Private ruling: Employee share scheme
Date of advice: 7 February 2023
Published: 27 March 2023

Ruling: Q1: Will Company A obtain an income tax deduction, pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Company A shares by the Trust in respect of the Plan, the Legacy Plan, the Offer C and the Offer D? | A1: Yes | Q2: Will Company A obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by Company A in relation to the on-going administration of the Trust? | A2: Yes | Q3: Will irretrievable cash contributions made by Company A to the Trustee of the Trust, to fund the subscription for or acquisition on-market of Company A shares by the Trust, be deductible to Company A at a time determined by section 83A-210 of the ITAA 1997? | A3: Yes, where the contributions are made before the acquisition of the relevant ESS interests. | Q4: If the Trust satisfies its obligation under the Plan by subscribing for new shares in Company A, will the subscription proceeds be included in the assessable income of Company A under section 6-5 or 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA 1997? | A4: No | Q5: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or full, any deduction claimed by Company A in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Company A shares by the Trust? | A5: No | Q6: Will the provision by Company A of rights to acquire shares in Company A and shares in Company A to employees under the Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A6: No | Q7: Will the irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Company A shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A7: No | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to Company A and other employer entities within Company A group by the amount of tax benefit gained from irretrievable cash contributions made by Company A group to the Trustee, to fund the subscription for or acquisition on-market of Company A shares? | A8: No The private rulings for questions 1 to 5 inclusive each apply for the following periods: Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX The private rulings for questions 6 to 8 inclusive each applies for the following periods: Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX

Relevant facts and circumstances: This private ruling is based on the facts stated in the description of the scheme that is set out below, including the following documents, or relevant parts of them, which are to be read with the description: • The Company A Employee Share Trust Deed (the Trust Deed) as provided to the Commissioner on 24 January 2023 • The plans rules provided to the Commissioner on 5 August 2022 consisting of: o The Plan Rules relating to the Company A Incentive Plan (the Plan Rules) o Legacy Long Term Incentive Plan Rules relating to the Company A Long Term Incentive Plan (the Legacy Plan Rules) • The sample participant invitation letters provided to the Commissioner on 5 August 2022 for grants of: o Offer A o Offer B o Offer C and Offer D, and o Offer E If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Background Company A is in the banking sector and is a fully authorised deposit-taking institution. Company A is listed on the Australian Securities Exchange (ASX). Company A's remuneration framework is guided by the notions of rewarding performance, retaining talent and motivating employees. Company A wishes to enhance company and individual performance by aligning the longer term interests of key management employees with shareholders by providing an opportunity to key management and employees (Participants) to receive an equity interest in Company A. The Participants include only tax residents of Australia. The details of the Plan and Legacy Plan and the Offer C and Offer D made by Company A are outlined below. The Awards provided to employees as per the plans, Offer C and Offer D have a market value above nil at the time of grant. The Plan The Plan is a long term incentive scheme, which was designed to reward and incentivise Company A's key management and employees, and align their interests with those of Company A's shareholders. The Plan enables Company A the flexibility to offer rights to Company A shares (Deferred Share Rights), options over Company A shares (Options), cash awards or other such instruments as determined by the board of the Company (Board). The Plan broadly operates as follows in accordance with the Plan Rules: • Participants may receive the awards for no consideration. The offer must be in writing through a letter to the participants (Invitation Letter) and outlines the following but is not limited to: (a) the number and type of awards offered; (b) the issue price of those awards; (c) the grant date; (d) any performance hurdles or vesting conditions associated with the award; (e) in the case of an option, the exercise price, exercise period and any exercise restrictions; (f) the expiry date; and (g) any disposal restrictions attaching to the shares received as a result of the exercise of the awards. • The awards can only be applied for and acquired by an Eligible Person, as defined in the Plan Rules. An associate or nominee cannot apply for, or acquire the Award, unless the Board determines otherwise in accordance with the Plan Rules. • In respect of the awards, the issue price (if any) will be determined by the Board as outlined in the Invitation Letter. • The vesting conditions which apply to the awards are set out in the Invitation Letter for each individual Participant and will need to be met before the Participant's awards can vest. • Once the vesting conditions have been determined by the Board as being met, the Board will notify the Participant of the number of awards that have vested or lapsed through a Vesting Notice. • All shares issued under the Plan to settle the Deferred Share Rights or Options are fully paid ordinary shares (Shares) and will rank equally with all other shares of the same class for the time being on issue by the Company where the record date is after the date of their issue, in accordance with the Plan Rules. • At the discretion of the Board, the Deferred Share Rights or Options may be settled in shares or a cash equivalent value of the shares upon vest / exercise, unless otherwise indicated in the Invitation Letter. • The Board may at any time and in its absolute discretion, determine to adjust downwards the number of unvested awards held by a Participant. • In respect of the Options: o the exercise price of the options (which may be nil) will be determined by the Board; o the Participant may request the Company to net settle the aggregate exercise price in relation to the vested Awards, as specified in the Plan Rules. However, the Company also has the discretion to accept or reject this request. In the latter case, the Participant must pay the exercise price to exercise their vested awards; o if the parties agree to net settle the vested Awards then the employee will receive the number of shares as per calculation method in the Plan Rules. Where the Trust provides these shares to the employee, the funding will be provided to the Trust so it can acquire the reduced number of shares for the employee and the employee will not be required to pay an exercise price for them; o once the option has vested, the Participant must return a completed exercise notice to Company A in order to exercise their Options. Company A may establish periods (Exercise Windows) during which Shares will be allocated to Participants who have returned a completed exercise notice. • In respect of the Deferred Share Rights: o once the rights vest, they are automatically exercised and Participants will be allocated one Share for each right that vests. • If a Participant ceases employment with the Company, and they are: o Good Leaver: i. all vested Awards; and ii. a portion of their unvested awards will be retained by the Participant, calculated based on the amount of time between the date the awards were granted and the date the Participant became a Leaver relative to the total vesting period; or iii. such higher number of unvested awards as determined by the Board in accordance with the Plan Rules. o not a Good Leaver: i. all vested awards will be retained by the Participant; and ii. all unvested awards will immediately expire and be forfeited, unless otherwise determined by the Board in accordance with the Plan Rules • In the case of a Trigger Event, as defined in the Plan Rules, the Board may buy-back, purchase, redeem or require the Participant to sell some or all of their unvested awards at a price determined under the Plan Rules. Employee Share Trust (EST) The Plan allows the Company to implement an employee share trust for the purpose of delivering and holding Shares on behalf of Participants in accordance with the Plan Rules. The following offers have been made or are intended to be made shortly under the Plan: (a) Offer A; (b) Offer B; and (c) Offer E In respect of these offers, the Participants may receive Deferred Share Rights or Options (collectively, the Awards) for no consideration. However, if the Award has an issue price, this will be determined by the Board and outlined in the letter of offer (Invitation Letter). Details of the above offers made to Participants Detailed below are the offers that have been made under the Plan and are currently on foot or intended to be made shortly. However, this list is not exhaustive and there may be future offers of Division 83A awards made by Company A under the terms and conditions of the Plan. (a) Offer A (b) Offer B (c) Offer E This offer of Deferred Share Rights and Premium Priced Options, despite being called Premium Priced Options, the strike price was not set at a sufficient premium to have a taxable value of nil under the Income Tax Regulations. The Legacy Plan The Legacy Plan was designed to reward and incentivise the Company's key management and employees and align their interest with those of the Company's shareholders. Detailed below are the offers that have been made under the Legacy Plan and are currently on foot: (a) Offer F; and (b) Offer G In respect of these offers, the Participants received Options for no consideration. The offers under the Legacy Plan were made on the same terms as follows: Offer C and Offer D The following offers were made by Company A: (a) Offer C; and (b) Offer D Offer C Offer D Company A Employee Share Trust The Trust was established in 20XX as a sole purpose trust for the purpose of acquiring, holding and transferring shares in connection with equity incentive plans established by the Company A for the benefit of participants of those plans (see the Trust Deed). The Trust is only used to administer shares relating to the Awards already on offer under the Plan and the Legacy Plan, or any future plans or offers of equity to employees of the Group that Company A wishes to implement. The Trust provides Company A with greater flexibility to accommodate the incentive arrangements of Company A both now and into the future as the group continues to expand its operations. The Trust provides capital management flexibility for Company A, in that the Trust can 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. Similarly, it provides an arm's length vehicle through which shares in Company A can be acquired and held in Company A on behalf of employees. In effect, this aspect allows Company A to satisfy Corporations Law requirements relating to companies dealing in their own shares. Company B, an independent third party, is the Trustee of the Trust, and will operate the Trust in accordance with Company A Capital Holdings Limited Employee Share Trust Deed (Trust Deed). Broadly, the Trust Deed operates as follows: • Company A must provide the Trustee with the funds required for the purchase of shares in accordance with the Plan (refer to the Trust Deed). • The Trustee must not repay Company A any amount received as contributions of funds for the acquisition of shares (refer to the Trust Deed) and on termination the Trustee must not pay any remaining assets to Company A or subsidiaries (refer to the Trust Deed). • These funds are used by the Trustee to purchase or subscribe for the requisite number of shares in Company A based on written instructions from Company A (refer to the Trust Deed). • Where Company A instructs the Trustee to allocate unallocated shares to a Participant, the Trustee must allocate the Participant the number of shares as specified in the notice (refer to the Trust Deed.) • Company A may notify the Trustee to acquire shares to be held by the Trustee on trust for the Participants or beneficiaries of the Trust generally. • The Trust is precluded from exercising voting rights in relation to the unallocated Shares (refer to the Trust Deed). • The Trustee and Company A agree that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" for the purposes of subsection 130-85(4) of the ITAA 1997 (refer to the Trust Deed). • The Trustee is not permitted to carry out activities which are not matters or things which are connected to, or for the purpose of, a Company A ESS plan (refer to the Trust Deed). • On termination of the Trust, the Trustee must apply the trust assets in whole or in part towards the full repayments of all outstanding liabilities, distributions to Participants or the application of Trust capital, an employee share trust established and maintained for the benefit of the employees of the Company; or any charity nominated by the Trustee (refer to the Trust Deed) Contributions to the Trust To date, Company A has made a cash contribution to the Trust in respect of the Offer C offer, as well as, in respect of the Offer F and Offer G granted under the Legacy Plan that were exercised. Company A may wait until the Awards vest, and to receive the exercise notice from Participants (where relevant), before providing the Trust with the cash necessary to acquire shares to satisfy the acquisition or subscription of shares related to those Awards. It is noted that some of the Awards already on foot (that is, the Offer F and Offer G under the Legacy Plan and the Offer E and Offer B offers under the Omnibus Incentive Plan) must be settled with newly issued shares. However, if the Offer E and Offer B offers are net settled, those offers may be satisfied by an on-market purchase of Shares. However, where it makes commercial sense to do so, Company A may make cash contributions to the Trust prior to the Awards vesting or being exercised by the Participant. In this case, Company A will contribute to the Trust enough funding to enable the purchase of shares through either new issue or purchase on-market (in accordance with the plan documentation) in advance of when Awards are likely to vest or be exercised. This allows the Trustee to have sufficient shares in the Trust ahead of when they need to be allocated to Participants and avoids delays in certain times, such as blackout trading periods. Company A incurs various costs in the on-going administration of the Trust. For example, Company A incurs costs associated with the services provided by the Trustee of the Trust, such as: • Employee plan record keeping; • Production and dispatch of holding statements to employees; • Costs incurred in the acquisition of shares on market, such as brokerage costs and the allocation of such shares to Participants; and • Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. Where an ESS interest does not eventuate because it is ultimately satisfied by a payment of a cash equivalent to the Shares, the outgoing will not flow through to the Trustee.


Reasons for decision: Summary: For present purposes, subsection 8-1(1) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. Company A carries on a financial business which produces assessable income. Company A operates an employee share scheme (ESS) as part of its remuneration strategy. Under the Plan, the Legacy Plan and the Offer C and Offer D, Company A grants options, shares or rights (Awards) to employees and makes irretrievable contributions to the Trust (in accordance with the rules of the respective plan, the offer to the employee and the Trust Deed) which the Trustee will use to acquire shares (either on-market or by subscription) for allocation to Participants to satisfy their Awards. Incurred in carrying on a business Company A must provide the Trustee with all the funds required to act as requested (the Trust Deed). The contributions made by Company A are irretrievable and non-refundable to the Company A in accordance with the Deed as all funds provided by Company A are not repayable (refer to 5.3(b), 15.2 and 15.3 of the Trust Deed). Additionally, the Trustee agrees that the Trust will be managed and administered so that it satisfies the definition of 'employee share trust' (refer to the Trust Deed). Company A has granted (and will in the future grant) Awards as part of its remuneration and reward program for Participants. The costs incurred by Company A for the acquisition of shares to satisfy Awards that arise as part of these remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of its employees. Not capital or of a capital nature The costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for employees of Company A. Costs incurred are likely to be in relation to more than one grant of Awards (rather than being one-off). This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of Company A. While the contributions may secure an enduring or lasting benefit for the employer that is independent of the year-to-year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature. Accordingly, Company A will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee of the Trust to acquire shares in Company A to satisfy ESS interests issued pursuant to the Plan, the Legacy Plan and in respect of Offer C and Offer D. Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. Company A carries on a banking business which produces assessable income. Company A operates an employee share scheme as part of its remuneration strategy. Company A incurs ongoing administration costs for operating the Employee Share Scheme (ESS) such as: • Employee plan record keeping; • Production and dispatch of holding statements to employees; • Costs incurred in the acquisition of Shares on market, such as brokerage costs and the allocation of such Shares to Participants; • Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income. Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company (as confirmed in Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' . Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contribution provided to the trust to purchase shares in excess of the number required to grant the relevant Awards to the employees arising in the year of income from the grant of Awards, under an employee share scheme. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income Tax- Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . The Plan, the Legacy Plan, the Offer C and Offer D are employee share schemes for the purposes of subsection 83A-10(2) as they are schemes under which ESS interests (that is a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees (that is, Participants) in relation to their employment with Company A. However, some offers allow the rights provided to be cash settled and/or have an indeterminate number of shares to be provided. These are discussed below under indeterminate rights. The provision of awards to employees is via a number of interrelated components which includes the provision of irretrievable cash contributions by Company A to the Trustee of the Trust. These contributions enable the Trustee to acquire Company A shares for the purpose of enabling each Participant to acquire ESS interests as per the Plan and offer. The irretrievable cash contribution can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a share in Company A, or beneficial interest in a right to a beneficial interest in a share in Company A, is acquired by a Participant under the Plans. Indeterminate rights Rights granted to employees can be indeterminate rights for the purposes of section 83A-340, where the invitation indicates the right can be settled by either a share or making a payment of a cash equivalent amount. In this circumstance, the Right is not a right to acquire a beneficial interest in a share unless and until the time when the Board determines it will be satisfied by the provision of a share. It may also be an indeterminate right for the purposes of section 83A-340 where the invitation indicates that the number of shares to be provided in the future is not yet ascertainable. Once it is determined that it will be satisfied by provision of a share (or the number of shares that the right represents is determined), section 83A-340 operates to treat these Rights as though they had always been rights to acquire beneficial interests in that number of shares. If irretrievable contributions are provided to the Trustee before these Rights are acquired (and they do subsequently become ESS interests), then section 83A-340 operates to deem the Rights to always have been ESS interests. Where this occurs, section 83A-210 will apply (retrospectively) to modify the timing of the deduction claimed under section 8-1. In such a case, a deduction for the contribution to fund the Rights would be available to Company A in the income year in which Participants acquire the Rights. Note, as per the facts, where the Rights do not become an ESS interest because they are ultimately satisfied in cash, the outgoing will not flow through the Trust. If they did flow through the Trust, the Trust would not satisfy the sole activities test for the purposes of subsection 130-85(4). Ordinary Income Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In an ESS, where the trustee subscribes to the company for an issue of shares and pays the full subscription price for the shares, the company receives a contribution of share capital from the trustee. The character of the contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Here, Company A is issuing the Trustee with new shares in itself. The character of the newly issued share is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee. Accordingly, when Company A receives subscription proceeds from the Trustee where the Trustee has subscribed for new shares in Company A to satisfy obligations to Participants, that subscription proceeds received is a capital receipt. That is, it will not be on revenue account, and will not be ordinary income under section 6-5. Section 20-20 Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year. Company A will receive an amount for the subscription of shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Subsection 20-20(3) establishes that an amount received by you as 'recoupment' of a loss or outgoing is an 'assessable recoupment' if you can deduct the loss or outgoing for an earlier income year under a provision listed in section 20-30. Recoupment is defined in subsection 20-25(1) to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of a loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. So far as a deduction under section 8-1 allowed for bad debts or rates or taxes is concerned, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. However, the receipt by Company A made in return for issuing shares to the Trustee would not be a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes to which section 20-30 could apply. Therefore, the subscription proceeds will not be an assessable recoupment under section 20-20. Capital Gains Tax Section 102-20 states that you make a capital gain or loss if and only if a CGT event happens. No CGT events occur when the Trust satisfies its obligations by subscribing for new shares in Company A. The relevant CGT events that may be applicable when the subscription proceeds are received by Company A are CGT events D1 (creating a contractual or other rights) and H2 (receipt for event relating to a CGT asset). However, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case, Company A is issuing shares, being equity interests as defined in section 974-75, to the Trustee, therefore CGT event D1 does not happen. In relation to CGT event H2, paragraph 104-155(5)(c) also states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. Therefore, CGT event H2 does not occur. Since no CGT event occurs, there is no amount that will be assessable as a capital gain to Company A. Therefore, when the Trust satisfies its obligations under the Plans by subscribing for new shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5 or section 20-20, nor trigger a CGT event under Division 104. An employer's liability to fringe benefits tax (FBT) arises under section 66 of the Frings Benefits Tax Assessment Act 1986 (FBTAA), which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition. In particular, paragraph (h) of subsection 136(1) of the FBTAA excludes the following from being a 'fringe benefit': (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997 ) to which Subdivision 83A-B or 83A-C of that Act applies; The Commissioner accepts that the Legacy Plan, the Plan and the Offer C and Offer D, where settled in shares, are employee share schemes. Specifically, the Awards provided under these are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests as they are provided at a discount. Accordingly, the provision of these Awards will not be subject to FBT on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. In addition, when an option is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the option and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). Indeterminate rights under the Plans At the time the Awards are granted under the Plans, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA applies because those Rights may be satisfied in cash instead of Shares. Hence, they may not be ESS interests within the meaning of subsection 83A-10(1). However, where the Awards are ultimately satisfied with shares instead of cash, the indeterminate rights will, pursuant to section 83A-340, be treated as if they had always been ESS interests. In these circumstances, they will constitute the acquisition of ESS interests acquired under an ESS within the meaning of subsection 83A-10(2) to which Subdivision 83A-B or 83A-C applies. Accordingly, the Awards that are satisfied with shares will be excluded from the definition of a fringe benefit by paragraph 136(1)(h) of the FBTAA. Where an employee's indeterminate rights are ultimately satisfied with cash instead of shares, the granting of the Awards will be viewed as a series of steps in the payment of salary or wages; and not a separate benefit to the payment of salary or wages which are excluded from the definition of a fringe benefit by paragraph 136(1)(f) of the FBTAA. This outcome is consistent with ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee share scheme: indeterminate rights not fringe benefits. 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 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) 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 Company A to obtain a tax benefit. One benefit excluded from being a 'fringe benefit', pursuant to paragraph (ha) of subsection 136(1) of the FBTAA, is a benefit constituted by the acquisition of money or property by an employee share trust within the meaning of the ITAA 1997. In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that is relevant. To qualify as an employee share trust, a trustee's activities must be limited to those described in paragraphs 130-85(4)(a), (b) and (c). Paragraph 130-85(4)(a) and (b) are satisfied because: • The Trust acquires shares in a company, namely Company A and • The Trust ensures that ESS interests as defined in subsection 83A-10(1) (being options/rights/shares in Company A) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Deed and Company A's ESS Plans. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered to be merely incidental. In the present case, the Trust is in line with the definition of an employee share trust under subsection 130-85(4) because: • The Trust acquires shares in a company, namely Company A • The sole purpose being the acquisition, holding, and ongoing administration of holding Company A shares under its ESS plans for the benefit of the Participants (the Trust Deed). • The Trustee is not permitted to carry out activities that are not connected to or for the purpose of an ESS Plan established by Company A (Trust Deed). • The Commissioner accepts that the other activities undertaken by the Trustee will be merely incidental to this purpose 130-85(4)(c). • The Trust ensures that ESS interests as defined in subsection 83A-10(1) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Trust Deed and the Plans. • the Trust Deed indicates that Company A and the Trustee agree the Trust will be managed and administered so that it satisfies the definition of 'employee share trust' for the purpose of subsection 130-85(4) (the Trust Deed). Therefore, the cash contribution made by Company A to fund the subscription for or acquisition on-market of Company A shares by the Trust will not be a fringe benefit. PS LA 2005/24 Application of General Anti-Avoidance Rules explains the application of Part IVA or other general anti-avoidance rules to an arrangement, including the operation of section 67 of the FBTAA (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. Paragraph 191 of PS LA 2005/24 states: 191. The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. Irretrievable cash contributions made by Company A to the Trust will not be a fringe benefit defined in subsection 136(1) of the FBTAA as explained in the reasons for question 7. As a result, the FBT liability of Company A or other members of TCG is not any less than it would have been but for the existence of the arrangement. The Commissioner will not make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of Company A or other members of TCG by the amount of the tax benefit gained from the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares.

Participants are granted either Deferred Share Rights, cash or a combination dependent on the employee's grade. | they may be settled in shares or a cash equivalent value; and | the Board has the discretion at any time to adjust downwards the number of unvested Deferred Share Rights prior to vesting. | The Deferred Share Rights are subject to a service vesting condition that varies depending on the Participant's grade and the Board being satisfied that the Participant has at all times satisfied the risk, values and conduct requirements of the Company. | Upon vesting, to the extent the Board determines to settle the Deferred Share Rights in shares, the Deferred Share Rights will automatically convert to shares and be issued to the Participant. Otherwise, the Participant will receive a cash equivalent value of the Shares. | The Deferred Share Rights are subject to a disposal restriction whilst they remain subject to vesting conditions. The resulting Shares can only be disposed of subject to the Company's share trading policy, e.g. subject to blackout trading periods. | Participants are granted Options which have an exercise price set at a premium to the share price of the Company (Premium Priced Option). | To date, the Premium Priced Options granted have a premium of X% above the share price. | The Premium Priced Options are subject to a service condition and the Board being satisfied that the Participant has at all times satisfied the risk, values and conduct requirements of the Company. | The invitation letters for offers made under Offer B do not include a discretion to cash settle the Options. Accordingly, the Options will be settled in Shares. | Once the vesting conditions have been satisfied, the Participant may exercise their options, either by requesting the company to net settle (i.e. Participants choose not to pay the exercise price of their options in exchange for receiving a lower number of Shares) their options, or if that is rejected by the Company, pay the exercise price as stated in the Invitation Letter. | No Premium Priced Options can be disposed of while they are subject to a vesting condition. | The resulting Shares can only be disposed of subject to the Company's share trading policy, for example, subject to blackout trading periods. | Despite being called Premium Priced Options, the strike price was not set at a sufficient premium to have a taxable value of nil under the Income Tax Assessment (1997 Act) Regulations 2001 (Income Tax Regulations). | key executives were granted a mix of Deferred Shares Rights and Premium Priced Options subject to a service condition of 5 years. | The Board has an absolute discretion at any time to adjust downwards the number of unvested Awards prior to vesting. | the Deferred Share Rights are automatically exercised into shares; and | the Premium Priced Options require the Participant to pay the exercise price in order to exercise their options. | The Invitation Letters for offers made under the Offer E do not include a discretion to cash settle the Premium Price Options. Accordingly, they will be settled in shares. | The Awards are subject to a disposal restriction whilst they remain subject to any vesting conditions. | Any Participant who is offered the Awards under this offer is a Leaver if they cease employment prior to the service condition being met. Accordingly, all their Awards will lapse except at the absolute discretion of the Board. | The exercise price was set at the market value of Company A's shares at the time of grant, as determined by the Board. | In most cases, the Offer F and Offer G have a minimum holding period of 3 years (i.e. Participants are not able to dispose of their options or resulting shares until the earlier of 3 years from the date of grant and cessation of employment). | The vesting conditions which apply to the Offer F and Offer G were set out in the invitation letter for each Participant. Company A decided to accelerate the vesting of most of the options granted under the Legacy Plan. However, the vesting is subject to a clawback such that Company A has the ability to compel the forfeiture of the vested options or resulting shares following exercise if within a 12 month period, the Participant leaves for an ASX listed competitor of Company A. Currently on foot, there are Offer F and Offer G on foot that are subject to performance conditions or service conditions. Some of these Offer F and Offer G are subject to disposal restrictions that prohibit disposal of the Options until the first anniversary. | All shares issued to satisfy the offers made under the Legacy Plan are fully paid ordinary shares and will rank equally with all other shares of the same class for the time being on issue the Company where the record date is after the date of their issue, in accordance with the Legacy Plan Rules. | Once an option has vested, the Participant must return a completed exercise notice to the Company, where upon receipt by the Company, the Company will issue the relevant number of Shares to the Participant. | Company A, also provided a mechanism for Participants to be able to request the Company to net settle their Options. | The Legacy Plan allows the Company to implement an EST for the purpose of delivering and holding shares on behalf of Participants in accordance with the Legacy Plan Rules. | Deferred Share Rights were granted to all employees employed in 20XX, excluding the Management Board in recognition of their individual contributions. | The Deferred Share Rights vested immediately upon a certain event. | Six months after the date of grant, the Deferred Share Rights automatically exercised and the Participants received a Share in the Company for each Deferred Share Right, subject to a disposal restriction of six months from the date of grant and forfeiture where the Participant leaves for an ASX listed competitor of Company A during the period. | Participants were able to acquire shares in Company A at a discount to the share price. | The Offer D was a once-off offer of shares in the Company granted to all employees of the Group. | Participants could acquire shares with their own funds, representing approximately a X% discount to the share price. Participants were guaranteed a minimum allocation of shares and a maximum allocation. | There are no restrictions on these shares. | Reasons for decision: These reasons for decision accompany the Notice of private ruling for Company A (Questions 1-8) and Company C, Trust B, Trust C, Trust D, Trust E, Trust F and Trust G (Questions 6-8 ). | This is to explain how we reached our decision. This is not part of the private ruling. | Questions 1 to 5 - application of the single entity rule in section 701-1 | The consolidation provisions of the Income Tax Assessment Act 1997 (ITAA 1997) allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1 the subsidiary members of an income tax consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period that they are members of the income tax consolidated group with the head company of the group being the only entity recognised for income tax purposes. | The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997. | As a consequence of the SER, the actions and transactions of the subsidiary members of the Company A income tax consolidated group (TCG) are treated, for income tax purposes, as having been undertaken by Company A as the head company of the TCG. | The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986. The Commissioner has therefore provided a ruling to Company A, Company C, Trust B, Trust C, Trust D, Trust E, Trust F, Trust G as the employing entities in the TCG. | Legislative references in this Edited Version are to provisions of the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated.