Private ruling: Employee share scheme - trust
Date of advice: 27 June 2018
Published: September 2018

Ruling: Q1: Will irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the subscription for, or acquisition on-market of shares in the Company be assessable income of the Trust pursuant to section 6-5 or 6-10 of the ITAA 1997 or Division 6 of the ITAA 1936? | A1: No | Q2: Will any capital gain or capital loss made by the Trustee as a result of either CGT event E5 or CGT event E7 happening in respect of shares allocated to a Participant to satisfy an Award issued under the plan be disregarded under section 130-90 of the ITAA1997? | A2: Yes | Q3: Will dividends or other income received by the Trustee in respect of Allocated Shares held in trust by the Trustee on behalf of the Participant be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936? | A3: Yes | Q4: Will dividends and other income received by the Trustee in respect of Unallocated Shares be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936? | A4: Yes | Q5: Where a franked dividend is paid by the Company in respect of an Unallocated Share held by the Trustee to which no beneficiary is presently entitled, will the franked dividend be assessed to the Trustee under section 99A of the ITAA 1936? | A5: Yes | Q6: Will the Trustee be entitled to a tax offset for the franking credits attached to the franked dividend on the unallocated Shares under Subdivision 207-B of the ITAA97? | A6: Yes, provided the Trustee holds the Unallocated Trust Shares for a continuous period of not less than 45 days during the period beginning the day after the Trustee acquires the Unallocated Trust Shares and ending on the 45 th day after the Unallocated Trust Shares become ex-dividend.

Relevant facts and circumstances: 1. The taxpayer is a company listed on the Australian Securities Exchange (ASX). The Equity Incentive Plan (“the Plan”) 2. The Company established the Plan to remunerate eligible employees with equity based compensation and align the interests of employees more closely with the interests of shareholders. 3. The Plan is available by invitation only to selected senior executives and other employees ( Participants ) who, through management and conduct of the Company’s business operations, directly generate assessable Australian income for the Company. 4. Under the Plan, Company employees may be eligible to Plan Awards (“ Awards ”). 5. The Plan is administered by the Board of the Company in accordance with the Plan. 6. The key attributes of the Plan for the purposes of this ruling are: ● Trust funds - both the initial settlement and any additional contributions made – cannot be refunded, repaid or returned to any Company other than by way of the Trustee paying the issue price where it subscribes for Shares in the Company. ● Awards are granted to Participants by the Board in its absolute discretion and upon such additional terms and Vesting Conditions as the Board determines. ● for eligible employees, vesting of their Awards is generally subject to performance against financial and/or non-financial performance conditions as well as requirements to remain employed with the Company for a specified period of time. ● the amount payable upon vesting and conversion of a Right under the Plan is nil. ● the amount payable (i.e. Exercise Price) upon vesting and conversion of an Option will be determined by the Board at the time the Option is granted. ● after vesting of Awards, the Trustee will transfer ownership of the requisite number of Shares to the Participant. ● Participants will not be restricted in relation to their shareholding once transfer has occurred other than in accordance with the Company’s share trading policy. ● the Trustee has the authority to acquire Shares, as instructed by the Company, for the purpose of satisfying grants made pursuant to the rules of the Plan by way of an on-market purchase of Shares in the Company, subscription for Shares in the Company, or through a combination of both. ● the Company will not have any legal or beneficial entitlement to any of the Shares forming part of the Trust fund at any time, and may not acquire such an interest. ● the Trustee can, if required, acquire and hold Shares in the Company as Unallocated Shares, i.e. Shares which are not allocated to a Trust Participant and to which no Participant has a beneficial entitlement at the time of purchase. ● the Trustee has the discretion to use any capital receipts, dividends, distributions or other entitlements received in respect of any Unallocated Shares to acquire more Shares to allocate to Participants, or to distribute to beneficiaries of the Trust prior to final allocation of those Shares. ● to the extent that there is no one presently entitled to the income of the Trust, the Trustee will pay tax on this income. ● Shares held in the Trust are registered in the name of the Trustee. This will continue until either transfer of legal title to a Participant in accordance with the Trust Deed, or disposal on behalf of the Participant in accordance with the Trust Deed. ● transfer of the legal title to a Share held by the Trust can only occur upon the date when one of the following events occurs: ● transfer of legal title is required or permitted under the Trust Rules; or ● the Trust is terminated. ● the Trustee does not have the power to do anything that may cause the Trust to fail to meet the definition of an Employee Share Trust in section 130-85(4) of the ITAA97. 7. The Purpose of the Plan is to allow the Board to make Offers to Eligible Employee to acquire securities in the Company and to otherwise incentives employees. 8. The Plan provides that the Company may, from time to time, in its absolute discretion invite eligible employees to participate in a grant of Incentive Securities, which may comprise any one or more Awards. 9. The Plan provides that the Board will advise each Eligible Employee of the following minimum information in connection with an Offer: ● the type or types of Incentive Securities being offered; ● the number of Incentive Securities being offered, or the method by which the number will be calculated; ● the amount (if any) that will be payable for the grant of Incentive Securities; ● any Vesting Conditions or other conditions that apply, including any Vesting Period; ● when Incentive Securities may Vest; ● the procedure for exercising an Option (including any Exercise Price that will be payable) following Vesting and the period(s) during which it may be exercised; ● where the Board has made a determination pursuant to rules ● the circumstances in which the Rights and/or Options will lapse; ● the circumstances in which the Shares allocated to Eligible Employee ● how Incentive Securities may be treated in the event that the Eligible Employee ceases employment ● any restrictions on dealing in relation to a Restricted Share or Share allocated to the Eligible Employee ● any circumstances in which a Participant’s entitlement to Incentive Securities may be reduced or extinguished pursuant to rule 6(b). 10. Where an Eligible Employee has accepted an Offer to participate in a grant of Awards, the Plan respectively provides that unless the Board determines otherwise, no payment is required for the grant of the Award. 11. The Plan provides that an Award will vest to the extent that Performance Conditions are met during the Performance Period. 12. Shares issued under the Plan will rank equally in all respect with other Shares for the time being on issued by the Company. 13. The Participant is entitled to receive all dividends and other distributions or benefits payable to the Participant or to the Trustee in respect of the Shares. The Employee Share Trust (the Trust) 14. Pursuant to the Trust Deed, the Company established the Trust for the purpose of obtaining and administering Shares for the benefit of employees participating in the Plan. It is also intended that the Trust will be available to facilitate the requirements of any future equity plans that Company implements. 15. The Plan Rules, together with the Trust Deed, set out the requirements and circumstances under which the Company can issue Awards to Participants, as well as the Trustee’s rights and obligations in administering the Trust in execution of the Plan. 16. The powers and activities of the Trustee are limited by a clause of the Trust Deed which provides that The Company and the Plan Trustee agree that the Trust will be managed and administered so that it satisfies the definition of ‘employee share trust’ for the purposes of section 130-85(4) of the ITAA 1997. 17. The Trust Deed states that the company must pay all Trust Expenses. The Trust Deed provides that the Plan Trustee is not entitled to receive from the Trust any remuneration in respect of its performance of its obligations as trustee of the Trust. The Company must pay to the Plan Trustee, from the Company’s own resources, such fees and reimburse such expenses incurred by the Plan Trustee as the Company and the Plan Trustee agree in writing. 18. The Participant is entitled to receive all dividends and other distributions or benefits payable to the Participant or to the Trustee in respect of the Shares. 19. The Company incurred some costs in relation to the on-going administration of the Plan and the Trust. The Trust Deed provides that the Company must pay all Trust expenses. 20. The Trustee’s actions to purchase Shares on market, or subscribe for new Shares in the Company will take into consideration the Corporations Act requirements and the Trustee Act 1925 (NSW) requirements and at all times the Trustee will make decisions in accordance with the terms of the Trust Deed, the rules of the Plan and in fulfilment of the Trustee’s fiduciary duty to beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6 | Income Tax Assessment Act 1936 Subsection 44(1) | Income Tax Assessment Act 1936 Section 95 | Income Tax Assessment Act 1936 Section 97 | Income Tax Assessment Act 1936 Section 98 | Income Tax Assessment Act 1936 Section 99A | Income Tax Assessment Act 1936 Former Division 1A of Part III | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 83A-10 | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 Subsection 83A-20(1) | Income Tax Assessment Act 1997 Subdivision 83A-C | Income Tax Assessment Act 1997 Section 104-75 | Income Tax Assessment Act 1997 Subsection 104-75(1) | Income Tax Assessment Act 1997 Subsection 104-75(2) | Income Tax Assessment Act 1997 Subsection 130-85(4) | Income Tax Assessment Act 1997 Section 130-90 | 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 Subsection 207-5(4) | Income Tax Assessment Act 1997 Section 207-20 | Income Tax Assessment Act 1997 Subsection 207-20(1) | Income Tax Assessment Act 1997 Subsection 207-20(2) | Income Tax Assessment Act 1997 Subdivision 207-B | Income Tax Assessment Act 1997 Section 207-25 | Income Tax Assessment Act 1997 Section 207-35 | Income Tax Assessment Act 1997 Subsection 207-35(1) | Income Tax Assessment Act 1997 Subsection 207-35(3) | Income Tax Assessment Act 1997 Section 207-45 | Income Tax Assessment Act 1997 Section 207-50

Reasons for decision: Summary: The irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the acquisition of shares in the Company constitute capital receipts to the Trustee and are not included in assessable income of the Trust pursuant to section 6-5 or section 6-10 of the ITAA 1997. All the requirements in section 130-90 of the ITAA 1997 have been satisfied and a capital gain or capital loss that arises for the Trustee of the Trust as a result of the relevant CGT event happening in respect of the shares acquired by Participant to satisfy the exercise of the Rights and Options will be disregarded. All the requirements in section 95 of the ITAA 1936 have been satisfied and dividends and other income received by the Trustee in respect of Allocated Shares held in trust by the Trustee on behalf of the Participant will be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936. All the requirements in section 95 of the ITAA 1936 have been satisfied and dividends and other income received by the Trustee in respect of Unallocated Shares will be included in the calculation of the net income of the Trust under section 95 of the ITAA 1997. Where no beneficiary is presently entitled to the income of the Trust, the Trustee of the Company’s EIP Trust will be assessed and liable to pay tax under section 99A of the ITAA 1936. Accordingly, the Trustee will be assessed and liable to pay tax under section 99A of the ITAA 1936 on the part of the net income of the trust estate that relates to the Unallocated Shares. Where a franked distribution is paid in respect of an Unallocated Share, the Trustee will include an amount equal to the franking credit on a franked distribution in its assessable income under section 207-35 of the ITAA 1997. Provided that the Trustee does not make a related payment in relation to a franked dividend paid on an Unallocated Share and holds the Unallocated Share at risk for a continuous period of not less than 45 days (excluding the day the share was acquired and if the shares was disposed of, the day the disposal occurred) during the period beginning the day after the Trustee acquires the Unallocated Share and ending of the 45 th day after the Unallocated Share becomes ex dividend , then the Trustee will be a qualified person in respect of the dividend and be entitled to the benefit of the franking credits attached to franked distributions on Unallocated Shares to the extent of tax payable. Any excess franking tax offset is not refundable pursuant to section 67-25 of ITAA 1997.