Private ruling: Employee share schemes
Published: July 2012
Ruling period: Income tax years ended: | 30 June 2013 | 30 June 2014 | 30 June 2015 | 30 June 2016 | 30 June 2017

Ruling: Q1: Will the non-refundable cash contributions made by Company A to Company B as Trustee of the employee share trusts (ESTs) to fund the acquisition of Company A shares in accordance with the Plan A Trust Deed, Plan B Trust Deed and Plan C Trust Deed be assessable income of each of the ESTs? | A1: No. | Q2: Will a capital gain or capital loss that arises for the Trustee of the ESTs at the time participants become absolutely entitled to the Company A shares under each of the Employee Share Plans be disregarded under section 130-90 of the Income Tax Assessment Act 1997 (ITAA 1997) if the participants acquire the shares for the same or less than the cost base of the shares in the hands of the Trustee? | A2: Yes.

Relevant facts and circumstances: Company A is an Australian listed company. Company A has established and operates a number of employee share plans, specifically: · Plan A which is governed by the Plan A Rules; · Plan B which is governed by the Plan B Rules; and · Plan C which is governed by the Plan C Rules. The above employee share plans are collectively referred to, when required for the purposes of this ruling, as the Employee Share Plans. Likewise, the associated plan rules for each of the Employee Share Plans are, when required, collectively referred to as the Plan Rules. Company A has also established a number of trusts for the purposes of operating the Employee Share Plans: · Plan A Trust which is established by a trust deed titled Plan A Trust Deed; · Plan B Trust which is established by a trust deed titled Plan B Trust Deed; and · Plan C Trust which is established by a trust deed titled Plan C Trust Deed. The above trusts are, when required, collectively referred to for the purposes of this ruling as the ESTs. The trustee for each of the ESTs is the same entity, Company B (Trustee). Company A has formed a tax consolidated group with each of its 100% owned Australian subsidiary companies. As such, contributions made to the ESTs will be treated as contributions made by Company A itself for Australian income tax purposes rather than by a subsidiary of Company A. All participants in the Employee Share Plans are employed by Company C as trustee of the Company A Unit Trust. Company C is a wholly owned subsidiary of Company A and the sole beneficiary of the Company A Unit Trust is Company A. The Trustee of the ESTs is an independent party which is in the business of acting as trustee for company share plan trusts in return for arm's-length remuneration. Plan A Company A has advised that Plan A operates as follows: Certain eligible executives will be invited to participate. Eligible executives will receive rights to acquire shares (Performance Rights) for nil consideration provided certain performance criteria are met during the relevant performance period of 3 years. All eligible executives who fail to meet the performance criteria will forfeit their Performance Rights. Each Performance Right automatically converts into one ordinary share in Company A (Performance Share), without the need for the Performance Right to be exercised. Company A will not pre-fund the Plan A Trust in the future. Rather, at the date that all performance criteria are satisfied, Company A will provide funds to the Plan A Trust to facilitate either the acquisition of Company A shares on-market or subscription for shares in Company A. The amount of the cash contributions made by Company A is equal to the fair market value of shares to be acquired by the Plan A Trust, the executives not being required to pay any amount for the Performance Shares. Performance Shares are acquired for the executives and will then be held during a holding period on behalf of the executives in the Plan A Trust. The holding period is the period from the date of acquisition of the shares by the trustee of the Plan A Trust, and ending on the date when the shares vest in the executive, or are otherwise forfeited, whichever is the earlier. The executive may not sell, transfer, mortgage, charge or otherwise dispose of, deal with, grant any interest in or encumber any interest in any shares allocated to the executive during the holding period (that is, while the shares are held by the Trustee of the Plan A Trust). During the holding period, executives will be entitled to any dividends and voting rights, as well as bonus shares and rights issues, attached to their allocated Performance Shares. The executive will forfeit his or her Performance Shares held by the Plan A Trust during the holding period where an executive commits an act of Gross Misconduct. The Performance Shares vest in the executive at the earliest of: The date that the Committee (comprising those persons nominated and appointed by resolution of the Board from time to time to administer the Employee Share Plans) approves the executive's notice of withdrawal to have the Performance Shares vest in the executive personally; The executive ceasing to be a full-time or permanent part-time employee; · The date that the Committee determines that the Performance Shares will vest in the executive; or · 10 years from the date that the Performance Rights were granted to the executive. Administration of the plan is vested in the Committee Variation to the Plan A Rules and also the Plan A Trust Deed can be made by the Committee subject to approval of the Trustee. Plan B Company A has advised that Plan B operates as follows: Full-time and permanent part-time employees residing in Australia will be invited to participate. Under Plan B, employees may be offered either Award Shares or Purchased Shares. Award Shares are offered at no cost, whereas Purchased Shares may be purchased by the employee by sacrificing salary or bonus payments. Shares granted to employees as either Award Shares or Purchased Shares will be held during the holding period on behalf of the employee in the Plan B Trust. The holding period is the period from the date of acquisition of the shares by the Trustee of the Plan B Trust, and ending on the date when the shares vest in the employee, or are otherwise forfeited, whichever is the earlier. The employee may not sell, transfer, mortgage, charge or otherwise dispose of, deal with, grant any interest in or encumber any interest in any shares allocated to the employee during the holding period (that is, while the shares are held by the Trustee in the Plan B Trust) The Purchased Shares will vest in the employee at the earliest of: · The Committee approving an employee's notice of withdrawal to have the shares vest in the employee personally; · The employee ceasing to be employed on a full-time or permanent part-time basis by Company A; or · The 10th anniversary of the date of acquisition of the shares by the employee. The Award Shares will not vest in the employee before the expiry of a 3-year minimum restriction period, beginning on the date of acquisition of the award shares by the employee. Following the expiry of the 3-year minimum restriction period, the Award Shares will vest in the employee at the earliest of: · The Committee approving an employee's notice of withdrawal to have the shares vest in the employee personally; · The employee ceasing to be employed on a full-time or permanent part-time basis by Company A; · The date on which the Committee determines in its discretion that the Award Shares will vest in the employee; or · The 10th anniversary of the date of acquisition of the shares by the employee. During the period that the Company A shares are held in the Plan B Trust, employees will be entitled to any dividends and voting rights attached to their allocated shares, as well as bonuses and rights issues. Company A will not pre-fund the Plan B Trust in the future for the purposes of acquiring either Award Shares or Purchased Shares. Rather, on acceptance of an eligible employee's application for either Award Shares or Purchased Shares, Company A will provide funds to the Plan B Trust to facilitate either the acquisition of Company A shares on-market or subscription for shares in Company A. The employee will forfeit his or her Award Shares or Purchased Shares held by the Plan B Trust during the holding period where an employee commits an act of Gross Misconduct. Employee participation is limited such that an executive does not hold a legal or beneficial interest in more than 5% of total issued capital of Company A. Administration of the plan is vested in the Committee. Variation to the Plan B Rules and the related trust deed can be made by the Committee subject to approval of the Trustee. Plan C Company A has advised that Plan C operates as follows: All employees of Company A and its controlled entities were eligible to participate in Plan C subject to an offer being made to the employee by the Committee of Company A setting out the relevant terms. Under Plan C employees may be offered rights to acquire shares in Company A (Share Rights). Each Share Right granted was subject to a 3 year performance period. The end of the performance period for employees' granted the last offer of Share Rights under Plan C was 1 July 2010. Company A granted shares upon vesting of the Share Rights to the Plan C Trust (held for the benefit of the eligible employees) upon the completion of the performance period. The shares were acquired by the Plan C Trust upon the employee lodging a completed Exercise Notice with the Company Secretary or such other person as the Committee designates in order for the employee to be granted shares (subject to the satisfaction of the relevant employment and exercise criteria). Unexercised Share Rights will lapse on 1 July 2013 or at the termination of the employee's employment. Each Share Right was granted for nil consideration and once vested and exercised converts into one ordinary share in Company A. The shares are not subject to any restrictions once acquired by the Plan C Trust, such as forfeiture or sale restrictions. The employee can withdraw his or her shares from the Plan C Trust at any time by lodging a written notice of withdrawal to the Committee. Company A will not pre-fund the Plan C Trust. Rather, at the date that the share rights are exercised, Company A will provide funds to the Plan C Trust to facilitate either the acquisition of Company A shares on-market or subscription for shares in Company A. The amount of the cash contributions made by Company A will be equal to the fair market value of Company A shares to be acquired by the Plan C Trust, the employees not being required to pay any amount for the shares. The Committee has a broad power to amend the Plan C Rules with consent of participants only required where the amendment would prejudicially affect the rights of such participants in respect of rights or shares acquired as a result of the exercise of such rights.

Relevant legislative provisions: 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 Division 83A, | Income Tax Assessment Act 1997 Section 104-75, | Income Tax Assessment Act 1997 Section 104-85, | Income Tax Assessment Act 1997 Section 106-50, | Income Tax Assessment Act 1997 Section 130-90, | Income Tax Assessment Act 1997 Section 130-85, | Income Tax Assessment Act 1936 Section 95, | Income Tax Assessment Act 1936 Former Section 130-90 and | Income Tax Assessment Act 1936 Former Section 139C.

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) defines net income in relation to a trust as follows, insofar as it is relevant: net income , in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions Subsection 6-5(1) of the ITAA 1997 states: Your assessable income includes income according to ordinary concepts, which is called ordinary income. Further, subsection 6-10(1) of the ITAA 1997 states: Your assessable income also includes some amounts that are not ordinary income. Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5. None of the provisions listed in section 10-5 of the ITAA 1997 are relevant in the present circumstances. Therefore non-refundable contributions made by Company A to the Trustee of the ESTs will not be assessable income under section 6-10 of the ITAA 1997. They will only be included in the calculation of the net income of each of the ESTs under section 95 of the ITAA 1936 if they are assessable as income according to ordinary concepts under section 6-5 of the ITAA 1997. Section 6-5 of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. The classic definition in Australian law was given by Chief Justice Jordan in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215. Chief Justice Jordan considered that: The word "income" is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts. The leading case on ordinary income is Eisner v Macomber 252 US 189 (1919). It was said in that case that: The fundamental relation of "capital" to "income" has been much discussed by economists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time. …Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being "derived" that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; …that is income derived from property. Nothing else answers the description. In GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient. They further stated at page 138 that: To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. The contributions provided by Company A to the Trustee of each of the ESTs are used in accordance with the terms of the ESTs and Plan Rules. The contributions constitute capital receipts to the Trustee. Consistent therefore, with ATO Interpretative Decision ATO ID 2002/965, the irretrievable cash contributions made by Company A to the Trustee of the ESTs to fund the acquisition of Company A shares by the ESTs in accordance with the respective trust deeds for each of the Employee Share Plans will not be assessable income of the ESTs pursuant to sections 6-5 or 6-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: When a participant in the Employee Share Plans becomes absolutely entitled to the shares as against the Trustee, CGT Event E5 will occur and under section 104-75 of the ITAA 1997, the Trustee will make a capital gain or loss. However, section 130-90 of the ITAA 1997 may operate to disregard that gain or loss where specified conditions are satisfied. | Detailed Reasoning - Division 13A of the ITAA 1997: former section 130-90 of the ITAA 1997- Performance Rights, Share Rights, Award Shares and Purchased Shares: (All references to section 130-90 of the ITAA 1997 under this heading are references to the former section 130-90 of the ITAA 1997) Section 130-90 of the ITAA 1997, insofar as it is relevant, states: 130-90(1) A capital gain or a capital loss a trustee or a beneficiary makes when the beneficiary becomes absolutely entitled to a share or right in a company is disregarded if these conditions are satisfied. 130-90(1A) The beneficiary must be: (a) an individual who receives (or is entitled to receive) withholding payments covered by subsection (5) from the company or from another company (at the time the beneficiary first became beneficially entitled to the share or right); or (b) an associate or affiliate company of such an individual; or (c) an individual who is engaged in foreign service (within the meaning of section 139GBA of the Income Tax Assessment Act 1936 ), or an associate or affiliate company of such an individual. 130-90(2) The terms of the trust must have required or authorised the trustee to transfer the share or right to the individual, associate or affiliate company. 130-90(3) Either: (a) the individual, associate or affiliate company must have acquired the share or right: (i) under an employee share scheme; or (ii) alternatively in the case of a share - as a result of exercising a right acquired under an employee share scheme; (b) the share or right must, because of section 139DQ of the Income Tax Assessment Act 1936, be a share or right that is treated, for the purposes of Division 13A of Part III of that Act, as if it were a continuation of a share or right acquired under an employee share scheme; (c) if the share was acquired as a result of exercising a right, the right must, because of section 139DQ of the Income Tax Assessment Act 1936 , be a right that is treated, for the purposes of Division 13A of Part III of that Act, as if it were a continuation of a right acquired under an employee share scheme. 130-90(4) The individual, associate or affiliate company must not have acquired the share or right for more than the cost base of the share or right (in the hands of the trustee) at the time of the transfer 130-90(5) This subsection covers a withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table. Withholding payments covered Item Provision Subject matter 1 Section 12-35 Payment to employee ........... 2 Section 12-40 Payment to company director ........... 3 Section 12-45 Payment to office holder ........... 3A Section 12-47 Payment to *religious practitioner ........... 4 Section 12-50 Return to work payment ........... 5 Subdivision 12-D Benefit, training and compensation payments Paragraph 130-90(1A)(a) of the ITAA 1997 is satisfied as eligible employees who participate in the Employee Share Plans receive salary or wages that are withholding payments. The Plan A Trust Deed, Plan B Trust Deed and Plan C Trust Deed satisfy subsection 130-90(2) of the ITAA 1997 in that the Trustee is authorised to transfer any shares to an employee subject to them having satisfied all obligations under the Employee Share Plans on receipt of a Notice of Withdrawal (as defined in those deeds). The condition in subsection 130-90(3) of the ITAA 1997 stipulates that the share or right must have been acquired under an employee share scheme or alternatively, in the case of a right, the share was acquired as a result of exercising a right acquired under an employee share scheme (subparagraph 130-90(3)(a)(i) of the ITAA 1997). Section 139C of the ITAA 1936 outlines the requirements for a plan to be considered an employee share scheme. The requirements relevant to the present Employee Share Plans are that the Performance Rights, Share Rights, Award Shares or Purchased Shares must have been acquired by the taxpayer in respect of his or her employment (subsection 139C(1) of the ITAA 1936) and must have been acquired for less than market value (subsection 139C(3) of the ITAA 1936). The Employee Share Plans satisfy both these requirements as rights and shares are granted under the Employee Share Plans to eligible employees in respect of their employment with Company A for nil consideration pursuant to the Employee Share Plans (NB - consideration paid or given by an employee towards the acquisition of Purchased Shares will not include amounts sacrificed under an effective salary sacrifice arrangement). Therefore, the condition in subsection 130-90(3) of the ITAA 1997 is met, in the case of the Employee Share Plans, under subparagraphs 130-90(3)(a)(i) and (ii) of the ITAA 1997. Finally, provided that the condition in subsection 130-90(4) of the ITAA 1997, requiring that the participant must not have acquired the share for more than its cost base in the hands of the Trustee, is met, all of the provisions of section 130-90 of the ITAA 1997 will have been satisfied. Under these circumstances, section 130-90 of the ITAA 1997 operates to disregard any capital gain or loss made by the Trustee on any share when a participating employee becomes absolutely entitled to that share. | Detailed Reasoning - Preliminary - application of Division 83A of the ITAA 1997: Division 83A of the ITAA 1997 will apply to ESS interests issued on or after 1 July 2009 and also, in certain circumstances, to ESS interests that were provided under an employee share scheme prior to 1 July 2009. | Detailed Reasoning - Performance Rights, Share Rights, Award Shares and Purchased Shares issued on or after 1 July 2009: Division 83A of the ITAA 1997 will apply to Performance Rights, Share Rights, Award Shares or Purchased Shares issued under the Employee Share Plans on or after 1 July 2009 as they will have been acquired on or after 1 July 2009 thereby satisfying subsection 83A-5(1) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997). | Detailed Reasoning - Performance Rights, Share Rights, Award Shares and Purchased Shares issued on or before 1 July 2009: Subdivision 83A-C of the ITAA 1997 (and therefore Division 83A) will also apply to Performance Rights, Share Rights, Award Shares or Purchased Shares issued under the Employee Share Plans before 1 July 2009 if all of the following subparagraphs of paragraph 83A-5(2)(a) of the IT(TP)A 1997 are satisfied: · at the pre-Division 83A time, subsection 139B(3) of the Income Tax Assessment Act 1936 applied in relation to the interest; · the interest was acquired (within the meaning of former Division 13A) before 1 July 2009; · the cessation time mentioned in subsection 139B(3) of the Income Tax Assessment Act 1936 , as in force at the pre-Division 83A time, for the interest did not occur before 1 July 2009. | Detailed Reasoning - Current section 130-90 of the ITAA 1997: The current section 130-90 of the ITAA 1997 states: Shares held for future acquisition under employee share schemes 130-90(1A) Disregard any capital gain or capital loss made by an employee share trust to the extent that it results from a CGT event if: (a) immediately before the event happens, an ESS interest is a CGT asset of the trust; and (b) either of the following subparagraphs applies: (i) the event is CGT event E5, and the event happens because a beneficiary of the trust becomes absolutely entitled to the ESS interest as against the trustee; (ii) the event is CGT event E7, and the event happens because the trustee disposes of the ESS interest to a beneficiary of the trust; and (c) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest. Shares held to satisfy the future exercise of rights acquired under employee share schemes 130-90(1) Disregard any capital gain or capital loss made by an employee share trust, or a beneficiary of the trust, to the extent that it results from a CGT event, if: (a) the CGT event is CGT event E5 or E7; and (b) the CGT event happens in relation to a share; and (c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d) the beneficiary's beneficial interest in the right was an ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. 130-90(2) Subsection (1A) or (1) does not apply if the beneficiary acquired the beneficial interest in the share for more than its cost base in the hands of the employee share trust at the time the CGT event happens. Section 130-90(1A) applies to shares held for future acquisition under employee shares schemes (that is the Deferred Share Plan) while section 130-90(1) applies in respect of shares held to satisfy the future exercise of rights acquired under employee share schemes (the Performance Rights Plan and Share Rights Plan). | Detailed Reasoning - Employee share trust: Subsection 130-85(4) of the ITAA 1997 states: 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). The beneficial interest in a share received upon grant of Award Shares or Purchased Shares and the right to acquire a share and the beneficial interest in the share (that is acquired pursuant to the exercise of the right granted under the Performance Rights Plan and Share Rights Plan) are ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997. 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 employees' employment. Each Employee Share Plan comprising the Employee Share Plans is an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which Award Shares and Purchased Shares and Performance Rights and Share Rights (being rights to acquire shares in the company - Company A) are provided to employees in relation to the employee's employment. Under the Employee Share Plans the employer has established the ESTs to acquire shares in the company and to allocate those shares to employees to satisfy the ESS interest acquired under the Employee Share Plans (schemes). Further, in respect of the Performance Rights Plan and Share Rights Plan the beneficial interest in the share is itself provided under an employee share scheme because it is provided under the same scheme under which the rights to acquire the shares are provided to the employee in relation to the employee's employment, being an employee share scheme as defined in subsection 83A-10(2) of the ITAA 1997. Therefore, paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are satisfied because: · the EST acquires shares in a company (namely Company A); and · the EST ensures that ESS interests as defined in subsection 83A-10(1) of the ITAA 1997, 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 governing documents of each of the schemes. Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 will require the Trustee to undertake incidental activities that are a function of managing the employee share scheme and administering the ESTs. The Commissioner considers that for the purposes for the purposes of paragraph 130-85(4)(c) of the ITAA 1997, activities which are merely incidental, include: · the opening and operation of a bank account to facilitate the receipt and payment of money; · the receipt of dividends in respect of shares held by the trust on behalf of an employee, and their distribution to the employee; · the receipt of dividends in respect of unallocated shares and using those dividends to acquire additional shares for the purposes of the employee share scheme; · dealing with shares forfeited under an employee share scheme including the sale of forfeited shares and using the proceeds of sale for the purposes of the employee share scheme; · the transfer of shares to employee beneficiaries or the sale of shares on behalf of an employee beneficiary and the transfer to the employee of the net proceeds of the sale of those shares; · the payment or transfer of trust income and property to the default beneficiary on the winding up of the trust where there are no employee beneficiaries ; · receiving and immediately distributing shares under a demerger. 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 merely incidental. Provisions within the Plan A Trust Deed, Plan B Trust Deed and Plan C Trust Deed collectively make it clear that the Trustee can only use the contributions received exclusively for the acquisition of shares for eligible employees in accordance with the Employee Share Plans. To this end, all other duties/general powers listed in each of the Trust Deeds are considered to be merely incidental to the functions of the Trustee in relation to its dealing with the shares for the sole benefit of participants in accordance with the Employee Share Plans. Therefore, the ESTs each satisfy the definition of an employee share trust, as defined in subsection 995-1(1) of the ITAA 1997, as the activities of the ESTs in acquiring and allocating ESS interests meet the requirements of paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 as concluded above, and its other activities (general powers) are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997. | Detailed Reasoning - Subparagraph 130-90(1A)(a) of the ITAA 1997: Award Shares and Purchased Shares held by the Deferred Share Plan Trust are ESS interests which are CGT assets. Therefore paragraph 130-90(1A)(a) is satisfied. | Detailed Reasoning - Subparagraph 130-90(1A)(b)(i) of the ITAA 1997 and paragraph 130-90(1)(a) of the ITAA 1997: CGT event E5 is the CGT event that will apply under the terms of the Employee Share Plans at the time that a participant becomes absolutely entitled to shares in Company A as against the Trustee. Therefore subparagraph 130-90(1A)(b)(i) of the ITAA 1997 and paragraph 130-90(1)(a) of the ITAA 1997 will be satisfied. | Detailed Reasoning - Paragraph 130-90(1)(b) of the ITAA 1997: Section 995 of the ITAA 1997 defines a share to mean a share in the capital of a company. An ordinary share in Company A held by the Trustee and to which a participant is entitled to upon the vesting of a Performance Right or Share Right is a share in the capital of a company (Company A). Accordingly, paragraph 130-90(1)(b) is satisfied as CGT event E5 happens in relation to a share for the purposes of that paragraph. | Detailed Reasoning - Paragraph 130-90(1)(c) of the ITAA 1997: Paragraph 130-90(1)(c) is satisfied as a participant will have acquired a beneficial interest in a share (in Company A) by the vesting and subsequent exercising of a Performance Right under Plan A or a Share Right under the Plan C. | Detailed Reasoning - Paragraph 130-90(1A)(c) of the ITAA 1997 and Paragraph 130-90(1)(d) of the ITAA 1997: Subsection 83A-20(1) of Subdivision 83A-B of the ITAA 1997 states: This Subdivision applies to an *ESS interest if you acquire the interest under an *employee share scheme at a discount. The term 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997. Subsection 83A-10(2) states: An employee share scheme is a *scheme under which *ESS interests in a company are provided to employees, or *associates of employees, (including past or prospective employees) of: (a) the company; in relation to the employees' employment. For the purposes of subsection 83A-10(2) of the ITAA 1997, section 995 of the ITAA 1997 defines the term 'scheme' as follows: scheme means: (a) any *arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. The Employee Share Plans are employee share schemes for the purposes of Division 83A of the ITAA 1997 as they are an arrangement/plan (scheme) under which an ESS interest, being a beneficial interest in a share or right to acquire a beneficial interest in a share of Company A, is provided to eligible employees or executives in relation to their employment by Company A or its subsidiaries. Shares and rights are acquired at no cost under the Employee Share Plans. Accordingly, prima facie Subdivision 83A-B of the ITAA 1997 will apply to shares or rights acquired under the Employee Share Plans as pursuant to subsection 83A-20(1) of the ITAA 1997 the ESS interest (issued under the Employee Share Plans) will be acquired under an employee scheme (for the reasons stated immediately in the preceding paragraph) at a discount (no cost). It should be noted however that whether a participant is ultimately taxed upfront on some or all of any discount received (under Subdivision 83A-B of the ITAA 1997) or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C of the ITAA 1997), will depend on which of the additional requirements in Subdivision 83A-B of the ITAA 1997 or Subdivision 83A-C of the ITAA 1997 have been satisfied. Under either circumstance subparagraph 130-90(1A)(c) of the ITAA 1997 and paragraph 130-90(1)(d) of the ITAA 1997 will be satisfied. Accordingly, all the conditions in subsection 130-90(1A) and subsection 130-90(1) of the ITAA 1997 have been satisfied. Provided then (as stipulated above) that the beneficiary does not acquire the beneficial interest in the share for more than its cost base in the hands of the ESTs at the time that CGT event E5 happens, subsection 130-90(2) of the ITAA 1997 will also have been satisfied. In relation to Performance Rights, Share Rights, Award Shares and Purchased Shares, participants will not pay any amount to acquire their ESS interests or Company A shares upon the vesting of the shares and rights and therefore, subsection 130-90(2) of the ITAA 1997 will not apply to shares acquired under the Employee Share Plans. Under these circumstances, subsection 130-90(1A) of the ITAA 1997 and subsection 130-90(1) of the ITAA 1997 operate to disregard any capital gain or loss made by the Trustee under CGT event E5 on any share when a participant becomes absolutely entitled to that share. | Detailed Reasoning - CGT Event E7: Subsection 104-85(1) of the ITAA 1997 provides that CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 of the ITAA 1997 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital. However, section 106-50 of the ITAA 1997 provides: If you are absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), this Part and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it. The participant, on allocation of the shares by the Trustee, becomes absolutely entitled to those shares. In accordance with the terms of the Plan A Trust Deed, Plan B Trust Deed and Plan C Trust Deed each participant is the beneficial owner of the Company A shares held by the Trustee on their behalf; and absolutely entitled to all other benefits and privileges attached to, or resulting from holding, those trust shares (subject to the relevant Employee Share Plan rules and relevant terms of participation). Once the participants are absolutely entitled to shares held on their behalf by the ESTs, section 106-50 of the ITAA 1997 will deem the disposal of the shares by the Trustee to be done by the participant. Therefore, section 106-50 of the ITAA 1997 will apply, such that if the Trustee disposes of the shares under the relevant Employee Share Plan (by way of transfer to a participant), the Trustee will not make a capital gain or capital loss under CGT event E7.

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