Private ruling: Employee share scheme
Date of advice: 18 September 2020
Published: November 2020
Ruling period: The rulings for questions 1 to 3 each apply for the following periods: | 1 July 20xx to 30 June 20xx | 1 July 20xx to 30 June 20xx | 1 July 20xx to 30 June 20xx | 1 July 20xx to 30 June 20xx | 1 July 20xx to 30 June 20xx | The rulings for questions 4 and 5 each apply for the following periods: | 1 April 20xx to 31 March 20xx | 1 April 20xx to 31 March 20xx | 1 April 20xx to 31 March 20xx | 1 April 20xx to 31 March 20xx | 1 April 20xx to 31 March 20xx

Ruling: Q1: Will Company A (as head entity of the Company A income tax consolidated 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 Company A (or a subsidiary member of the Company A income tax consolidated group) to the trustee (Trustee) of the Employee Share Trust (the Trust) to fund the subscription for, or acquisition on-market of, ordinary shares in Company A (Shares) to satisfy employee share scheme (ESS) interests issued to employees based in Australia pursuant to the Performance Rights Plan (PRP) and Executive Share Option Plan (Option Plan) (collectively, Plans)? | A1: Yes | Q2: (a) Will the irretrievable cash contributions made by Company A (or a subsidiary member of the Company A income tax consolidated group) to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plans, be deductible to Company A 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 the ultimate beneficiaries? | A3: Yes | Q3: 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 Company A for the irretrievable cash contributions made to the Trust to fund the subscription for, or acquisition on-market of Shares by the Trustee, pursuant to the Plans? | A4: No | Q4: Will the provision of ESS interests to employees of Company A (or its subsidiaries) under the Plans constitute a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefit Tax Assessment Act 1986 (FBTAA)? | A5: No | Q5: Will the irretrievable cash contributions made by Company A (or a subsidiary member of the Company A income tax consolidated group) to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of, Shares pursuant to the Plans, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA? | A6: No

Relevant facts and circumstances: Company A Company A (the Company) is the head entity of the Company A income tax consolidated group. The Company is listed on the Australian Securities Exchange, reporting to a financial year ending 30 June. Employment The following Australian employing entities (Employing Entities) of the Group employ staff and may make contributions to the Company in relation to their employees who participate in the Plans: · Company B · Company C · Company D The Company also has overseas subsidiaries. Employee Share Trust Establishment of the Trust The Company established the Trust to facilitate the acquisition, holding of, and allocation of Shares to Participants in accordance with the Performance Rights Plan (PRP) and Executive Share Option Plan (Option Plan) (collectively, Plans). Under the Plans, the Company has granted Options and Rights to people who are employees or have a relationship similar to employment with the Group such that they meet the criteria in section 83A-325 of the ITAA 1997 (Eligible Employees). Those Eligible Employees that participate in the Plans are referred to as Participants. The Trustee is Company E. Before the Trust Deed was amended, the Trustee did not: a) Apply, set aside or distribute any part of the Income, Capital or General Trust Property for the benefit of the beneficiaries; b) apply any dividends or distributions received in respect of Shares held as part of the General Trust Property against repayment of loans from a member of the Group; or c) carry out activities that breached the sole activities test in subsection 130-85(4) of the ITAA 1997. The Company intends to only make contributions to the Trust to fund the acquisition of Shares once Rights granted under the PRP or Options granted under the Option Plan have been granted to a Participant. Reasons for the establishment and use of the Trust The reasons for using the Trust include: · A company is unable to hold its own shares under Australian corporate law. The Trust is a vehicle which will enable Shares to be held for the purposes of the Plans; · The Trust will facilitate the acquisition of Shares either on market or by the new issue of Shares by the Company; · The Trust provides an arm's length vehicle for acquiring and holding Shares in the Company, either by way of a new issue or acquiring on-market, i.e., providing flexibility relating to capital management; · The Trust will be an efficient structure for giving effect to vesting conditions (Conditions) and trading restrictions (where applicable). As the Trustee is the legal owner, employees have no ability to deal in the Shares until able to do so under the relevant Plans; · Contributing to the Trust to acquire Shares before Rights vest and are exercised, may enable the Company to hedge against a potential increase in costs to satisfy Rights / Options due to share price growth, as well as the potential for insufficient Shares being available on-market immediately prior to vesting; · The Trust provides the flexibility to acquire and hold Shares that will be allocated to employees under the Plans. When Conditions are not met, Rights / Options may lapse and the Trust enables Shares held for such lapsed Rights / Options to be 'recycled' to satisfy other grants of Rights / Options. Obligations of the Trustee Under the Objects of the Trust Deed, the sole activities of the Trustee are to acquire and hold Shares for the purpose of providing them to Participants of the Plans on vesting and exercise of Rights / Options, and the administration of the Trust. All other activities of the Trust are incidental to the Trustee undertaking these sole activities so that they are consistent with the definition of an "employee share trust" for the purpose of subsection 130-85(4) of the ITAA 1997. The Company will only use the Trust to acquire and deliver fully paid ordinary share in Company A (Share) to employees, directors or contractors who provide services to the company and have been granted Options or Rights under the Plans. A llocating Shares to the Trust Under the terms of the Trust Deed, the Company will instruct the Trustee to subscribe for, purchase or allocate a number of Shares specified in the notice. This instruction may occur at any time, depending on the Company's capital management strategy and when Rights / Options are granted to Participants. In determining whether to request the Trustee to subscribe for or purchase Shares on-market, matters the Company's Board will take into account include: · the Company's current capital management strategy; · the dilution impact any issue of new Shares will have; · the liquidity (trade volume) of the Company's Shares; · the Board's expectations regarding the Company's Share price movements and volatility over the short and longer term; and · trading restrictions or anticipated activity that may prompt restrictions regarding trading of the Company's Shares. The Trustee will, in accordance with instructions received and pursuant to the Trust Deed acquire, deliver and allocate Shares to participants provided that the Trustee receives sufficient payment from the Company to subscribe for or purchase Shares and/or has sufficient unallocated Shares available in the Trust. Shares will not be allocated to Participants under the Trust and no interest in the Shares will arise until Conditions are met and vested Rights / Options are exercised. The Company must make irretrievable contributions to the Trust as required under the Trust Deed. In determining the amount of funds to be contributed to the Trust at any point in time, matters the Board may take into account include: · the number of Rights / Options granted to employees under the Plans; · the number of Shares held by the Trust at the relevant time; · the likelihood of Rights / Options vesting; and · the Board's expectations regarding the Company's Share price performance and volatility over the short and longer term. Contributions to the Trust All funds received by the Trustee from the Company 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. It is the intention that the Trust be used to administer Rights / Options granted under the Plans, including grants which have been made previously. The Company may not acquire any interest in the Capital nor become entitled to any Income of the Trust Fund. The Company (or any member of the Group) cannot be a beneficiary of the Trust and do not have any entitlement to the Trust Fund, including any Shares that form part of the Trust Fund. In the event that Rights are cash-settled, the Company will make the cash payment directly to the Participant - i.e., the Trust will not be involved in the cash payment to the Participant. Option Plan The Option Plan has been operated by the Company for eligible employees in the Group in accordance with Subdivision 83A-C of ITAA 1997. The Option Plan has only made grants to employees, directors and individuals who provide services to the Company in accordance with section 83A-325 of the ITAA 1997 (Eligible Employees). Under the Option Plan, the Company issued Options for nil consideration to selected employees. Each Option constitutes a right to acquire a fully paid ordinary share in the Company subject to the terms and Conditions of the particular offer and payment of the exercise price. Where a Participant ceases employment before satisfying service-based Conditions relating to the Options, the Options will generally lapse. On the exercise of vested Options, the Board must procure the allocation of one Share to the Participant for each Option that is exercised. Although the Company does not intend to make further grants of Options under the Option Plan, there are vested Options granted under it which remain outstanding (i.e., unexercised). The Option Plan allows the Company to grant Options to Eligible Employees by providing them with an invitation letter, a copy of the Option Plan rules and the terms of the Options. The grants of Options are personal to the Eligible Employee. Options do not carry voting or dividend rights. PRP The PRP is operated by the Company for Eligible Employees (who are employees, directors or contractors with a relationship similar to employment with the Group under section 83A-325 of the ITAA 1997) in the Group in accordance with Subdivision 83A-C of ITAA 1997. Under the PRP, the Company may offer Rights for nil consideration to selected employees. Each Right constitutes a right to acquire a fully paid Share subject to the terms of the particular offer and the PRP Rules. Rights may not be transferred by a Participant unless the prior consent of the Board is obtained, or the transfer occurs by force of law. On the exercise of vested Rights, the Board must procure the allocation of one Share to the Participant for each Right that is exercised (or make a cash payment equal in value to the Shares that would have been allocated to the Participant had the Board decided to settle Rights in Shares). Grant of Rights The PRP allows the Company to offer Rights to Eligible Employees by providing them with an Offer Letter. Offers of Rights are personal to the selected Eligible Employee. If the Eligible Employee wishes to participate in the PRP, they must complete and return an application form to the Company by the date specified in the offer letter (PRP Offer Letter). The employee becomes a Participant of the PRP upon receipt of the application form contained in the Offer Letter. An Offer Letter contains details of any time-based and / or performance-based vesting conditions attached to the Rights being offered which must be met before vested Rights may be exercised (whether automatically or by the Participant electing when to exercise the rights, if such an exercise mechanism is provided for in the terms of the Rights). An Offer Letter also sets out whether the Board may determine to settle vested Rights by way of paying the Cash Equivalent Value. Rights do not carry voting or dividend rights. Lapse of unvested or vested Rights Where the Participant ceases to be employed or engaged by the Group, the Board, in its discretion, may determine that some or all of a Participant's Rights (whether unvested or vested): · lapse; · are forfeited; · vest (immediately or subject to Conditions); · are only exercisable for a prescribed period and will otherwise lapse; and / or; · are no longer subject to some of the restrictions (including any Conditions) that previously applied. The Board may also specify in the PRP Offer Letter the applicable treatment of Rights on cessation of the Participant's employment or engagement with the Group. Unless the Board determines that a different treatment should apply, some or all of a Participant's Rights may lapse and / or be forfeited, in circumstances where the Board has determined that the Participant: · has personally acted fraudulently or dishonestly; · has breached his or her material obligations to the Company; or · receives remuneration as a result of the fraud, dishonesty or breach of obligation of another person. On exercise of vested Rights Upon vesting, the relevant number of Rights will either: · Exercise automatically and the Participant will receive one Share for each Right that vests (or the Cash Equivalent Value); or · Where automatic exercise does not apply, be exercisable by the Participant, and on exercise, the Participant will receive one Share for each Right that vests (or the Cash Equivalent Value). As soon as practical after the exercise of vested Rights, the Board must procure the issue or transfer of Shares to the Participant in satisfaction of the exercised Rights, or make a cash payment in lieu of Shares (equal to the value of Shares that would have been allocated if the Board elected to settle Rights in Shares). Where Rights are settled in Shares, Participants are entitled to dispose of their Shares (subject to complying with the Company's share trading policy). Where Rights are settled in the Cash Equivalent Value, the cash payment will be paid by the Participant's employing entity i.e. the Trust will not be used to satisfy cash payments to be made under the PRP. The Company intends to use the Trust to acquire and hold Shares to satisfy exercised Rights granted under the PRP.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 66 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 paragraph 136(1)(h) | Fringe Benefits Tax Assessment Act 1986 paragraph 136(1)(ha) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 subsection 177F(1) | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 8-1(1) | Income Tax Assessment Act 1997 subsection 8-1(2) | Income Tax Assessment Act 1997 paragraph 8-1(2)(a) | Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 paragraph 83A-210(a)(i) | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 paragraph 130-85(4)(a) | Income Tax Assessment Act 1997 paragraph 130-85(4)(b) | Income Tax Assessment Act 1997 paragraph 130-85(4)(c) | Income Tax Assessment Act 1997 section 701-1 and | Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. All legislative references are to provisions of the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated. | Detailed Reasoning - Questions 1 to 3 - application of the single entity rule in section 701-1: The consolidation provisions of the 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 (the Company) income tax consolidated group (the Group) are treated, for income tax purposes, as having been undertaken by the Company as the head company of the Group. | Detailed Reasoning - Questions 4 and 5: The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) . The Commissioner has therefore provided a ruling to each company that is an employing entity in relation to questions 4 and 5. Question 1 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. The Company carries on a business which produces assessable income. The Company operates an employee share scheme (ESS) as part of its remuneration strategy. Under the Plans, the Company grants Options or performance rights (Rights) to employees and makes irretrievable contributions to the Trust (in accordance with the Plan Rules 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 Options or Rights. | Detailed Reasoning - Incurred in carrying on a business: The Company must provide the Trustee with all the funds required to enable the Trustee to subscribe for or acquire those Shares. The contributions made by the Company are irretrievable and non-refundable to the Company in accordance with the Trust Deed as: · The Company may not acquire any interest in the Capital (or corpus) or be entitled to any Income of the Trust Fund; and · On termination of the Trust, neither the Company nor any member of the Group can be 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 Company has granted (and will in the future grant) Options/Rights under the Plans as part of its remuneration and reward program for Participants. The costs incurred by the Company for the acquisition of Shares to satisfy these 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. | Detailed Reasoning - Not capital or of a capital nature: The costs will be an outgoing incurred for periodic funding of a bona fide ESS for Eligible Employees of the Company and the Group. Costs incurred are likely to be in relation to more than one grant of Options/Rights (rather than being one-off), and the Company intends to continue satisfying outstanding Options/Rights using Shares acquired by the Trust. This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of the Company. 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. | Detailed Reasoning - Question 2(a): 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 options to the employees arising in the year of income from the grant of options, under an ESS. 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 Option Plan constitutes ESS for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (i.e. a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees (i.e., Participants) in relation to their employment with the Company (or the Group). The Option Plan contains a number of interrelated components which includes the provision of irretrievable cash contributions by the Company to the Trustee of the Trust. These contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly as part of the Option Plan, to acquire ESS interests. The irretrievable cash contribution can only be deducted from the assessable income of the Company in the income year when the relevant beneficial interest in a right to a beneficial interest in a share in the Company, is acquired by a Participant under the Option Plan. | Detailed Reasoning - Indeterminate rights: Rights granted under the PRP can be indeterminate rights for the purposes of section 83A-340. That is because the Board has the discretion to satisfy the Right 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. Once it determines it will be satisfied by provision of a Share, section 83A-340 operates to treat these Rights as though they had always been rights to acquire beneficial interests in 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 the Company in the income year in which Participants acquire the Rights. Note: where the Rights do not become an ESS interest because they are ultimately satisfied in cash, the outgoing should not flow through the Trust. This is because the Trust would not be satisfying the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997. | Detailed Reasoning - Question 2(b): Consistent with the analysis in question 2(a) (above), where the contribution is made after the acquisition of the relevant ESS interests, irretrievable contributions made by the Company to the Trustee of the Trust to fund the subscription for or acquisition on-market of Shares by the Trust to satisfy the ESS interests granted to Participants will be deductible under section 8-1 in the income year in which the contribution is made by the Company. | Detailed Reasoning - Question 3: Part IVA of the Income Tax Assessment Act 1936 (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 employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Company to obtain a tax benefit. | Detailed Reasoning - Question 4: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA, which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition. In particular, paragraph (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; | Detailed Reasoning - Rights under PRP: At the time the Rights are granted under the PRP, 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 Rights 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-C applies. Accordingly, the Rights that are satisfied with Shares will be excluded from the definition of 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 Rights 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 fringe benefit by paragraph 136(1)(f) of the FBTAA. This outcome is consistent with ATO Interpretative Decision ATOID 2010/142 Fringe Benefits Tax Employee share scheme: indeterminate rights not fringe benefits. | Detailed Reasoning - Options under Option Plan: The Commissioner accepts that the Option Plan is an ESS, the Options for the Company Shares provided under the Option Plan are ESS interests and that Subdivision 83A-C applies to those ESS interests. Accordingly, the provision of ESS interests under the Option Plan will not be subject to FBT on the basis that they are acquired by Participants under an ESS (to which Subdivision 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA. In addition, when an Option/Right 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/Right 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 ). | Detailed Reasoning - Question 5: 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 the Company and · The Trust ensures that ESS interests as defined in subsection 83A-10(1) (being options in the Option Plan or Rights in the PRP (as discussed in the explanation to question 4 above)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those Shares to the employees in accordance with the Trust Deed and the Plans. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase '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 activities that the Trustee is permitted to undertake under the Trust Deed, particularly in relation to those listed in the Trust Deed, are indicative of those required to administer an employee share trust and are merely incidental to the primary purposes stated in paragraphs 130-85(4)(a) and (b). This is consistent with the objects of the Trust, namely for the sole purpose of undertaking activities that are in line with the definition of an employee share trust under subsection 130-85(4). Therefore, the cash contribution made by the Company or the Group to fund the subscription for or acquisition on-market of Shares by the Trust will not be a fringe benefit.

(b) Will the irretrievable contributions made by Company A (or a subsidiary member of the Company A income tax consolidated group) to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plans, be deductible to Company A under section 8-1 of the ITAA 1997 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? | Reasons for decision: These reasons for decision accompany the Notice of private ruling for Company A and others.