Private ruling: Deductibility
Date of advice: 4 March 2026
Published: 4 May 2026
Ruling period: 1 July 2023 - 30 June 2024 | 1 July 2024 - 30 June 2025 | 1 July 2024 - 30 June 2026 | 1 July 2024 - 30 June 2027 | 1 July 2024 - 30 June 2028 | Issue 2 | Question 3 | Will the Company be subject to a fringe benefits tax liability under section 66 of the Fringe Benefits Tax Act 1986 (FBTAA) when the Trust issues units (Units) to employees under the Scheme? | Answer | No. | Question 4 | Will contributions paid by the Company to the Trust constitute an obligation under the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992)? | Answer | No . | For Issue 2 this ruling applies for the following periods: | 1 April 2024 - 31 March 2025 | 1 April 2025 - 31 March 2026 | 1 April 2026 - 31 March 2027 | 1 April 2027 - 31 March 2028 | 1 April 2028 - 31 March 2029
Date scheme commenced: DD MM YYYY

Ruling: Q1: Will contributions paid by the employer or associate to the employee share trust (Trust) pursuant to the trust deed executed on X XXXXX 2024, and with proposed amendments sent to the Commissioner dated X XXXXXXX 2026 (Deed) constitute an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes . | Q2: Will the timing of the income tax deduction be determined by section 83A-210 of the ITAA 1997? | A2: Yes .

Relevant facts and circumstances: The Company, (also referred to herein as the Employer), is an Australian-incorporated company. The Employer has established an employee share scheme (Scheme). The Scheme utilises an employee share trust (Trust), the deed of settlement establishing the Trust has been provided to the Commissioner The Scheme is intended to attract, retain, motivate and reward employees for performance by conferring beneficial interests (ESS interests) in ordinary shares of the Employer upon its employees, which are funded by improved profitability performance. These ESS interests take the form of a unitised interest in the Trust. The persons invited to participate in the Scheme are all existing employees and new employees that have achieved at least 24 months of continuous employment. Employees in managerial positions are excluded from any decision by the Board as to their remuneration or from any decision as to their participation in the Scheme or an issue of ESS interests from the Trust. Both the Employer, and one or more invited employees (who satisfy the qualifying criteria) will be able to make contributions to the Trust to enable the Trust to acquire ordinary shares in the Employer for the benefit of employees who are eligible to participate in the Scheme (Eligible Participants). The Scheme has a special purpose corporate trustee (Trustee), which has been established to be trustee of and manage the affairs of the Scheme. The Trustee's sole activities, as set out in the Deed are as follows: (a) the investment powers of the Trustee are limited to obtaining shares, or rights to acquire shares, of the Employer (or a holding company of the Employer), allocate them to Units, and ensuring that those Units are provided to Eligible Employees under the Scheme; (b) distributions of income or capital to Eligible Participants or associates of Eligible Participants under the terms and conditions of the trust deed; and (a) any other activities that are merely incidental to the above mentioned activities. The income of the trust will be distributed to each Eligible Participant unit holder on an annual basis, based on the cash dividends from ordinary shares allocated to Unit(s) held by the Eligible Participant. Under the terms of the Deed, no income or capital of the trust may be distributed to the Employer, and the Employer is excluded from any benefit under the Scheme. Issue of units The Employer will invite all existing employees to participate in the Scheme on an annual basis. An invitation to an employee will: (a) entitle the employee (or an associate nominee) to acquire Units in the Scheme and being an Eligible Participant become a Unit Holder in the Scheme (b) mean that the Eligible Participant (or their associate) becomes subject to conditions which would disentitle or forfeit the value of their rights and interest in the units (Disqualifying Event). (c) redemption of a Unit is further subject to Disqualifying Discounts in value, which are to apply by reference to the length of time that the Eligible Participant has been employed with the Employer (d) mean that the Eligible Participant (or their associate) becomes subject to restrictions on their ability to sell, transfer or otherwise dispose of their Units (i.e. genuine restriction), and (e) require the Employer to pay a contribution to enable the Trustee to acquire ordinary shares in the Employer (so as to support the issue of new Units to eligible employees). Only Eligible Participants (or their associates) may acquire Units. From time to time, additional Eligible Participant may be nominated by the Employer to participate in the Scheme. These include new employees that have achieved at least 24 months of continuous employment with the Employer. In relation to Eligible Participants: • the Employer will make an offer to a group of employees for them to participate in the Scheme • this group of employees will consist of at least 75% of the Employer's permanent employees who have completed at least 3 years of service (whether continuous or non-continuous) and who are Australian residents, and • the outcome of the process is that 75% of those permanent employees may not end up participating in the Scheme and acquire Units, but an offer would've been made to them anyway. The market value of the Employer will be determined annually by an independent valuer. This valuation will be used to determine the underlying share price. The net asset backing of the Units will be based on that share price, the number of shares in the Employer held by the Trustee for the Scheme, and the number of Units on issue. Units will be issued at an issue price that reflects their market value. The market value of each Unit will be directly equivalent, on a one-for-one basis, to the market value of an underlying ordinary share in the Employer. Units may only be redeemed under the terms of the Deed. The Scheme does not involve any salary sacrifice arrangement other than salary sacrifice arrangements that comply with subsection 83A-105(4) of the ITAA 1997. The Scheme does not involve the Trustee making loans to employees (whether interest bearing or interest free and whether of a limited recourse nature or not). The Scheme may also involve the employee subscribing for Units in the Scheme at market value, paid in full by the employee at the time of subscription. Redemption of units Upon redemption of Units, the relevant Eligible Participant (Unit Holder) will be entitled to direct the Trustee to sell the shares that are 'allocated' to the units remaining after applying a Disqualification Discount, if applicable) on the Eligible Participant's behalf (these are then defined as Allocated Shares) (and to receive the sale proceeds, net of the costs of sale (called the Employee Redemption Amount). The Eligible Participant may also, instead of having the Allocated Shares sold and receive the Employee Redemption Amount, direct the Trustee to have the Allocated Shares transferred to him or her, or to retain their Units in the Trust. If a Disqualifying Event occurs, the Units (or a proportion thereof) will be forfeited. A Disqualifying Event includes: (a) the Eligible Participant becomes bankrupt; (b) the Eligible Participant transferring or assigning or attempting to transfer or assign a Unit or creating or attempting to transfer or assign a Unit or creating or attempting to create any equitable, contingent, future or partial interest or other security interest in a Unit; (c) the Eligible Participant becomes of unsound mind or where his estate is liable to be dealt with under any law relating to mental health; (d) the Eligible Participant's employment is Terminated for Cause; or (e) such other events as may be nominated by the Employer. The Units are also subject to the Disqualification Discount in value. An Eligible Participant must hold the units for a designated time before they fully vest. If the designated time is not reached, then a Disqualification Discount in value applies. This discount will necessarily reduce the value of units (and therefore the underlying Allocated Shares) which are available to be redeemed and sold by the Trustee on behalf of the exiting Eligible Participant. This is set out as follows: Years Units Held Redemption value 1 Nil 2 Nil 3 As above plus 25% of incremental share value increase 4 As above plus 50% of incremental share value increase 5 As above plus 75% of incremental share value increase 6 Full current value at the time of redemption The Deed include both a restriction on sale or transfer of Units such that an Eligible Participant is only able to transfer, deal with or redeem their Units until the earlier of: (a) cessation of employment (b) sale (or listing) of the Employer (i.e. an Exit Event), and (c) 15 years (the maximum deferral period). The Deed also provides that if an employee attempts to deal with, transfer or redeem their units at any time before the abovementioned events, then the Units are forfeited. Dividends Eligible Participants (Unit Holders) will be entitled to receive any dividends paid on Allocated Shares referable to their Units. These dividends may be franked and any franking credits will "flow-through" to the Eligible Participant (Unit holder).

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 8-1(1) | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 subsection 130-85(4) | Superannuation Guarantee (Administration) Act 1992 section 6 | Superannuation Guarantee (Administration) Act 1992 section 11 | Superannuation Guarantee (Administration) Act 1992 section 9 | Superannuation Guarantee (Administration) Act 1992 section 23 | 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)


Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | All legislative references are to the Income Tax Assessment Act 1997 , unless specified otherwise. | Detailed reasoning: ATO guidance suggests employer contributions to an employee share trust will usually be deductible. | 1. Section 8-1 allows deductions which meet tests known as the positive and negative limbs. | • For the positive limbs, subsection 8-1(1) allows deductions for losses or outgoings incurred in gaining or producing your assessable income or necessarily incurred in carrying on a business for the same purpose. | • For the negative limbs, subsection 8-1(2) disallows deductions for losses or outgoings that are capital or of a capital nature, private or domestic, relate to exempt or non-assessable-non-exempt income, or are disallowed by specific provisions. | 2. The ATO has guidance relevant to deductions for employee share and trust arrangements. We'll discuss several points from this guidance. | 3. Taxation Ruling 2018/7 (TR 2018/7) says that contributions to employer remuneration trusts ('ERTs')may be deductible in certain circumstances. At paragraph 9, it says a contribution to an ERT is deductible to the employer under section 8-1 where: | • it's an irrevocable payment of cash made when the employer carries on a business | • it's made because the employer reasonably expects their business to benefit (e.g., improvement in employee performance, morale, efficiency, loyalty) | • it's intended to be permanently and entirely dissipated in remunerating employees of that business within a relatively short period. | 4. TR 2018/7 goes on to make some qualifying comments. | • Relevant considerations include the nature and timing of the benefits, employee awareness of the scheme, and whether it has capacity to address the business-related need, function, or complaint. | • Contributions won't be deductible where the contribution is intended for the benefit of the owners, controllers, or shareholders. | • Capital advantages can be disregarded if they are small or dissipated in a short time. | • Contributions to an ERT might be non-deductible capital expenses if they acquire enduring improvements, provide employee loans, don't pass shares to employees promptly, or acquire arm's length investments to generate returns to pay employees, keeping the capital intact. | 5. Taxation Determination 2022/8 (TD 2022/8) says that for an ESS, establishment expenses: | • aren't deductible under section 8-1 because they are capital in nature | • might be deductible over 5 years under section 40-880 to the extent the business is carried on for a taxable purpose. | 6. ATO web-guidance says: | • generally, there's no deduction available if you issue ESS interests to your employees | • however, if you provide ESS interests under an upfront scheme eligible for a $1,000 reduction, you can deduct the concession up to $1,000 | • a general deduction may be available to you if you provide money or other property to an employee share trust to enable it to acquire securities to provide to your employees. | Employer contributions to the trust will be deductible: they are incurred in gaining or producing assessable income and aren't capital outgoings to the employer. | 7. While TR 2018/7 is about ERTs, the principles discussed in it would seem to extend to employee share schemes. We think employer contributions to allow a trust to acquire shares in the employer for an ESS arrangement would usually be deductible for the same reasons. | • On these facts, we accept that the employer will make contributions to the trust for a deductible purpose. They will make contributions to allow it to acquire shares in the company for the ESS's purposes. | • The trust will allocate those shares to employee units under a scheme established to attract, motivate, and retain employees. | • That purpose is part of carrying on business for the purpose of gaining or producing assessable income, meeting the positive limbs of section 8-1. | • The negative limbs won't be triggered. We don't see anything in the facts to suggest that the contributions will have a capital character from the employer's perspective. The contributions won't be an initial outlay to establish the fund (which could be a capital outgoing as it may be paid to generate a lasting benefit for the company), as the facts suggest the trustee will expend the contributions in a short space of time by acquiring shares to allocate to employees. The other negative limbs aren't relevant on these facts. | 8. It follows that employer contributions to the trust will be deductible to the employer. The outgoings meet the positive limbs in section 8-1 because they are incurred in carrying on business for the purpose of gaining or producing assessable income and won't be disallowed under the negative limbs. | 9. However, the same wouldn't necessarily apply where the contribution was made by an associate, rather than the employer. Whether the associate could claim a deduction would depend on the identity of the associate and the surrounding circumstances. The associate would need to demonstrate that it incurred the payment for a deductible purpose - we can't determine that without further details about which associate made the payment, and the extent (if any) to which the payment helped the associate gain or produce assessable income. | Detailed reasoning: If the Company makes the contribution before employees acquire their ESS interests, section 83A-210 will apply to make the payment deductible at that acquisition time. | 10. We ruled in Question 1 that employer contributions would be deductible under section 8-1. | 11. Section 8-1 allows deductions when losses or outgoings are incurred. | 12. ATO guidance says you incur a loss or outgoing when you owe a money debt that you can't escape. TR 97/7 lists some general rules for determining when a loss or outgoing has been incurred at paragraph 6. | • The taxpayer needn't have actually paid money if it's definitively committed to making a payment. | • Merely contingent liabilities aren't incurred - the liability must be presently existing. | • The amount doesn't need to be precisely ascertained. | • Whether it's a presently existing liability is a question of law, considered in light of the circumstances. | • Where there's no liability, it's deductible when paid. | 13. However, a specific rule may line the deduction up with when the individual acquires their ESS interest. Section 83A-210 says if: | • you provide another entity with money or property for the purpose of enabling an individual to acquire (directly or indirectly) an ESS interest under an ESS scheme, and | • that time occurs before the time the ultimate beneficiary acquires the ESS interest, then | • for the purpose of determining the year in which you can deduct an amount in respect of providing that money or property, you are taken to have provided it at the acquisition time. | 14. ATO web-guidance says: | • the deduction would generally be available in the income year the money was paid to the share trust, | • however, the ESS rules defer the timing of the deduction until your employee acquires the ESS interest. | 15. ATO ID 2010/103 confirms that section 83A-210 may still apply where the trust purchases 'excess' shares to hold in reserve to meet obligations to issue shares to employees in the next year. | 16. If employees acquire their ESS interests after the employer pays contributions under the scheme, then section 83A-210 will operate to make that payment deductible in the income year of the acquisition time. | 17. However, if employees acquire their ESS interests at or before the contribution, section 8-1 would apply as normal to make that payment deductible in the income year in which payment was made. | Detailed reasoning: Employer contributions are excluded from the definition of fringe benefit. | 18. The section 136 FBTAA definition of fringe benefits excludes benefits constituted by the acquisition: | • of an ESS interest under an employee share scheme to which Subdivisions 83A-B or 83A-C apply (subparagraph 136(1)(h)), or | • benefits constituted by the acquisition of money or property by an employee share trust (subparagraph 136(1)(ha)). | 19. 'Employee share trust' in the context of the Income Tax Assessment Act 1997 broadly means a trust whose sole activities are giving ESS interests to employees. Subsection 130-85(4) says an employee share trust, for an employee share scheme, is a trust whose sole activities are: | • obtaining shares or rights in a company, and | • ensuring that ESS interests in the company (that are beneficial interests in those shares or rights) are provided under the scheme to employees or their associates, or | • other activities that are merely incidental to those ends. | 20. Employer contributions are excluded as fringe benefits. The contributions give the trust money, which it will use to buy shares in the company. The trust's deed requires it to allocate those shares to units, and it will issue those units to employees. Broadly, the trust deed prohibits the trustee from using trust funds for other purposes, and the facts say the trustee will administer the ESS in accordance with the deed. Therefore, it qualifies as an employee share trust. Contributions paid by the employer would be excluded as fringe benefits under the FBTAA. | Detailed Reasoning: Benefits constituted by acquiring ESS interests under an employee share scheme are excluded from Superannuation Guarantee payments. | 21. Broadly, the SGAA 1992 imposes a super guarantee charge where employers don't pay the minimum super guarantee by the due date. Relevantly, the SGAA 1992; | • imposes a superannuation guarantee charge on a shortfall for a quarter (section 16) | • individual employee shortfalls are calculated by multiplying the total salary or wages paid by an employer to the employee for the quarter, multiplied by the charge percentage (section 19) | • salary or wages excludes fringe benefits (section 11) | • the contribution charge percentage is reduced by contributions made by an employer (section 23) | • The contribution is worked out by dividing the contribution by ordinary time earnings. | • ordinary time earnings to mean earnings in respect of ordinary hours of work (other than lump sums for leave), and also earning consisting of over-award payments, shift-loading, or commission (section 6). | 22. ATO guidance suggests benefits covered by the ESS rules won't be treated as salary or wages. ATO guidance suggests benefits covered by the ESS rules won't be treated as salary or wages. Superannuation Guarantee Ruling 2009/2: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) at paragraph 58 says that the Commissioner takes the view that other 'benefits' within the meaning of the FBTAA, given by employees to employers that are neither fringe benefits nor salary and wages, aren't salary or wages for SGAA purposes. It says the acquisition of a share, or a right to acquire a share, under an employee share scheme, is not salary or wages for the SGAA 1992 purposes. | 23. Applying the ATO view in SGR 2009/2, ESS interests won't be covered by the SGAA 1992. Shares and rights to acquire shares under an ESS are excluded. By extension, benefits constituted by the acquisition of an ESS interest under an employee share trust wouldn't be salary or wages for SGAA 1992 purposes either.