Private ruling: Employee share scheme
Date of advice: 3 May 2023
Published: 19 June 2023
Ruling period: In relation to income tax: | 1 January 20xx to 31 December 20xx | 1 January 20xx to 31 December 20xx | 1 January 20xx to 31 December 20xx | 1 January 20xx to 31 December 20xx | 1 January 20xx to 31 December 20xx | In relation to fringe benefits tax: | 1 April 20xx to 31 March 20xx | 1 April 20xxto 31 March 20xx | 1 April 20xx to 31 March 20xx | 1 April 20xxto 31 March 20xx | 1 April 20xx to 31 March 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will the Taxpayer as head entity of the Group be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable cash contributions made by the Taxpayer (or a subsidiary member of the Group) to the trustee of the Trust (Trustee) to fund the subscriptions for, or acquisition off-market of fully paid ordinary shares in the Taxpayer (Shares), to satisfy employee share scheme (ESS) interests issued pursuant to the Plan? | A3: Yes. | Q2: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by the Taxpayer for the irretrievable cash contributions made to the Trust to fund the subscription for, or acquisition off-market of Shares by the Trustee pursuant to the plan? | A4: No. | Q3: Will the provision of ESS interests to employees of the Taxpayer (or its subsidiaries) under the Plan constitute a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A5: No. | Q4: Will the irretrievable cash contributions made by the Taxpayer (or a subsidiary member of the Group) to the Trustee of the Trust, to fund the subscription for, or acquisition off-market, of Shares pursuant to the Plan, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A6: No.

Relevant facts and circumstances: The Taxpayer is a privately held unlisted Australian company. The Taxpayer is the head company of an income tax consolidated group. The subsidiaries of the tax consolidated group are employing entities who employ staff and/or may make contributions to the Taxpayer in relation to their employment. As part of its strategy to attract, retain and motivate key talent, the Taxpayer implemented the Share Acquisition Plan (the Plan) during the Taxpayer's 20xx income year. The Taxpayer operates the Plan for eligible employees of the tax consolidated group in accordance with Division 83A of the ITAA 1997. The Plan The Plan states that the purpose of the Plan is to allow the Board to offer Rights to Employees to assist with: (a) Attracting, motivating and retaining Employees (b) Delivering rewards to Employees for individual and/or Company performance (c) Allowing employees the opportunity to become shareholders (d) Aligning the interests of Employees with those of Shareholders (e) Facilitating conduct and good risk practices through the use of a malus and clawback provision. The Plan states that the Taxpayer's Board of Directors (the Board) may from time to time, in its absolute discretion operate the Plan and invite an employee to apply for a grant of, or grant to an employee, Rights upon the terms of the Plan and upon such additional terms and conditions as the Board determines. The Plan states in part that at the time of the invitation, the Board will provide each employee with an invitation letter which contains minimum information regarding the Rights. The Plan states the Board administers the Plan and has absolute and unfettered discretion in exercising any power or discretion concerning the Plan and may establish, implement or operate a Trust for the purposes of delivering and holding Shares on behalf of participants. The Plan will operate in accordance with subdivision 83A-C of the ITAA 1997 such that Rights allocated under the Plan are subject to deferred taxation. Establishment of the Trust The Taxpayer is proposing to establish the Trust under the terms of the Trust Deed to facilitate the acquisition, holding of, and allocation of Shares to participants in accordance with the Plan. The Trust will be an independent legal entity that operates in accordance with the Trust Deed and the Plan. Under the existing Loan Share Plan, participants may acquire Shares at market value, and the share acquisition price is either partially or fully funded by an interest free-full recourse loan. The Trust is not to be used to acquire and hold Shares for participants in the existing Loan Share Plan. However, the Trust may be used to acquire Shares from existing Loan Share Plan participants (e.g., where participants cease employment with the Taxpayer and the Shares are acquired by the Trust - in which case, acquired Shares may be used in respect of Rights granted to participants under the Plan). The reasons to establish the Trust include: Employee share trust Trust Deed states that the objects of the Trust are the sole purpose of: (a) Acquiring, holding and transferring Shares or rights to acquire Shares; (b) Providing beneficial interests in those Shares or rights to acquire Shares under the Plan to Beneficiaries; and (c) Conducting other activities that are merely incidental to those noted in the Trust Deed as the Trustee considers necessary to carry out the objects of the Trust, Consistent with the definition of 'employee share trust' in subsection 130-85(4) of the Income Tax Assessment Act 1997. The Trust Deed states limitation to exercising of its powers and discharging its obligations and the relevant Plan Rules. The Trust will be managed and administered so that it satisfies the sole activities test and is considered an "employee share trust" for the purpose of subsection 130-85(4) of the ITAA 1997. The Trust Deed states: In respect to borrowing money to acquire shares or rights, the Trust Deed states that the Trust mayborrow money for the purpose of acquiring Shares or rights in the Company, where no security is provided over the assets of the Trust and the interest payable on such a loan is not more than arm's length commercial rates. Under the Trust Deed, the Taxpayer has entered into covenants with the Trust that will: • Make available to the Trustee full facilities and information to ensure that the provisions of the Deed may be and are fully complied with; • Keep the Trustee in funds necessary to do any act requested by the Group; and • Subject to the Trustee applying amounts in accordance with the trust deed, pay all costs and expenses in administering this Trust, including all reasonable costs and expenses in maintaining the corporate existence of the Trustee or incurred in connection with the acquisition, registration, disposal of or other dealing with Shares and otherwise incurred by the Trustee, acting reasonably, in carrying our its duties. The Trust Deed states that the neither the Taxpayer nor any other member of the Group is a beneficiary of the Trust or has any entitlement to any part of the Trust Fund, including any Shares that form part of the Trust Fund at any time. The Taxpayer intends to only make contributions to the Trust to fund the acquisition of Shares once the Rights have been granted to a participant under the Plan. Once Rights are granted, the situation may arise where the Taxpayer decides to make a cash contribution to the Trust at an earlier point (e.g., where a departing employee provides an opportunity for the Trust to acquire Shares for a future grant of Rights). The Taxpayer may provide a loan to the Trustee to fund the acquisition of shares or rights. Allocating Shares to the Trust Under the terms of the Trust Deed, the Taxpayer will instruct the Trustee to subscribe for, acquire and/or allocate a number of Shares specified in the notice. This instruction may occur at any time, in accordance with the Plan Rules and terms of the offer (Offer), depending on the Taxpayer's management strategy. In determining whether to request the Trustee to subscribe for or purchase Shares off-market, matters the Board will take into account various factors. The Trustee will, in accordance with instructions received from the Company and pursuant to the Trust Deed acquire, deliver and allocate Shares to participants provided that the Trustee receives sufficient payment from the Taxpayer to subscribe for or purchase Shares and / or has sufficient unallocated Shares available in the Trust. In respect of Rights subject to vesting conditions, participants will have no interest in the Shares until vesting conditions are met and Rights are exercised. The Taxpayer must make irretrievable contributions to the Trust as required under the Trust Deed to provide the Trustee with sufficient funds to acquire Shares. In determining the amount of funds to be contributed to the Trust at any point in time, matters the Board may take into account various factors. Contributions to the Trust All funds received by the Trustee from the Taxpayer in the form of irretrievable contributions will constitute accretions to the corpus of the Trust and no participant will be entitled to receive a distribution of or from such funds. The funds will not be returned or repayable to the Taxpayer except where they are used for subscribing for Shares in the Taxpayer. The Trustee will not be permitted to acquire any Shares or deliver any Shares to any participant, if to do so would contravene applicable law or would not be consistent with the operation of the Plan. Generally, the Trustee will not be permitted to undertake activities that are not matters or things which are necessary or expedient to administer and maintain the Trust. It will not be permitted to carry out activities which result in the participants being provided with additional benefits other than the benefits that arise under the Trust Deed. It is the intention that the Trust be used to administer Rights or Shares granted under the Plan (and any new employee equity plan operated by the Taxpayer). Accordingly, the Plan incorporates the use of the Trust to facilitate the provision of Shares in respect of grants that may vest. The Taxpayer or any member of the Group will not be beneficiaries under the Trust Deed and any funds the Taxpayer contributes to the Trust, other than specifically in the form of a loan, may not be refunded, repaid or returned to the Taxpayer (or any member of the Group) other than by way of the Trustee paying the issue price where it subscribes for Shares in the Taxpayer. The Taxpayer (or any member of the Group) will have no interest in the Shares held by the Trust.

Relevant legislative provisions: Section 8-1 of the Income Tax Assessment Act 1997 | Section 83A-10 of the Income Tax Assessment Act 1997 | Section 130-85 of the Income Tax Assessment Act 1997 | Section 83A-210 of the Income Tax Assessment Act 1997 | Section 83A-340 of the Income Tax Assessment Act 1997 | Section 177D of the Income Tax Assessment Act 1936 | Section 136 of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: Yes, the Taxpayer will be entitled to a deduction under section 8-1 of the ITAA 1997 in respect of the irretrievable cash contributions made by the Taxpayer (excluding those funds provided by way of a loan) to the Trustee of the Trust to fund the subscription for, or acquisition of ESS rights or ESS Shares, as the contributions are payments by the employer to the Trust incurred in gaining or producing the Taxpayer's assessable income. | 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, 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. The Taxpayer is a privately held unlisted Australian company. The Taxpayer operates employee share schemes (ESS's) as part of its remuneration strategy. Under the Plan, the Taxpayer may grant Rights to eligible employees and will make irretrievable cash contributions to the Trust (in accordance with Trust Deed), excluding those funds provided by way of a loan, which the Trustee uses to acquire shares (either off-market or by subscription) for allocation to Participants to satisfy their Rights. The Taxpayer must provide the Trustee with all the funds required to enable the Trustee to subscribe for, or acquire, the Taxpayer's shares. The cash contributions made by the Taxpayer to the Trust are irretrievable and non-refundable (excluding those funds provided by way of a loan) to the Taxpayer in accordance with the Trust Deed, as: Therefore, if the Taxpayer makes a cash contribution (excluding those funds provided by way of a loan) to the Trust to acquire or subscribe for Shares to satisfy the Rights granted to the participants pursuant to the Plan, the amount has been incurred for the purposes of subsection 8-1(1) of the ITAA 1997. The costs incurred by the Taxpayer for the acquisition of shares to satisfy its obligations under the Plan in respect of the grant of Rights arise as part of the Taxpayer's remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of its employees. That is the bonus that would otherwise have been paid as wages and a deduction claimed by the employer as a wages expense, will now be paid to the Trustee of the Trust to fund the employee participating in the Plan. As such, the payment by the Taxpayer to the Trust is incurred in the process of carrying on a business to reward and retain staff, and is related to gaining or producing the Taxpayer's assessable income. The cash contributions will be an outgoing incurred for periodic (rather than once-off) funding of an ESS for employees of the Taxpayer. The cash contributions are made as part of an ongoing process of remunerating employees, with the Trust expected to acquire shares regularly. Nothing in the facts suggests any intention for any contribution to be retained in the Trust for an extended period of time. 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. The Taxpayer will be entitled to a deduction under section 8-1 of the ITAA 1997 in respect of the irretrievable cash contributions made by Taxpayer (excluding those funds provided by way of a loan) to the Trustee of the Trust to fund the subscription for, or acquisition off-market, of Shares. | Summary: Yes, pursuant to section 83A-210 of the ITAA 1997, where irretrievable cash contributions are made at a time before the ultimate beneficiaries acquire the relevant ESS interest, the irretrievable cash contribution can only be deducted from the assessable income of the Taxpayer in the income year when the ESS interest is acquired by the Participant under the Plan. | Detailed Reasoning - Detailed reasoning: It is often the case that an outgoing will be both incurred and paid in the same year of income, and as such, the amount is deductible in that income year for the purposes of section 8-1 of the ITAA 1997. However, section 83A-210 of the ITAA 1997 modifies this rule in certain circumstances in respect of contributions provided by an employer to a trust to purchase shares under an ESS. Section 83A-210 of the ITAA 1997 provides that if: (a) at a particular time, you provide another entity with money or other property: (i) under an arrangement; and (ii) for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest; then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. The effect of section 83A-210 of the ITAA 1997 is to deem the timing an employer incurred the outgoing to be the time when the ESS interest is acquired by a beneficiary under an arrangement, rather than the time when the employer makes the contribution to the trust, if the contribution was made before the ESS interests are acquired. 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. 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. The participant will acquire anESS interest when the Participant is granted a Right pursuant to the Plan. Shares that are purchased by the Trustee to satisfy its obligation under the Taxpayer's ESS, and subsequently granted to the Taxpayer Participants pursuant to the Plan, are ESS interests for the purposes of section 83A-210. The Taxpayer's ESS satisfies the definition of an 'employee share scheme' in subsection 83A-10(2) of the ITAA 1997 as they are a scheme under which ESS interests are provided to the Participants in relation to their employment with the Taxpayer. The granting of the ESS interest to the Participants, the provision of the cash contributions to the Trustee, the acquisition and holding of shares by the Trustee and the allocation of shares to Participants are all interrelated components of the Taxpayer's ESS. All the components constitute an arrangement for the purposes of section 83A-210 of the ITAA 1997 that must be carried out so that the scheme can operate as intended. The Taxpayer intends to only make irretrievable contributions to the Trust to fund the acquisition of Shares once Rights have been granted to a Participant. A Right provided under the Plan is an indeterminate right because that Right entitles the employee to acquire a Share, to be determined at a future time at the discretion of the Taxpayer (in line with the Plan rules). Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) of the ITAA 1997 at the time it is granted, where it is ultimately satisfied with shares (or when the number of Shares the employee is entitled to receive is determined), the indeterminate right will, pursuant to section 83A-340, be treated as if it had always been an ESS interest. Section 83A-210 of the ITAA 1997 applies equally to contributions made in respect of ESS interests and indeterminate rights. Therefore, an irretrievable cash contribution in respect of an indeterminate right is taken to have been paid at the acquisition time of the ESS interest. If an indeterminate right becomes an ESS interest, deductible contributions made in respect of those rights can be claimed in the income year when the ESS interest is deemed to have been acquired under section 83A-340 (this will be the year in which the indeterminate right was granted to the employee). Once this has been established, such contributions can be matched to ESS interests issued to the employee and where necessary the relevant earlier income year assessments can be amended to allow the deduction (Item 28 of subsection 170(10AA) of the ITAA 1936). It is important to note that an indeterminate right which is satisfied by the provision of cash never becomes an ESS interest and the deduction in relation to the contribution to the Trust in respect of the provision of that right is permanently deferred. However, where that ESS interest is subsequently issued to another participating employee, this employee becomes the 'ultimate beneficiary' and the deduction is available in the income year that this participating employee acquired this ESS interest. Therefore, where irretrievable cash contributions are made at a time before the Participants acquire the relevant ESS interest, the irretrievable cash contribution can only be deducted from the assessable income of the Taxpayer in the income year when the ESS interest is acquired by the Participant under the Plan, as provided by section 83A-210 of the ITAA 1997. | Summary: Yes, the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for, or acquisition off-market of Shares by the Trustee are deductible to the Taxpayer in the income year when the contributions are made, if the contributions are made after the acquisition of the relevant ESS interests by the ultimate beneficiaries. | Detailed Reasoning - Detailed reasoning: Consistent with the analysis in Question 2a (above), where the contribution is made after the acquisition of the relevant ESS interests, irretrievable contributions made by the Taxpayer to the Trustee of the Trust to fund the subscription for, or acquisition of off-market Shares (i.e. from existing shareholders) by the Trust to satisfy the ESS interests granted to Participants will be deductible in the income year in which the contribution is made by the Taxpayer pursuant to section 8-1 of the ITAA 1997. | Summary: No, Part IVA of the ITAA 1936 will not apply to deny, in part or in full, any deduction claimed by the Taxpayer in respect of the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for or acquisition off-market of Shares by 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, 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, based on the current facts and 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 Taxpayer to obtain a tax benefit. | Summary: The provision of Rights by the Taxpayer to employees under the Plan will not be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as they are excluded by paragraph 136(1)(h) of the FBTAA as ESS interests acquired under an 'employee share scheme'. | 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': 136(1) In this Act, unless the contrary intention appears: ..... Fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: ... In respect of the employment of the employee, but does not include: ... (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. Shares that are purchased by the Trustee to satisfy its obligation under the Plan, and subsequently granted to Participants pursuant to the Plan, are ESS interests for the purposes of section 83A-10(1). Therefore, the Taxpayer's Plan constitutes an 'employee share scheme' within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which ESS interests in the Taxpayer are provided to the employees of the Taxpayer in relation to their employment with the Taxpayer. As the Rights to acquire Shares or Shares granted under the Plan 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. The offer is intended to operate in accordance with Subdivision 83A-C, such that rights granted are subject to deferred taxation in Australia. Accordingly, the provision of Rights to acquire Shares by the Taxpayer to Participants under the Plan will not be subject to FBT on the basis that they are acquired by Participants under an 'employee share scheme' (to which subdivision 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 ordinary shares is later exercised, it will not give rise to a fringe benefit as defined in subsection 136(1) of the FBTAA as any benefit received by the employee (i.e. the beneficial interest in a Share) would be in respect of the exercise of the right to acquire shares and not in respect of employment (refer ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). | Summary: The irretrievable cash contributions made by the Taxpayer to the Trustee pursuant to the Trust Deed, to fund the subscription for or acquisition off-market of the Taxpayer's shares will not be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA by virtue of the exclusion in paragraph 136(1)(ha) on the basis that the Trust Deed satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Paragraph 136(1)(ha) of the FBTAA 1986 excludes from the definition of 'fringe benefit': 136(1) In this Act, unless the contrary intention appears: ..... Fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: ... In respect of the employment of the employee, but does not include: ... (ha) a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997); Therefore, for the irretrievable cash contributions to be excluded from the definition of 'fringe benefit', the Trust must be an employee share trust as defined in subsection 130-85(4) of the ITAA 1997. Subsection 130-85(4) of the ITAA 1997 provides that 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 (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). | Detailed Reasoning - Paragraphs 130-85(4)(a) and (b) of the ITAA 1997: The beneficial interest in a share received by a Participant when a share in the Taxpayer is provided to them under the terms of the draft trust deed and the Plan is an ESS interest within the meaning of subsection 83A-10(1) of the ITAA 1997. Subsection 83A-10(2) of the ITAA 1997 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 Plan is an ESS within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which rights to acquire Shares in the Taxpayer (being ESS interests) are provided to employees in relation to the employees' employment. The Taxpayer has established the Trust to acquire shares in the Taxpayer and to allocate those Shares to employees in order to satisfy ESS interests acquired by those employees under the Plan. The beneficial interest in the Taxpayer's share is itself provided under an employee share scheme because it is provided under the same scheme under which the rights are provided to employees in relation to their employment. Paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are therefore satisfied because: • the Trust acquires Shares in the Taxpayer; and | Detailed Reasoning - Paragraph 130-85(4)(c) of the ITAA 1997: Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 will also require that the Trustee undertake incidental activities that are a function of managing the Trust. Paragraph 130-85(4)(c) of the ITAA 1997 provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). 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 ? (TD 2019/13). Paragraph 12 of TD 2019/13 list examples of activities which are merely incidental for the purposes of paragraph 130-85(4)(c) of the ITAA 1997 that include (but not limited to): Paragraph 13 of TD 2019/13 lists examples of activities that are no merely incidental for the purposes of paragraph 130-85(4)(c) of the ITAA 1997 that include (but not limited to): The Trust Deed states that the objects of the Trust are the sole purpose of: • Acquiring, holding and transferring Shares or rights to acquire Shares; • Providing beneficial interests in those Shares or rights to acquire Shares under the Plan to Beneficiaries; and • Conducting other activities that are merely incidental to those noted in the Trust Deed as the Trustee considers necessary to carry out the objects of the Trust, Consistent with the definition of 'employee share trust' in subsection 130-85(4) of the Income Tax Assessment Act 1997. It is considered that this clause requires the trustee to manage and administer the trust consistent with the definition of an "employee share trust" for the purpose of subsection 130-85(4) of the ITAA 1997. Under the draft Trust Deed, it is intended that the activities of the Trustee are limited to the sole purpose of exercising its powers and discharging its obligations under the Trust Deed and the relevant Plan Rules (and for no other purpose). It is intended that all other activities of the Trust are incidental to the Trustee undertaking these sole activities. Therefore paragraph 130-85(4)(c) of the ITAA 1997 will be satisfied as all other activities to be undertaken by the Trustee are merely incidental to managing the Plan. | Detailed Reasoning - Conclusion: The Trust satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997 as: • the Trust acquires Shares in the Taxpayer; • the Trust ensures that ESS interests (as defined in subsection 83A-10(1) of the ITAA 1997, being beneficial interests in the Shares of the Taxpayer), are provided under an ESS (as defined in subsection 83A-10(2) of the ITAA 1997) by allocating those Shares to the employees in accordance with the draft trust deed and the Plan; and • the trust deed does not provide for the Trustee to participate in any activities which are not considered to be merely incidental to a function of administering the Trust. Paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA therefore excludes the contributions to the Trustee from being a fringe benefit. Accordingly, the irretrievable cash contributions made by Taxpayer or any group member of the group to the Trustee to fund the subscription for, or acquisition off-market of, shares will not constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA.

Will the irretrievable cash contributions made by the Taxpayer (or a subsidiary member of the Group) to the Trustee of the Trust, to fund the subscription for, or acquisition off-market of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plan, be deductible to the Taxpayer under section 8-1 of the ITAA 1997 at the time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the acquisition of the relevant ESS interests by participants under the Plan? | Question 2b: Will the irretrievable contributions made by the Taxpayer (or a subsidiary member of the Group) to the Trustee of the Trust, to fund the subscription for, or acquisition off market of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plan, be deductible to the Taxpayer under section 8-1 of the ITAA 1997 in the income year when the contributions are made, if the contributions are made in the same income year or in a year that is after the acquisition of the relevant ESS interests by participants under the Plan? | A company is unable to hold its own Shares under Australian corporate law. The trust is a vehicle which enables Shares to be acquired and held for the purpose of the Plan. | To allow Shares to be made available to satisfy Rights granted under the Plan, the Trust will facilitate the acquisition of Shares off-market (e.g., by acquiring Shares at market value from a participating employee who wants to sell), or by the new issue of Shares by the Taxpayer; | The Trust provides an arm's length vehicle for acquiring and holding Shares in the Taxpayer, either by way of a new issue or acquiring off-market - i.e., providing flexibility relating to capital management; | The Trust will be an efficient structure for giving effect to disposal restrictions (or vesting conditions, where applicable). As the Trustee is the legal owner, employees have no ability to deal in the Shares; | Contributing to the Trust to acquire Shares before Rights vest, will enable the Taxpayer to hedge against a potential increase in costs to acquire Shares to satisfy Rights at vesting (due to share price growth), as well as the potential for insufficient Shares being available off-market immediately prior to vesting; | The Trust provides the flexibility to acquire and hold Shares that will be allocated to employees under the Plan. When vesting conditions are not met and Rights lapse, the Trust enables Shares held for such lapsed Rights to be 'recycled' to satisfy other grants of Rights; and | The Trust establishes independent records and accounts for participating employees. | The Trustee holds General Trust Property on trust for all Beneficiaries and in the manner required by the Rules. | The Company may not acquire any interest in the Capital (or corpus) and may not become entitled to any Income of the Trust Fund. | All funds provided to the Trustee will constitute accretions to the corpus of the Trust and will not be repayable by the Trustee; and | On termination, the Taxpayer (or any other member of the Group) will not be a beneficiary of the Trust and will have no interests in the Shares held by the Trust. | the opening and operation of a bank account to facilitate the receipt and payment of money | bookkeeping, preparing financial, tax and regulatory statements, and other record-keeping and administrative actions necessary to operate the trust and undertake the activities described in paragraphs 130-85(4)(a), (b) and (c) | the receipt of dividends in respect of shares held by the trustee on behalf of a participating employee and their distribution to the employee | borrowing money for the purpose of acquiring shares or rights in the employer company, where no security is provided over the trust assets and the interest payable on such a loan is not more than arm's length commercial rates | acquire additional shares for the purposes of the ESS | pay necessary and incidental costs of administering the trust and undertaking the activities described in paragraphs 130-85(4)(a), (b) and (c), for example costs relating to the audit of the trust, fees for professional services provided to the trustee in relation to the trust | pay interest on loans provided for the acquisition of shares or rights in the employer company, where the interest payable does not exceed arm's length commercial rates | the amount paid is equal to or less than the amount of dividends paid to the trustee (net of tax paid by the trustee on the dividends), in relation to the number of shares being received by the participating employee, during the accumulation period, and | the payment is made at or around the time, and because, the shares vest or are transferred to the participating employee (as required by the ESS) | dealing with shares forfeited under an ESS including the sale of forfeited shares and using the proceeds of sale for activities permitted under subsection 130-85(4) | the transfer of shares to participating employees, or the sale of shares on behalf of such employees and the transfer to the employee of the net proceeds of the sale of those shares, when required under the rules of the ESS, and | receiving and immediately distributing shares under a demerger or actions in order to participate in a takeover or restructure covered by section 83A-130. | providing financial assistance, such as providing a loan to an employee to purchase shares or interests in the employer company | payment of income or accrued capital from unallocated shares to any beneficiaries (or to employees who do not hold a beneficial interest in the employer company under the trust) | waiving or relinquishing certain entitlements, such as waiving the right to be paid or credited dividends pursuant to a dividend waiver clause contained in the governing trust documents | exercising a general discretion to make distributions of income or capital to pay a class of participating employees or other beneficiaries of the trust amounts unrelated to their ESS interests or entitlements under the ESS rules | for a purpose other than purchasing shares or rights in the employer company, or | with security provided over any of the trust's assets for the loan, or | where the interest payable on the loan is more than arm's length commercial rates | investing in assets other than shares or rights to shares in the employer company | engaging in trading activities in relation to shares in the employer company, other than purchasing and selling shares to satisfy obligations under the ESS | distributing mainly cash payments to participating employees rather than shares or ESS interests under the ESS | providing additional benefits to participants and/or employees, over and above the delivery of the ESS interests or resulting shares and any dividend equivalent payment that accrues directly from the employee's ESS interest.