Private ruling: Employee share scheme
Date of advice: 7 December 2021
Published: March 2022

Ruling: Q1: Will Company A as head company of the income tax consolidated group (TCG) obtain a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the irretrievable cash contributions made to the trustee of the Employee Share Trust (the Trust) to fund the subscription for, or acquisition on-market of Company A shares in respect of Company A's Employee Share Plans (the Plans)? | A1: Yes. | Q2: Will Company A obtain an income tax deduction under section 8-1 of the ITAA 1997 in respect of Operating Costs incurred in relation to the Trust? | A2: Yes. | Q3: Are irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or acquisition on-market of Company A shares by the Trust deductible to Company A under section 8-1 of the ITAA 1997 at a time determined by section 83A-210 of the ITAA 1997, where the contributions are made before the acquisition of the relevant Employee Share Scheme (ESS) interests? | A3: Yes. | Q4: If the Trust satisfies its obligation under the Plans by subscribing for Company A shares, will the subscription proceeds be included in the assessable income of Company A under section 6-5 or 20-20 of the ITAA 1997 or will they trigger a capital gains tax (CGT) event for Company A under Division 104 of the ITAA 1997? | A4: No. | Q5: 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, a deduction claimed by Company A for irretrievable cash contributions made to the Trustee to fund the subscription for, or acquisition on-market of Company A shares by the Trust? | A5: No. | Q6: Would the provision of options/rights or shares to Participants under the Plans excluding Premium Priced Awards by the Company be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A6: No. | Q7: Will the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Company A shares in respect of the Plans, be treated as fringe benefits within the meaning of subsection 136(1) of the FBTAA? | A7: No. | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount to Company A by the amount of tax benefit gained from irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for or acquisition on-market of Company A shares? | A8: No. The rulings for questions 1 to 5 inclusive each apply for the following periods: Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX Income tax year ended 30 June 20XX The rulings for question 6 to 8 inclusive each applies for the following periods: Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX Fringe benefits tax year ended 31 March 20XX

Relevant facts and circumstances: The Share Trust (the Trust) Deed as amended (Trust Deed). The original provided to the Commissioner on 4 August 20XX and the amendment provided on 1 December 20XX. The Plan Rules provided to the Commissioner on 4 August 20XX consisting of: • Employee Share Option Plan Rules (EOP Rules) • Employee Long Term Incentive Plan (ELTIP Rules) • Employee Securities Incentive Plan (ESIP Rules). The template invitation letters provided to the Commissioner on 29 September 20XX for grants of: • share options under the Employee Option Plan (EOP) • performance rights under the Employee Long Term Incentive Plan (ELTIP) • performance rights under the Employee Securities Incentive Plan (ESIP) • share options for directors under the ESIP. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Company information and incentive plans Company A is an Australian resident greenfields exploration company which holds interests in various mining tenements. Company A is the only employing entity in theGroup that consists of Company A and its subsidiaries. Given the nature of Company A as a greenfields exploration company, key management staff including corporate executives (the Participants) are awarded several options and performance rights (awards) annually as part of their remuneration packages. Company A does not capitalise any salary and wages costs in respect of its employees. The costs incurred by Company A in respect of its employees are incurred by Company A to undertake its ongoing exploration activities. The issuance of such awards is aimed to assist Company A in rewarding, motivating and retaining these key management staff members, and linking their personal remuneration to shareholder wealth creation by providing a portion of their annualised remuneration as rewards. These awards (granted at different times since the 20XX-XX income year) have differing vesting dates, at which time the awards will vest and be exercised into ordinary shares, which Company A is committed to issue. Some of the options mentioned in the plans below will be issued at an exercise price that is at a sufficient premium to the Company A share price that they will have a nil market value (premium priced options). Premium Priced Awards are any options with nil market value or other awards provided to employees that have a nil market value i.e., those that are not provided at a discount. The shares required to satisfy the premium priced options are intended to be provided via the Trust. Company A has the following incentive plans (the Plans) under which awards have been granted: EOP • This plan allows for the Directors of Company A (the Board) to grant options to Participants for no cost to the Participants (see the EOP Rules). • These options allow for the relevant Participant to subscribe for and be issued the relevant number of ordinary shares as specified in the option by paying the exercise price (see the EOP Rules). • The plan further details how the relevant Participant converts their awarded options into ordinary shares, including details outlining the mechanical transfer of shares. • Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997) does not apply to EOP awards. ELTIP • This plan allows for the Board to issue an invitation to an employee (being an Eligible Person) to participate in the plan and be granted performance rights in Company A for no cost (see the ELTIP Rules). • These performance rights then vest to ordinary shares at a prescribed date in the future, subject to the conditions of the plan. • After vesting and the shares issued to the Participant these shares will not be subject to any transfer, dealing or disposal restrictions beyond the Company's Share Trading Policy (see the ELTIP Rules). • The plan provides further details concerning the application process, and the mechanics surrounding the future conversion to ordinary shares. • Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997) does apply to ELTIP awards. ESIP • This plan allows for the Board to issue Securities to Participants, which may include an ordinary share, option, performance right or other convertible security in the share capital of Company A (see definitions of Convertible Securities, Securities and Plan Shares in the ESIP Rules). • This plan also allows for issued securities to be cash settled (see the ESIP Rules) • Mechanically, under this plan, the Board advises the Participant that they are eligible to participate in the plan (i.e. are an Eligible Participant), with the Board prescribing the amount of Securities the Eligible Participant may apply for, along with any amount payable, vesting conditions, disposal restrictions, whether cashless exercise is permitted if any (see the ESIP Rules). • Securities granted to Participants may specify that there is a cashless exercise facility such that the Participant will receive the shares with a market value of the difference between the market value of the shares at the time of exercise and the exercise price (see the ESIP Rules) • The plan further details how the application process mechanically operates, and key terms regarding the vesting of these awarded convertible securities to ordinary shares. • Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997) does not apply to ESIP awards issued to Directors. • Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997) does apply to ESIP awards issued to Eligible Participants (other than Directors). Employee share trust Company A has established an employee share trust to manage the shareholding on behalf of the new shareholders, the 'Employee Share Trust'. The sole purpose being the acquisition, holding, and ongoing administration of Company A shares under the Plans for the benefit of the Participants. The Trust Deed outlines the prescribed terms of the trust as signed by Company A and the Trustee. The trust was formed by the contribution of $XX cash (being the Initial Sum) by Company A to the Trustee. The Trust Deed indicates that the Company and the Trustee will be managed and administered so that it satisfies the definition of 'employee share trust' within the meaning of section 130-85(4). Company A must provide the Trustee with the total funds required to enable the Trustee to subscribe for or acquire on-market the shares in Company A for which the Participants are entitled at such time the performance rights vest or options are exercised. The cash contributions made to the Trust for the acquisition of shares must not be repaid to the Company A or any subsidiary as per the Trust Deed. The Trustee cannot pay the proceeds of sale of forfeited shares to Company A or any subsidiary. Company A or its subsidiaries do not have any beneficial interest in the Trust Assets. The income of the Trust to which no participant is presently entitled is accumulated by the Trustee as an accretion and not returned to Company A or its subsidiaries. The Capital of the trust cannot be returned to the Company A or its subsidiaries. On termination of the Trust the Company or its subsidiaries are not entitled to receive a benefit as the residual amount after regarding Allocated Plan Shares may be applied for the benefit of Participants, default beneficiaries or trust expenses and default beneficiary meaning in the Trust Deed is another employee share trust for the participants or a deductible gift recipient. Company A or a subsidiary must provide the funds to acquire plan shares or request the Trust use the capital of the Trust to acquire them. Where the awards are ultimately satisfied in cash, the outgoing will not flow through the Trust. The Trust is administered according to the Trust Deed. The Operating Costs of the Trust are ongoing administration costs, which are: • Legal, tax and accounting fees • Employee plan record keeping • Brokerage costs for the acquisition of shares • Preparing the annual audit of the financial statements • Preparing the annual tax returns or obtaining tax advice as required for the Trust • Trustee fees But do not include: • Fees for drafting the Trust deed • Costs associated with plan amendments • Establishment expenses associated with the Trust.


Reasons for decision: Detailed Reasoning - Questions 1 to 5 - application of the single entity rule in section 701-1: The consolidation provisions of the Income Tax Assessment Act 1997 (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 income tax consolidated group (TCG) are treated, for income tax purposes, as having been undertaken by Company A as the head company of the TCG. | Detailed Reasoning - Questions 6 to 8: The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986. The Commissioner has therefore provided a ruling to Company A as the only employing entity in the Group. | Detailed Reasoning - 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 mining exploration where employee salary and wages costs are not capitalised and are necessarily incurred in exploration activities. The company operates an employee share scheme (ESS) as part of its remuneration strategy. Under the Plans, the Company grants options, shares or 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/rights/shares. | Detailed Reasoning - Incurred in carrying on a business: The Company or a Group Company must provide the Trustee with all the funds required to act as requested by the Group. The contributions made by the Company are irretrievable and non-refundable to the Company in accordance with the Deed as: • On termination of the Trust, the Company and any member of the Group do not have any entitlement to any part of the Trust Fund, including any shares that form part of the Trust Fund, at any time and • The Company may not acquire any interest in the Capital (or corpus) or be entitled to any Income of the Trust Fund. The Company has granted (and will in the future grant) rights/options/shares 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 rights/options/shares 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 employee share scheme for employees of the Company. Costs incurred are likely to be in relation to more than one grant of Awards (rather than being one-off), and the Company intends to satisfy outstanding Awards 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. Accordingly, Company A as head of the TCG will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee of the Trust to acquire shares in the Company to satisfy ESS interests issued pursuant to the Plans. | Detailed Reasoning - Question 2: Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. Company A carries on a business of mining exploration to produce assessable income. Company A operates an employee share scheme as part of its remuneration strategy. Company A incurs the following ongoing administration costs for operating the Employee Share Scheme (ESS): • Legal, tax and accounting fees; • Employee plan record keeping; • Brokerage costs for the acquisition of shares; • Preparing the annual audit of the financial statements; • Preparing the annual tax returns or obtaining tax advice as required for the Trust; and • Trustee fees. These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income. Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company. (ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible) | Detailed Reasoning - Question 3: 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/shares to the employees arising in the year of income from the grant of options/shares, under an employee share scheme. 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 EOP is an employee share scheme 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 Company A. The ELTIP is an employee share scheme for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests (i.e. a beneficial interest in a share) are provided to employees (i.e., Participants) in relation to their employment with Company A. The ESIP is also an employee share scheme for the same reasons as described above, however, it also includes securities that can be cash settled. These are discussed below under indeterminate rights. These Plans contain a number of interrelated components which includes the provision of irretrievable cash contributions by Company A to the Trustee of the Trust. These contributions enable the Trustee to acquire Company A shares for the purpose of enabling each Participant to acquire ESS interests as per the Plans. The irretrievable cash contribution can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a share in Company A, or beneficial interest in a right to a beneficial interest in a share in Company A, is acquired by a Participant under the Plans. | Detailed Reasoning - Indeterminate rights: Rights granted under the ESIP can be indeterminate rights for the purposes of section 83A-340. That is because, where the invitation indicates, the right can be settled 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 is determined that 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, as per the facts, where the Rights do not become an ESS interest because they are ultimately satisfied in cash, the outgoing will not flow through the Trust. If they did flow through the Trust, the Trust would not satisfy the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997. Question 4 | Detailed Reasoning - Ordinary Income: Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In an ESS, where the trustee subscribes to the company for an issue of shares and pays the full subscription price for the shares, the company receives a contribution of share capital from the trustee. The character of the contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Here, Company A is issuing the Trustee with new shares in itself. The character of the newly issued share is one of capital. Therefore, the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee. Accordingly, when Company A receives subscription proceeds from the Trustee where the Trustee has subscribed for new shares in Company A to satisfy obligations to Participants, that subscription proceeds received by Company A is a capital receipt. That is, it will not be on revenue account, and will not be ordinary income under section 6-5. | Detailed Reasoning - Section 20-20: Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year. Company A will receive an amount for the subscription of shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation. Subsection 20-20(3) establishes that an amount received by you as 'recoupment' of a loss or outgoing is an 'assessable recoupment' if you can deduct the loss or outgoing for an earlier income year under a provision listed in section 20-30. Recoupment is defined in subsection 20-25(1) to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of a loss or outgoing. The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing. So far as a deduction under section 8-1 allowed for bad debts or rates or taxes is concerned, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. However, the receipt by Company A made in return for issuing shares to the Trustee would not be a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes to which section 20-30 could apply. Therefore, the subscription proceeds will not be an assessable recoupment under section 20-20. | Detailed Reasoning - Capital Gains Tax: Section 102-20 states that you make a capital gain or loss if and only if a CGT event happens. No CGT events occur when the Trust satisfies its obligations by subscribing for new shares in Company A. The relevant CGT events that may be applicable when the subscription proceeds are received by Company A are CGT events D1 (creating a contractual or other rights) and H2 (receipt for event relating to a CGT asset). However, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case, Company A is issuing shares, being equity interests as defined in section 974-75, to the Trustee, therefore CGT event D1 does not happen. In relation to CGT event H2, paragraph 104-155(5)(c) also states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. Therefore, CGT event H2 does not occur. Since no CGT event occurs, there is no amount that will be assessable as a capital gain to Company A. Therefore, when the Trust satisfies its obligations under the Plans by subscribing for new shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5 or section 20-20, nor trigger a CGT event under Division 104. | Detailed Reasoning - Question 5: Part IVA of the ITAA 1936 is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A 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 EST 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 Company A to obtain a tax benefit. | Detailed Reasoning - Question 6: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the Frings Benefits Tax Assessment Act 1986 (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; The Commissioner accepts that the Plans are an employee share schemes. Specifically, the awards provided under the Plans are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests as they are provided at a discount. Accordingly, the provision rights/options/shares under the Plans will not be subject to FBT on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. In addition, when an option 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 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 - Indeterminate rights under the Plans: At the time the Rights are granted under the Plans, 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 a 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 a fringe benefit by paragraph 136(1)(f) of the FBTAA. This outcome is consistent with ATO Interpretative Decision ATO ID 2010/142 Fringe Benefits Tax Employee share scheme: indeterminate rights not fringe benefits. | Detailed Reasoning - Question 7: 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 a company, namely Company A and • The Trust ensures that ESS interests as defined in subsection 83A-10(1) (being options/rights/shares in Company A) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the 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 Draft Taxation Determination TD 2019/D8: 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 Trust is in line with the definition of an employee share trust under section 130-85(4) because: • The Trust acquires shares in a company, namely Company A • The sole purpose being the acquisition, holding, and ongoing administration of holding Company A shares under the Plans for the benefit of the Participants (see the Trust Deed) and the Commissioner accepts that the other activities undertaken by the Trustee will be merely incidental to this purpose 130-85(4)(c) • The Trust ensures that ESS interests as defined in subsection 83A-10(1) are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Trust Deed and the Plans • the Trust Deed indicates that the Company and the Trustee agree the Trust will be managed and administered so that it satisfies the definition of 'employee share trust' for the purpose of subsection 130-85(4) (the Trust Deed). Further, the Trustee did not act of the former clauses of the Trust Deed prior to its replacement by supplementary Amendment Deed. Therefore, the cash contribution made by Company A to fund the subscription for or acquisition on-market of Company A shares by the Trust will not be a fringe benefit. | Detailed Reasoning - Question 8: PS LA 2005/24 Application of General Anti-Avoidance Rules explains the application of Part IVA or other general anti-avoidance rules to an arrangement, including the operation of section 67 of the FBTAA (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. Paragraph 191 of PS LA 2005/24 states: 191. The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. Irretrievable cash contributions made by Company A to the Trust will not be a fringe benefit defined in subsection 136(1) of the FBTAA as explained in the reasons for question 7. As a result, the FBT liability of Company A is not any less than it would have been but for the existence of the arrangement. The Commissioner will not make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of Company A by the amount of the tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares.