Shares that the Trustee has been directed to provide to Participants. The Trustee must liquidate any remaining assets held and proceed to pay all outstanding debts and liabilities of the Trust. Any surplus that remains must be either distributed to another share or option trust maintained for the benefit of Company A employees or any charity nominated by the Trustee. The Trustee is prohibited from distributing this surplus to any Company A Group Company. Under Clause 14, the Trustee is not entitled to levy any fees or charges from the funds of the Trust for the operation and administration of the Trust. Company A must pay from its own resources any commission or remuneration and reimbursement for any expenses incurred by the Trustee. The Trustee is entitled to retain for its own benefit any such fee or reimbursement. Under Clause 2.10(c) of the Deed, Company A and the Trustee agree that the Trust will be managed and administered in a way that satisfies the requirements of subsection 130-85(4) of the ITAA 1997. Reasons for establishing the Trust Company A established the Trust in accordance with the Deed to provide greater flexibility to accommodate its existing and future long term incentive arrangements. The Trust was established as a sole purpose trust to acquire shares for Australian employees of company A pursuant to the STIP, the LTIP and other Company A incentive plans that may be in place from time to time. It is intended that the Trust will be used to acquire shares for Australian employees of Company A pursuant to the PIP. The Trust provides capital management flexibility for Company A, in that it has the ability to use the contributions made by Company A either to acquire shares in Company A on market, or alternatively to subscribe for new shares in Company A. The Trust provides an arm's-length vehicle through which shares in Company A can be acquired and held on behalf of employees. This allows Company A to satisfy corporate law requirements relating to companies dealing in their own shares. The Trustee, Company B, is an independent third party.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 95 | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 subsection 6-10(1) | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 section 104-75 | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 paragraph 130-85(4)(a) | Income Tax Assessment Act 1997 paragraph 130-85(4)(b) | Income Tax Assessment Act 1997 paragraph 130-85(4)(c) | Income Tax Assessment Act 1997 section 130-90 | Income Tax Assessment Act 1997 subsection 130-90(1A) | Income Tax Assessment Act 1997 subsection 130-90(1) | Income Tax Assessment Act 1997 subsection 130-90(2) | Income Tax (Transitional Provisions) Act 1997 subsection 83A-5(1)

Reasons for decision: Summary: Section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) defines net income in relation to a trust as follows, insofar as it is relevant: net income , in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions Subsection 6-5(1) states: Your assessable income includes income according to ordinary concepts, which is called ordinary income. Further, subsection 6-10(1) states: Your assessable income also includes some amounts that are not ordinary income. Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5. None of the provisions listed in section 10-5 are relevant in the present circumstances. Therefore, non-refundable contributions made by Company A to the Trustee will not be assessable income under section 6-10. They will only be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936 if they are assessable as income according to ordinary concepts under section 6-5. Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. Chief Justice Jordan in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 gave the classic definition of "income" in Australian law. Chief Justice Jordan considered that: The word "income" is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts. The leading case on ordinary income is Eisner v Macomber 252 US 189 (1919). The decision states that: The fundamental relation of "capital" to "income" has been much discussed by economists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time. …Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being "derived" that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; …that is income derived from property. Nothing else answers the description. In G.P. International Pipecoaters Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1990) 170 CLR 124 the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient. Brennan, Dawson, Toohey, Gaudron and McHugh JJ stated at page 138 that: To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. The contributions provided by Company A to the Trustee of the Trust are used in accordance with the terms of the Deed and the Rules of the Share Rights Plans. Clause 2.6(a) of the Deed states that the Trustee will hold on Trust all Employee Shares and all other benefits and privileges arising from Employee Shares for the benefit of Participants on the terms and conditions set out in the Deed. Clause 8(b) of the Deed states that all funds received by the Trustee from Company A or a subsidiary of Company A will constitute accretions to the Trust and will not be repaid to Company A or a subsidiary of Company A nor will any Participant be entitled to receive such funds. The contributions will not be assessable as ordinary income under section 6-5 as they constitute receipts of a capital nature to the Trustee. When a participant in the Share Rights Plans becomes absolutely entitled to the shares as against the Trustee, CGT Event E5 will occur and under section 104-75 the Trustee will make a capital gain or loss. However, section 130-90 may operate to disregard that gain or loss where specified conditions are satisfied. Preliminary - application of Division 83A Division 83A will apply to ESS Interests issued on or after 1 July 2009 and also, in certain circumstances, to ESS Interests that were provided under an employee share scheme prior to 1 July 2009. Division 83A will apply to rights provided when an offer is made under the STIP, Performance Rights provided under the LTIP and Conditional Rights provided under the PIP (hereinafter referred to as the Rights) on or after 1 July 2009 as they will have been acquired on or after 1 July 2009 thereby satisfying subsection 83A-5(1) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997). Section 130-90 Section 130-90 relevantly states: Shares held to satisfy the future exercise of rights acquired under employee share schemes | 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. Employee share trust Subsection 130-85(4) states: 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 (1) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). Paragraphs 130-85(4)(a) and (b) The beneficial interest in a share received by a Participant when an ordinary share in Company A is granted to them under the terms of the Deed is an ESS interest within the meaning of subsection 83A-10(1). Subsection 83A-10(2) defines an employee share scheme as being 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. The Share Rights Plans are employee share schemes within the meaning of subsection 83A-10(2) because they are schemes that provide rights to acquire beneficial interests (the Rights) in ordinary shares in Company A to employees in relation to the employee's employment. Company A has established the Trust to acquire ordinary shares in Company A and to allocate those shares to employees in order to satisfy ESS interests (the Rights) acquired by those employees under the Share Rights Plans. The beneficial interest in the Company A share is itself provided under an employee share scheme because it is provided under the same scheme under which the Rights are provided to the Participant in relation to the Participant's employment, being an employee share scheme as defined in subsection 83A-10(2). Paragraphs 130-85(4)(a) and (b) are therefore 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 beneficial interests in the shares of Company A), are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those Company A shares to the employees in accordance with the Deed and the Share Rights Plans. Paragraph 130-85(4)(c) Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) will also require that the Trustee undertake incidental activities that are a function of managing the Share Rights Plans. ATO Interpretative Decision ATO ID 2010/108 Income Tax - Employee share trust that acquires shares to satisfy rights provided under an employee share scheme and engages in other incidental activities sets out a number of activities which are merely incidental for the purposes of paragraph 130-85(4)(c): • the opening and operation of a bank account to facilitate the receipt and payment of money; • the receipt of dividends in respect of shares held by the trust on behalf of an employee, and their distribution to the employee; • the receipt of dividends in respect of unallocated shares and using those dividends to acquire additional shares for the purposes of the employee share scheme; • dealing with shares forfeited under an employee share scheme including the sale of forfeited shares and using the proceeds of sale for the purposes of the employee share scheme; • the transfer of shares to employee beneficiaries or the sale of shares on behalf of an employee beneficiary and the transfer to the employee of the net proceeds of the sale of those shares; • the payment or transfer of trust income and property to the default beneficiary on the winding up of the trust where there are no employee beneficiaries; and • receiving and immediately distributing shares under a demerger. 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. Clause 2.6(a) of the Deed states that the Trustee will hold on Trust all Employee Shares and all other benefits and privileges arising from Employee Shares for the benefit of Participants on the terms and conditions set out in the Deed. Clause 2.10 of the Deed states that Company A and the Trustee agree that the Trust will be managed and administered in a way that satisfies section 130-85(4). Clause 3.2 of the Deed states that the Trustee is required to subscribe in Shares and hold those Shares as Employee Shares under the terms of the Deed. Clause 3.3 of the Deed states that on receipt of notification by the Company A Board, the Trustee must as soon as practically reasonable allocate to any Participant nominated by the Company A Board the number of Company A shares specified by the Company A Board on the date specified by the Company A Board. Paragraph 130-85(4)(c) is satisfied as any activities undertaken by the Trustee other than the acquisition of Company A shares and the allocation of those shares to the employees in accordance with the Deed and Rules of the Share Rights Plans are merely incidental to operation of the Share Rights Plans. The Trust satisfies the definition of an employee share trust in subsection 130-85(4) as: • the Trust acquires shares in a company (being Company A); • the Trust ensures that ESS interests (as defined in subsection 83A-10(1), being beneficial interests in the shares of Company A), are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those Company A shares to the employees in accordance with the Deed and Rules of the Share Rights Plans; and • the Deed does not provide for the Trustee to participate in any activities which are not considered to be merely incidental to the function of administering the Trust. Paragraph 130-90(1)(a) CGT event E5 is the CGT event that will apply under the terms of the Share Rights Plans at the time the Participant becomes absolutely entitled to the Company A shares as against the Trustee. Therefore paragraph 130-90(1)(a) will be satisfied. Paragraph 130-90(1)(b) Subsection 995-1(1) defines a share in a company to mean a share in the capital of a company. An ordinary share in Company A held by the Trustee and to which a Participant is entitled upon vesting or exercise of a Right is a share in the capital of a company (i.e. Company A). 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) Paragraph 130-90(1)(c) is satisfied as a Participant will have acquired a beneficial interest in a share (in Company A) by vesting or exercising of a Right provided under the Share Rights Plans. Paragraph 130-90(1)(d) Subsection 83A-20(1) of Subdivision 83A-B states: This Subdivision applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. Subsection 83A-10(2) defines an employee share scheme as being 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. The Share Rights Plans are employee share schemes within the meaning of subsection 83A-10(2) because they are schemes that provide rights to acquire beneficial interests (the Rights) in ordinary shares in Company A to employees in relation to the employee's employment. Each Right is acquired for no cost or at a discount. Subdivision 83A-B will apply to the Rights provided under the Share Rights Plans as pursuant to subsection 83A-20(1) the ESS interests (i.e. Rights issued under the Share Rights Plans) will be acquired under an employee share scheme (for the reasons stated in the immediately preceding paragraph) at a discount. It should be noted however that whether a Participant is ultimately taxed upfront on some or all of any discount received (under Subdivision 83A-B) or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C), will depend on which of the additional requirements in Subdivision 83A-B or Subdivision 83A-C have been satisfied. Under either circumstance paragraph 130-90(1)(d) will be satisfied. Accordingly, all the conditions in subsection 130-90(1) have been satisfied. Provided a Participant does not acquire the beneficial interest in the Company A share for more than its cost base in the hands of the Trustee at the time that CGT event E5 happens, subsection 130-90(1) will apply. Under these circumstances, section 130-90 operates to disregard any capital gain or loss made by the Trustee on any Company A share when a Participant becomes absolutely entitled to that share. CGT Event E7 Subsection 104-85(1) provides that CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 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. However, section 106-50 provides that if you are absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), Part 3-1 and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it. A Participant, on allocation of the Company A shares by the Trustee, becomes absolutely entitled to those shares. In accordance with clause 5.3 of the Deed each Participant is absolutely entitled to any Company A shares held by the Trustee on their behalf once allocated, and is entitled to the same rights in respect of those shares as if he or she was the legal owner of the shares (subject to the Share Rights Plans). Once a Participant is absolutely entitled to the Company A shares held on their behalf by the Trust, section 106-50 will deem the disposal of the Company A shares by the Trustee to be done by the Participant. Therefore, section 106-50 will apply, such that if the Trustee disposes of the Company A shares under the Share Rights Plans (by way of transfer to a Participant), the Trustee will not make a capital gain or capital loss under CGT Event E7.

Reasons for decision: All references are to the Income Tax Assessment Act 1997 unless otherwise stated.