Private ruling: Employee Share Scheme (ESS)
Date of advice: 21 March 2024
Published: 6 May 2024
Ruling period: For Questions 1 and 2: | 1 July 20XX to 30 June 20XX | For Questions 3 to 5: | 1 April 20XX to 31 March 20XX
Date scheme commenced: In a particular income year

Ruling: Q1: Will the irretrievable cash contributions made by Company X Limited (the Company) to Company Y Pty Limited (the Trustee) as trustee for the Company X Equity Trust (the Trust) to fund the acquisition of, or subscription for, the Stapled Securities for the purposes of allocating the Stapled Securities to Participants under the Plans give rise to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the Company? | A1: Yes | Q2: Will the Commissioner seek to make a determination under section 177F that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by the Company in respect of any irretrievable cash contributions made to the Trustee of the Trust? | A2: No | Q3: Will the provision of Stapled Securities by the Company to the Participants under the Plans constitute a 'fringe benefit' under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A3: No | Q4: Will the irretrievable cash contributions made by the Company to the Trustee to fund the acquisition of, or subscription for, Stapled Securities under the Plans constitute a 'fringe benefit' under subsection 136(1) of the FBTAA? | A4: No | Q5: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to the Company by the amount of the fringe benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the acquisition of, or subscription for, Stapled Securities by the Trustee pursuant to the Plans? | A5: No

Relevant facts and circumstances: Company X Limited (the Company) 1. Company X Limited (the Company) is the responsible entity of X Trust and Y Trust, which together form the stapled entity traded on the Australian Stock Exchange (ASX) as 'XY'. Each unit in X Trust is stapled to a unit in Y Trust. 2. XY carries on a business for the purpose of gaining or producing assessable income. 3. X Trust is a 'public trading trust' as defined in Division 6C of the ITAA 1936. X Trust has made an election under section 713-135 of the ITAA 1997 to form an income tax consolidated group (X Trust TCG), of which X Trust is the head entity with effect from 1 July 20XX. 4. The X Trust TCG comprises X Trust and its wholly owned entities. Y Trust and its wholly owned sub-trusts are not members of the X Trust TCG. 5. All employees of XY are employed by entities that are members of the X Trust TCG. The XY Employee Plans 6. XY has implemented the following Employee Plans (together, the Plans) to allocate units in X Trust and Y Trust (together, a Stapled Security): • an equity-based employee plan whereby rights, options or restricted securities (collectively, Plan Securities) are issued for no consideration to Participants (Umbrella Plan); and • an Employee Security Plan (ESP) which grants Participants $Z of Stapled Securities subject to certain criteria being satisfied (ESP Plan). 7. The purpose of the Plans is, among other things, to align the interests of Participants with security holders of XY through the sharing of personal interest in the future growth and development of XY. The Plans operate broadly to provide Participants with the opportunity to acquire XY Stapled Securities. All Participants will be Australian residents. 8. It is intended that the Plans will achieve the following objectives: • provide incentives in order to attract, retain and motivate Eligible Employees for the long-term benefit of XY; and • provide Eligible Employees with both long-term and short-term incentives ultimately by way of acquiring Stapled Securities. 9. In order to receive the Stapled Securities, the Participant must satisfy all relevant criteria outlined in the: • relevant offer letters and documentation; and • Umbrella Plan Rules; or • ESP Plan Rules (collectively, the Plan Rules). 10. When the relevant criteria are satisfied, the Participant will be entitled to the Stapled Securities allocated to them. Umbrella Plan 11. Subject to the Umbrella Plan Rules, the board of directors of the Company (Board) may invite 'Eligible Employees' to participate in the grants of Plan Securities (Offer) (Rule 1.1). 12. Plan Securities may comprise of any one or more of: • an entitlement to a Stapled Security or, in certain circumstances, to a cash payment, subject to the satisfaction of certain conditions (including relevant vesting conditions) and compliance with any applicable exercise procedures (Rights); • an entitlement to receive a Stapled Security or, in certain circumstances, to a cash payment subject to satisfaction of applicable conditions (including relevant vesting conditions) and compliance with the applicable exercise procedure (including payment of any applicable Exercise Price) or compliance with any procedures as set out by the Board for cashless exercise (Options); or • a Stapled Security allocated in accordance with Rule 4.1 that is subject to restrictions on Dealing, Vesting Conditions, and/or other restrictions or conditions (Restricted Security) (Rule 1.1). 13. 'Eligible Employees' for the purposes of the Umbrella Plan are employees of XY (including a director employed in an executive capacity) or any other person who is declared by the Board to be eligible to receive Plan Securities under the Umbrella Plan (Rule 16). 14. It is intended that Subdivision 83A-C of the Tax Act applies to both the Rights and Options under the Umbrella Plan Rules (subject to the requirements of the Tax Act) (Rules 2.1(b)(3) and 3.1(b)(3)). 15. The Company will grant the Rights to Participants. No amount is payable by the Participant in respect of the grant of the Right (Rule 2.1). 16. The Company will grant Options to Participants with a pre-determined Exercise Price per Option. No amount is payable by the Participant in respect of the grant of the Option (Rule 3.1). 17. The Company will allocate Restricted Securities in accordance with the terms of the relevant Offer to the Participant by way of either (Rule 4.1): • issuing Restricted Securities; • procuring the transfer of Restricted Securities; or • procuring the setting aside of Restricted Securities. 18. No amount is payable by the Participant in respect of the grant of a Restricted Security unless the Board determines otherwise (Rule 4.1(c)). 19. As soon as practicable following Vesting, Stapled Securities are to be transferred to, or set aside for, Participants (Rules 2.3, 3.3 and 4.1). 20. The Vested Rights of Participants who are directors must be satisfied by way of Stapled Securities which have been purchased on-market (Rules 2.3(b) and 3.3(b)). 21. The Plan Securities under the Umbrella Plan are subject to certain performance, service or other conditions that must be satisfied or circumstances which must exist before any Plan Security Vests under the Umbrella Plan Rules (Rules 2.2, 3.2 and 4.2). 22. Subject to certain conditions, the Board may exercise its discretion to make a cash payment to a Participant in lieu of Stapled Securities for Rights and Options. The amount of the cash payment will be calculated with reference to the Current Market Price (Rules 2.4 and 3.4). 23. The Current Market Price is the arithmetic average of the daily volume weighted average market price (VWAP) of all Stapled Securities traded on the ASX during the previous thirty trading days, or any other calculation as determined by the Board (Rule 16.1). 24. Both the Rights and Options may lapse on the occurrence of the events prescribed in Rules 2.5 and 3.5. 25. Restricted Securities may be forfeited on the occurrence of the events prescribed in Rule 4.3. Broadly, forfeiture of the Stapled Securities will result in one of the following occurring (Rule 7): • Where the Stapled Securities are held by the Participant - the Participant is deemed to have agreed to dispose of his or her legal and/or beneficial interest (as appropriate) for total aggregate consideration of A$Z for all of his or her Stapled Securities, which will be transferred into the name of the Company's nominee; • Where the Stapled Securities are held by the Trustee - the Participant's rights in the Stapled Securities will be extinguished for total aggregate consideration of A$Z for all of his or her Stapled Securities, which will then be held as General Trust Property in accordance with the terms of the Trust Deed; • Where a Participant forfeits Stapled Securities allocated to him or her on exercise of Options pursuant to the Umbrella Rules, the Company may, but need not, procure the Participant be repaid the Exercise Price paid by the Participant in respect of the forfeited Stapled Securities. 26. Certain Dealings with respect to the Plan Securities are prohibited in accordance with Rule 5, including with respect to Dealings prior to Vesting (subject to the XY Securities Trading Policy (Securities Trading Policy)). 27. The Board is empowered with discretion to determine the consequences for a Participant's Plan Securities upon cessation of his or her employment (Rule 8). 28. The Options and Rights carry no entitlement to participate in new issues of Stapled Securities prior to the Vesting and exercise (if applicable) of the Right or Option (Rule 10(a)). 29. The Board is empowered to grant additional Rights or Options or make any adjustments it considers appropriate to the terms of the Rights or Options in certain circumstances (Rule 10). 30. Subject to the terms of the Trust Deed or Offer, the following rules apply to the Stapled Securities allocated to a Participant (Rule 11.1): • the Participant is entitled to receive all distributions or benefits payable to the Participant or to the Trustee in respect of the Stapled Securities; • the Participant is entitled to exercise, or to direct the Trustee in writing how to exercise, voting rights attached to the Stapled Securities, either generally or in a particular case; • any bonus securities that are issued in respect of the Stapled Securities will be issued to the Participant, or to the Trustee on the Participant's behalf, and will be held by the Participant or Trustee as Stapled Securities subject to the same terms, conditions and restrictions on Dealing (if any) as the Stapled Securities in respect of which they are issued; and • if rights arise on a rights issue in respect of the Stapled Securities, the Participant may deal with or exercise those rights, or instruct the Trustee in relation to those rights in accordance with the Trust Deed. If the Stapled Securities are held by the Trustee on the Participant's behalf and the Participant does not instruct the Trustee how to deal with the rights, the rights will be dealt with in accordance with the Trust Deed. 31. Unless or until the Stapled Securities are allocated to the Participant following Vesting or exercise of their Rights or Options, the Participant has no interest in those Stapled Securities (Rule 11.2(a)). 32. However, the Board is empowered to determine that a distribution equivalent payment is payable to a Participant in certain circumstances. The payment (Rule 11.2): • will be approximately equal to the amount of distributions that would be payable to the Participant if they had been the owner of the Stapled Securities during the relevant Vesting Period; • will not be grossed up or otherwise adjusted for tax; and • may be satisfied through the allocation of Stapled Securities or the payment of cash. 33. Where an employee transfers overseas but continues to hold an office or remain an employee of XY, the Board has the discretion to determine the consequences of the transfer on the Participant's Plan Securities in accordance with Rule 14. 34. The Board is empowered to exercise its discretion under Rule 6 so as to prevent inappropriate benefits being granted to employees pursuant to the Umbrella Plan. 35. Subject to Rule 15.3, the Umbrella Plan is to be administered by the Board, who has the power to: • determine the relevant procedures for the administration of the Umbrella Plan consistent with the Umbrella Plan Rules, including to implement an employee security trust or impose a holding lock for the purpose of delivering and holding Stapled Securities on behalf of Participants; and • delegate to any one or more persons the exercise of any functions, powers or direction arising under the Umbrella Plan Rules. 36. Except as expressly stated otherwise, the Board has absolute and unfettered discretion to exercise any power or direction under the Umbrella Plan (Rule 15.3(b)). ESP Plan 37. Subject to the ESP Plan Rules, the Board may invite 'Eligible Employees' to acquire up to $Z worth of Stapled Securities in the financial year ending 30 June 20XX for no financial consideration (Invitation). 38. 'Eligible Employees' for the purposes of the ESP Plan are employees who satisfy the criteria outlined in Rule 3.1(15), being they must: • be permanent (not casual or fixed term) employees of the specified XY subsidiary companies (see below); • have been employed for at least one year on the 30th June immediately preceding the date of the Invitation; • not be a member of the XY Executive Leadership Team; and • not be a director of the Company. 39. The specified XY subsidiary companies (all of which are members of the X Trust TCG) are (Rule 3.1(15)): • A Pty Limited; • B Pty Limited; • C Pty Limited; • D Pty Limited. 40. Generally, the Stapled Securities will be subject to the ESP Plan Rules until such a time as they are not subject to any Holding Lock or other restriction imposed on the Stapled Securities under the ESP Plan Rules (Rule 4.4). 41. The Holding Lock Period is the period commencing on the date that the Stapled Security is registered in the name of the Participant (Date of Registration) and the earlier of: • three years after the Date of Registration; and • the date that the Participant ceases employment with XY for any reason (Rule 3.1(18)). 42. The ESP Plan Rules are binding on XY and each Participant (Rule 4.5). 43. Stapled Securities allocated to Participants under the ESP Plan can be sourced via purchase on-market, or by way of new issuance at the Board's discretion (Rule 4.6). 44. Subject to the Board's discretion to determine otherwise, the Stapled Securities will be allocated to Participants at a value determined by the volume weighted average price of the XY Stapled Securities traded on the ASX during a period determined by the Board and disclosed on the Invitation (Rule 4.7). 45. The Stapled Securities allocated under the ESP Plan will rank equally to all existing XY Stapled Securities on and from the Date of Registration, and thus Participants will be entitled to rights issues, bonus issues and distributions arising out of their allocated Stapled Securities (Rule 4.8). 46. No issue of Stapled Securities can be made under the ESP Plan, subject to certain conditions, where that issue, when aggregated with the number of Stapled Securities issued during the previous 5 years under the ESP Plan or another employee incentive scheme, exceeds 5% of the total number of issued XY Stapled Securities at the time of the offer (Rule 5.1). 47. Participants are not able to sell, transfer, grant an option or otherwise dispose of the Stapled Securities during the Holding Lock Period (Rule 5.2). 48. Disposal is only permitted under the Securities Trading Policy (Rule 5.3). 49. Stapled Securities allocated to Participants under the ESP Plan cannot be forfeited (Rule 5.4). 50. Subject to Rule 5.1, the ESP Plan is to be managed by the Board, who is empowered to, among other things (Rule 8.2): • make/amend existing and/or additional Rules and procedures with regards to the ESP Plan; • delegate to one or more persons the exercise of any functions, powers or discretions arising under the ESP Plan Rules; and • engage any person to administer the ESP Plan. 51. Unless otherwise determined by the Board, XY is responsible for all costs relating to the establishment and operation of the ESP Plan, including all costs and expenses in relation to the delivery of Stapled Securities, except for any taxes which may be payable in connection with the Stapled Securities (Rule 11.1). Company X Equity Trust (the Trust) 52. In accordance with the Plan Rules, the Company established the Trust for the benefit of the Participants. 53. The Board has nominated the Trust for the purposes of administering the Plans. 54. Those Stapled Securities acquired under the Plans will be held on trust on behalf of the Participant subject to the conditions outlined in the Plan Rules. 55. When those conditions are satisfied, the Participant can withdraw the allocated Stapled Securities from the Trust. 56. Company Y Pty Limited is the current trustee for the Trust. 57. The Trust provides capital management flexibility for XY, in that the Trust can use contributions made by the Company to either acquire shares on-market, or subscribe for new XY Stapled Securities. 58. The Trust provides an arm's length vehicle through which XY Stapled Securities can be acquired and held on behalf of Participants. 59. In accordance with clause 2.4 of the Trust Deed, the Trustee: • agrees to comply with the Rules of each relevant Plan; • subject to its obligations under clause 3, will give consideration to any request given to it by the Board, but will not be bound to act in accordance with any such request; and • agrees that its activities, and exercise of its discretions under the Trust Deed will comply with section 130-85(4) of the ITAA 1997. 60. The Trustee must not charge any fees or charges for administering the Trust unless they are reasonable disbursements charged to the Trust, or amounts charged to the Company (clause 2.5). 61. The activities of the Trustee are limited to managing the employee security schemes of XY (clause 2.6). 62. Upon termination of the Trust, the Trustee must apply the trust assets in whole or part towards the full repayment of any outstanding liabilities, distributions to Participants or application of Trust capital, an employee share trust established for the benefit of Employees or Participants, or any charity nominated by the Company (clause 16(b)). 63. The Trust Fund comprises of the Settlement Sum and the corpus of the trust (including any contributions made by the Company and Stapled Securities) that may be paid, transferred or credited to the Trust (whether by way of income or capital) (clause 1.1). 64. The Trustee will hold the Trust Fund on trust for all the Participants as beneficiaries in accordance with the Trust Deed (clause 3.1(a)). 65. The Trustee must comply with any direction of the Board to acquire Stapled Securities in accordance with the relevant Plan Rules and must apply any amount paid to it by an XY Company pursuant to the Plan Rules in accordance with any direction from the Board (clause 3.1(c)). 66. At the request of the Board, the Trustee will set aside and hold Stapled Securities allocated to identified Beneficiaries (i.e., Participants) in accordance with the Plan Rules (Allocated Trust Property) or for all Beneficiaries of the Trust generally (General Trust Property) (clause 3.2(a)). 67. Subject to the terms and conditions imposed by the Board and the Plan Rules, the Trustee must transfer the allocated Stapled Securities into the name of the Participant (i.e., legal title) (clause 3.2(d)). 68. The Company acknowledges that no XY company is a beneficiary of the Trust, has no entitlement to any Stapled Securities forming part of the Trust Fund, and has no entitlement to any return of contributions made to the Trust (clause 17.1). 69. Nothing in the Trust Deed confers, or is intended to confer, on the Company any Encumbrance, proprietary right or proprietary interest in the Stapled Securities acquired by the Trustee (clause 17.2(a)). 70. Participants are entitled to receive all distributions, bonus issues and other benefits in relation to the Stapled Securities allocated to them (clause 5.1(a)(1)). 71. The Trustee may direct XY to pay distributions and other benefits directly to the Participants in relation to the Stapled Securities allocated to them (clause 5.1(a)(2)). 72. Any distributions payable on allocated Stapled Securities may be reinvested under the XY distribution reinvestment plan (if any) where the Trustee is requested to do so by the Participant (clause 5.1(a)(3)). 73. If the Trustee holds Stapled Securities on behalf of a Participant and an Accretion arises other than by way of cash distributions, bonus Stapled Securities, or Rights issued in respect of those Stapled Securities, the Trustee may decide to transfer, or provide the benefit of, all or part of the Accretion to the Participant as the Trustee determines (clause 5.1(e)). 74. The balance of any Distributable Income of the Trust to which no Beneficiary is presently entitled immediately prior to the end of that Year of Income will be accumulated by the Trustee as an Accretion to the Trust (clause 5.2(b)). 75. The Trustee is precluded from exercising any voting rights in relation to the General Trust Property (i.e., Stapled Securities which have not been allocated to a Participant) (clause 5.2(a)(3)).

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 44(1) | Income Tax Assessment Act 1936 section 95 | Income Tax Assessment Act 1936 subsection 97(1) | Income Tax Assessment Act 1936 section 98 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 section 102T | Income Tax Assessment Act 1936 Former Division 1A of Part III | Income Tax Assessment Act 1936 former section 160APHO | Income Tax Assessment Act 1936 former subsection 160APHO(3) | Income Tax Assessment Act 1936 former subsection 160APHM(2) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 Division 67 | Income Tax Assessment Act 1997 subsection 67-25(1) | Income Tax Assessment Act 1997 subsection 67-25(1B) | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 section 83A-335 | 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 subsection 130-90(1A) | Income Tax Assessment Act 1997 subsection 130-90(1) | Income Tax Assessment Act 1997 Division 207 | Income Tax Assessment Act 1997 subsection 207-5(3) | Income Tax Assessment Act 1997 Subdivision 207-A | Income Tax Assessment Act 1997 Subdivision 207-B | Income Tax Assessment Act 1997 section 713-135 | Income Tax Assessment Act 1997 section 995-1 | Fringe Benefits Tax Assessment Act 1986 section 66 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) of the ITAA 1997 allows 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, under 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. XY carries on a business which provides assessable income. XY operates an ESS as part of its remuneration strategy. Under the Plans, the Company grants Plan Securities to employees and makes irretrievable cash contributions to the Trust (in accordance with the Plan Rules and the Trust Deed) which the Trustee will use to acquire Stapled Securities for allocation to Participants. Incurred in carrying on a business The Company must provide the Trustee with the funds required to enable the Trustee to subscribe for, or acquire, Stapled Securities. The contributions made by the Company to the Trustee are irretrievable as: The Company will grant in the future ESS interests as part of its incentive program for Participants. The costs incurred by the Company for the acquisition of Stapled Securities to satisfy grants of ESS interests arise as part of these remuneration arrangements, and contributions to the Trust are part of an ongoing series of payments in the nature of remuneration of its employees. Therefore, subsection 8-1(1) is satisfied. Not capital or of a capital nature The costs will be an outgoing incurred for periodic funding of an ESS for employees of XY. Costs incurred are likely to be in relation to more than one grant of Stapled Securities, and the Company intends to continue making contributions on a regular basis as part of the ongoing process of remunerating Participants and the Trust is expected to acquire Stapled Securities regularly. This indicates that the irretrievable cash contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure for the Company. While the irretrievable cash 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 comparatively small. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied. Accordingly, the Company will be entitled to deduct an amount under section 8-1 for its irretrievable cash contributions to the Trustee to acquire Stapled Securities to satisfy ESS interests issued under the Plans. | Detailed Reasoning - Question 2: Will the Commissioner seek to make a determination under section 177F that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by the Company in respect of any irretrievable cash contributions made to the Trustee of the Trust? | Detailed Reasoning - Detailed reasoning: Part IVA of the ITAA 1936 is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust 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 employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Company to obtain a tax benefit. | Detailed Reasoning - Question 3: Will the provision of Stapled Securities by the Company to the Participants under the Plans constitute a 'fringe benefit' under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the 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 definition. 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. An 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees (including past or prospective employees) in relation to the employee's employment. An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 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. Relevantly, under section 83A-335 of the ITAA 1997, Division 83A applies in relation to a Stapled Security in the same way as it applies to a share in a company if at least one of the interests in the Stapled Security is a share in the company. Subsection 713-135(1) of the ITAA 1997 provides that if the trust chooses to form a consolidated group, the applied law applies in relation to the trust as if it were a company. Under subsection 713-135(1), since X Trust has elected to be the head entity of the X Trust TCG, the units in X Trust will be treated as if they are shares in a company. [1] By extension, the units in Y Trust which are stapled to those in X Trust should also be treated as shares in a company for Division 83A purposes. Hence, the Stapled Securities that are purchased by the Trustee to satisfy its obligation under the Plans, and subsequently granted to Participants pursuant to the Plans, are ESS interests for the purposes of subsection 83A-10(1). Therefore, XY's Employee Plans constitute an 'employee share scheme' within the meaning of subsection 83A-10(2) because it is a scheme under which ESS interests in XY are provided to the employees of XY in relation to their employment with XY. As the rights or options to acquire Stapled Securities or Stapled Securities granted under the Plans will be acquired by the employees at a discount, they are ESS interests to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies. Accordingly, the provision of rights or options to acquire Stapled Securities or Stapled Securities by the Company to Participants 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 136(1)(h) of the FBTAA. In addition, when a right to acquire Stapled Securities 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 right to acquire Stapled Securities and not in respect of employment (refer to ATO Interpretative Decision ATO ID 2010/219 Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). | Detailed Reasoning - Question 4: Will the irretrievable cash contributions made by the Company to the Trustee to fund the acquisition of, or subscription for, Stapled Securities under the Plans constitute a 'fringe benefit' under subsection 136(1) of the FBTAA? | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the 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 (ha) of the 'fringe benefit' definition excludes a benefit constituted by the acquisition of money or property by an EST within the meaning of subsection 130-85(4) 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 are relevant. To qualify as an EST, a trustee's activities must be limited to: • obtaining shares or rights in a company (paragraph 130-85(4)(a)) • ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b)) • other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(4)(c)). An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 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. Relevantly, under section 83A-335 of the ITAA 1997, Division 83A applies in relation to a Stapled Security in the same way as it applies to a share in a company if at least one of the interests in the Stapled Security is a share in the company. Subsection 713-135(1) of the ITAA 1997 provides that if the trust chooses to form a consolidated group, the applied law (which includes subsection 130-85(4)) applies in relation to the trust as if it were a company. Under subsection 713-135(1), since X Trust has elected to be the head entity of the X Trust TCG, the units in X Trust will be treated as if they are shares in a company. [2] By extension, the units in Y Trust which are stapled to those in X Trust should also be treated as shares in a company for Division 83A purposes. Hence, the Commissioner accepts that the Plans are an ESS as a Stapled Security granted under the Plans is an ESS interest under subsection 83A-10(1) of the ITAA 1997, being a beneficial interest in either a Stapled Security in a company or a right to acquire a Stapled Security in a company. The Stapled Securities are an ESS interest to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies because a Participant acquires the ESS interest under an ESS for nil consideration, which is at a discount. Accordingly, paragraphs 130-85(4)(a) and (b) are satisfied because: • the Trust acquires Stapled Securities in a company, namely the Company • the Trust ensures that ESS interests (as defined in subsection 83A-10(1)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those Stapled Securities to the employees of XY in accordance with the Trust 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 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 objects of the Trust are for the sole purpose of undertaking activities that are in line with the definition of an EST under subsection 130-85(4), including paragraph 130-85(4)(c). The other activities undertaken by the Trustee are merely incidental to managing the Plans. Therefore, the irretrievable cash contributions made by the Company to the Trustee of the Trust, to fund the acquisition of, or subscription for, Stapled Securities pursuant to the Plans, will not be a fringe benefit. | Detailed Reasoning - Question 5: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to the Company by the amount of the fringe benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the acquisition of, or subscription for, Stapled Securities by the Trustee pursuant to the Plans? | Detailed Reasoning - Detailed reasoning: Section 67 involves arrangements to avoid or reduce fringe benefits tax. Essentially, it is the general anti-avoidance provision in the FBTAA and its operation is comparable to Part IVA of the ITAA 1936, in that the section requires the identification of an 'arrangement' and a 'tax benefit', includes a sole or dominant purpose test, and is activated by the making of a determination by the Commissioner. As determined above, the irretrievable cash contributions made by the Company to the Trustee do not constitute 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). Therefore, the Commissioner will not seek to make a determination that section 67 applies to increase the fringe benefits taxable amount to the Company by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition on-market of, Stapled Securities by the Trustee pursuant to the Plans. [1] See note 2 to subsection 713-135(1). [2] See note 2 to subsection 713-135(1).

Reasons for decision: All legislative references are to provisions of the ITAA 1936 or to provisions of the ITAA 1997, unless otherwise indicated. | all funds received by the Trustee from the Company in the form of contributions will constitute accretions to the capital of the Trust and will not be repaid to the Company, unless funds received by the Trustee from the Company are paid to the Company where the Trustee subscribes for Stapled Securities in accordance with the Trust Deed and the Plans | nothing in the Trust Deed confers, or is intended to confer, on the Company any proprietary right or proprietary interest in the Stapled Securities acquired by the Trustee.