Private ruling: Employee share scheme
Published: July 2014
Ruling period: Income tax year ending 30 June 2014 to year ending 30 June 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Trustee for the Company (the Trustee or Trustee of the EST) be assessed under sections 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) on the irretrievable contributions of money it receives for the provision of shares to participating Company employees? | A1: No. | Q2: Will the Trustee of the EST derive any assessable income under section 6-5 or section 6-10 of the ITAA 1997 in respect of shares allocated or transferred to participants? | A2: No. | Q3: In respect of shares acquired by the Trustee of the EST under the terms of the Equity Plans, will any capital gain or capital loss made by the Trustee under CGT Event E5 (section 104-75 of the ITAA 1997) or CGT Event E7 (section 104-85 of the ITAA 1997) be disregarded? | A3: Yes.

Relevant facts and circumstances: The Company has implemented two equity based compensation plans (Equity Plans) as part of its remuneration policy for its employees. These are: • Performance Rights Plan (PRP); and • Employee Share Option Plan (ESOP). Performance Rights currently on issue are governed by the PRP Rules and do not have vesting conditions exceeding three years. The ESOP is governed by the Employee Share and Option Scheme Terms and Conditions (together referred to as plan documents). On a specific date, the Company established the Company Equity Plan Trust (EST) to facilitate the provision of shares in the Company under each of the above mentioned Equity Plans to certain Australian employees of the Company (Participants). The trustee of the EST is not part of the Company tax consolidated group. The Company intends to amend existing plan documents to introduce new equity based compensation plans and further, to accommodate the use of the EST. The applicant advised that the summary provided in the application accurately reflects the substance of the proposed changes. It is proposed that current Equity Plan Participants and new employees will be eligible to participate in the Equity Plans administered by the EST. For current Equity Plan Participants, the existing deeds will be amended to transition into the new scheme, and for new employees, new share deeds incorporating the new scheme will be entered into. The Company Performance Rights Plan (PRP) The key features of the PRP are as follows: • At the Board's absolute discretion, it may from time to time issue invitations to Eligible Persons to participate in the Plan (PRP clause 4). • The Invitation to participate will specify information, including any applicable Performance Hurdles (for example, growth targets and the minimum employment service) and the Performance Period over which the Performance Hurdles will be measured (PRP clause 4). • The Performance Rights (PRs) will be granted for no consideration payable by the Participant (PRP clause 5.1(b)). • The PRs do not confer on the Eligible Person the right to participate in a new issue of Shares by the Company, including by way of bonus issue, rights issue or otherwise (PRP clause 5.4). • Participants have no entitlement to be granted any PRs unless and until such PRs are granted (PRP clause 5.1(c)). • The Performance Hurdles (PRP clause 6) for the PRs issued to date have been broken into two separate vesting conditions as follows: Category One • Divided into three equal tranches of PRs for the first three years of employment vesting when business unit or group profit targets are met. Category Two • Divided into three equal tranches of PRs for the first three years of employment, vesting when the ten day volume weighted average share price (VWAP') exceeds set levels. • The Performance Hurdles will be measured during the respective Performance Period. Where PRs have not vested, the Board may make a determination that the PRs will lapse (PRP clause 6.2). • Each PR is eligible to be converted into one ordinary share in the Company on satisfaction of the relevant criteria. • PRs can only be exercised through submission of a Notice of Exercise provided the PR has vested and has not lapsed (PRP clause 6.29b)). • Shares issued as a consequence of the exercise of PRs, will from the date of allotment, rank pari pasu in all respects with other issued shares, except as otherwise set out in the Plan, and will be entitled in full to dividends from the date of issue (PRP clause 11). • Administration of the PRP is vested in the Board (PRP clause 12). Employee Share Option Plan (ESOP) The ESOP broadly operates as follows: • The Board may at any time decide that the Scheme should be operated in respect of any Financial Year and it its discretion, the total number of Securities to be offered to each eligible Employee and the Issue Price at which the Securities are offered (ESOP clause 2.1). • The Board may in its absolute discretion determine that an employee who otherwise would be eligible to acquire Securities is not eligible (ESOP clause 2). • The Offer of Shares is provided in writing and will specify, amongst other things, the number of Shares offered, the Issue Price and the Performance Hurdles applying to the Offer (ESOP clause 3);. • The Offer of Options is provided in writing and will specify, amongst other things, the number of Options, Option Period, Exercise Price and any Performance Hurdles applying to the Offer (ESOP clause 4). • The total number of Securities which may be offered under the Scheme will not at any time exceed 5% of the Company's total issued Shares (ESOP clause 2.2). • When exercisable, each Option is convertible into one ordinary share • To exercise an Option, a Participant must sign and return an exercise notice in a form prepared by the Company. Options which have not been exercised by the expiry of the Option Period will lapse (ESOP clause 8). • Option holders do not have any right to participate in new issues of Securities in the Company made to shareholders generally (ESOP clause 9.1). • The Option holder does not participate in any dividends unless the Options are exercised and the resultant Shares of the Company are issued (ESOP clause 9.2). • If there is a bonus issue to the holders of Shares in the Company, the number of Shares over which the Option is exercise may be increased (ESOP clause 10). • The Board at its absolute discretion may Offer and issue Restricted Shares and Restricted Options upon the terms and conditions it sees fit (ESOP clause 16). • Administration of the ESOP is vested in the Board (ESOP clause 21). The applicant has advised no Restricted Shares were issued nor are any intended to be issued under the Equity Plans. Employee Share Trust On a specific date, the Company established the EST for the purposes of managing the current and future incentive plans in accordance with the Equity Plan Trust Deed (the Trust Deed). The trustee is an independent entity appointed by the Board as the Trustee of the EST. The EST has been established for the sole purpose of obtaining shares for the benefit of Participants in the Equity Plans, including subscribing for, or acquiring, allocating, holding and delivering shares in the Company under the PRP, ESOP and any other employee equity plans for the benefit of Participants (Clause 2.4 of the Trust Deed). The documentation for the Equity Plans will be amended to allow the Board to use an EST to facilitate the implementation of the PRP and ESOP. The Trust will be managed and administered so that it satisfies the definition of an 'employee share trust' in section 130-85(4) of the ITAA 1997 (Clause 3.1(l) of the Trust Deed). The EST will be funded by contributions from the Company for the purchase of shares under the Equity Plans (Clause 4.4 of the Trust Deed). Upon receipt of notice from the Board, the Trustee will purchase the requisite number of shares, in accordance with the Equity Plans, either from existing shareholders, via subscription from the Company, or through allocation of shares that are trust assets not being held on behalf of any other Participant (Clauses 4.1, 4.2, 4,3, 5.2(b) of the Trust Deed). A combination of these acts can also be undertaken to effect the purchase. The structure of the EST and the rules of each Equity Plan, are such that shares allocated to each employee will generally be transferred into the name of the relevant Participant (Clause 7.1 of the Trust Deed). The Participants are absolutely entitled to the Shares as against the Trustee of the EST from the time the Shares are allocated to them. By written notice, the Participants can apply for legal title to the shares held in the EST to be transferred to them or to a third party. The Trustee will, after lifting of any relevant restrictions, be permitted to sell shares on behalf of a Participant where the relevant Equity Plan rules permit (subject to any restrictions on transfer that are imposed upon Participants in the Equity Plans) (Clause 7.5 of the Trust Deed). The Trustee may not exercise any voting rights, participate in rights issues or hold any bonus shares in relation to unallocated trust shares. The Trustee may, however, apply any capital receipts, dividends or other distributions received in relation to the unallocated shares to purchase further shares to be held on trust (Clause 5.1 of the Trust Deed). The Trustee is not permitted to carry out activities which result in the Participants in the Equity Plans being provided with additional benefits other than the benefits that arise from the relevant Equity Plan rules (Clause 3.1 of the Trust Deed). The Trustee is not permitted to carry out activities that are not matters or things which are necessary or expedient to administer and maintain the EST (Clause 3.1 of the Trust Deed). Commercial Benefits of EST The use of an EST has a range of commercial benefits. In particular, the EST will: • Provide an arm's length vehicle for acquiring and holding shares in the Company, either by way of subscription or acquisition from existing shareholders. • Assist the Company in relation to dealing in its own shares while meeting its legal requirements under the Corporation Act 2001 which generally prohibits a company from acquiring its own shares. The use of the EST provides a mechanism to allow for the acquisition of the Company's shares through the EST and the EST is not prohibited from doing so as a result of the Company having no beneficial Interest in any shares held by the EST. • Assist the Company in managing any insider trading issues as the Trustee, a party acting independently and with a fiduciary duty to its beneficiaries, is acquiring shares in accordance with a set policy. • Provide the Company with capital management flexibility. That is, shares allocated to Participants can be either acquired from other shareholders or through subscription. This is important for the Company's shareholders as, in deciding the appropriate acquisition method, the most effective manner to utilise cash for shareholder benefit, and any concerns that existing shareholders have in relation to dilution of their existing shareholdings, can be considered. • Provide greater flexibility to accommodate its long term incentive arrangements whilst the Company continues to expand in terms of operations and employee numbers in future years. • Provide the Company with better visibility on management's share transactions in respect of shares acquired under any of the Equity Plans. The mechanism implemented through the facilitation of the Equity Plans through the EST assists the Company to better assess which of its employees are fully committed to aligning their Interests with those of shareholders. • Provide an efficient structure for giving effect to disposal restrictions/vesting conditions. As the Trustee is the legal owner of the shares, the Participants as beneficial owners have no ability to deal in the shares, until the shares are released from the Trust. • Provide a single vehicle for the administration of Equity Plans and any new plans, resulting in reduced administrative costs. • Allow for easy recycling of shares, without increasing the percentage of ownership of other shareholders. When, for example, PRs have been issued to a particular employee, shares have been acquired by the Trustee in advance but have not yet been allocated to be held on behalf of that employee, and the PRs do not subsequently vest, the Company can allocate those shares to other future offers to employees under the Equity Plans. • Provide the Company with an efficient mechanism for the administration and operation of any new employee equity plans which it introduces in the future. Costs incurred by the Company to administer the EST The Company will incur various costs in relation to the administration of the EST, including but not limited to: • taxation and legal advice in respect of the Australian tax and legal implications which may arise for both the Company and the Participants of the relevant Equity Plans in respect of the EST structure • legal drafting fees in respect of the various legal documents required in respect of the EST and the Equity Plans. • legal advice in respect to the drafting of changes required to existing Equity Plans in order to accommodate the EST structure. • professional fees associated with the establishment of the EST including such costs associated with the creation and registration of the EST with various authorities. • taxation fees associated with the drafting and lodgment of the Application with the ATO. The Company will also incur costs associated with the services provided by the Trustee of the EST in respect of the on-going administration and management of the EST, including but not limited to: • employee plan record keeping; • production and dispatch of holding statements to employees; • provision of annual income tax return information; • acquisition of shares and allocation to Participants; • management of employee termination; • costs associated with the acquisition of shares (e.g. brokerage and other fees in allocation of shares to Participants).

Relevant legislative provisions: Income Tax Assessment Act 1936 - Division 6 | In come Tax Assessment Act 1936 - section 95 | In come Tax Assessment Act 1936 - subsection 95(1) | Income Tax Assessment Act 1997 - section 6-5 | Income Tax Assessment Act 1997 - subsection 6-5(1) | Income Tax Assessment Act 1997 - section 6-10 | Income Tax Assessment Act 1997 - subsection 6-10(1) | Income Tax Assessment Act 1997 - subsection 6-10(2) | Income Tax Assessment Act 1997 - section 10-5 | Income Tax Assessment Act 1997 - Division 83A | Income Tax Assessment Act 1997 - section 83A-10 | Income Tax Assessment Act 1997 - subsection 83A-10(2) | Income Tax Assessment Act 1997 - section 83A-20 | Income Tax Assessment Act 1997 - subsection 83A-20(1) | Income Tax Assessment Act 1997 - Subdivision 83A-B | Income Tax Assessment Act 1997 - Subdivision 83A-C | Income Tax Assessment Act 1997 - Division 128 | Income Tax Assessment Act 1997 - section 104-75 | Income Tax Assessment Act 1997 - section 104-85 | Income Tax Assessment Act 1997 - subsection 104-85(1) | Income Tax Assessment Act 1997 - subsection 104-85(2) | Income Tax Assessment Act 1997 - section 130-85 | Income Tax Assessment Act 1997 - subsection 130-85(4) | Income Tax Assessment Act 1997 - section 130-90 | Income Tax Assessment Act 1997 - subsection 130-90(1) | Income Tax Assessment Act 1997 - subsection 130-90(2) | Income Tax Assessment Act 1997 - paragraph 130-90(1)(a) | Income Tax Assessment Act 1997 - paragraph 130-90(1)(b) | Income Tax Assessment Act 1997 - paragraph 130-90(1)(c) | Income Tax Assessment Act 1997 - paragraph 130-90(1)(d) | Income Tax Assessment Act 1997 - section 106-50 | Income Tax Assessment Act 1997 - section 995-1 | Corporations Act 2001

Reasons for decision: Summary: The irretrievable contributions by the Company to the Trustee to fund the acquisition of the Company shares by the EST will not be assessable income of the EST under section 6-5 or 6-10 of ITAA 1997. | Detailed Reasoning - Detailed reasoning: The basic trust income assessing provisions are contained in Division 6 in Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 95(1) of the ITAA 1936 defines net income of a trust as the total assessable income of the trust calculated as if the trustee were a resident taxpayer in respect of that income, less all allowable deductions. Subsection 6-5(1) of the ITAA 1997 states: 'Your assessable income includes income according to ordinary concepts, which is also called ordinary income .' Subsection 6-10(1) of the ITAA 1997 states: 'Your assessable income also includes some amounts that are not ordinary income.' Subsection 6-10(2) of the ITAA 1997 states: 'Amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income .' A note to subsection 6-10(2) of the ITAA 1997 provides a comprehensive listing of the relevant statutory provisions is given in section 10-5 of the ITAA 1997. However, none of the provisions listed in section 10-5 of the ITAA 1997 are relevant to the facts and circumstances of this ruling. Therefore irretrievable non-refundable contributions made by the Company to Trustee for the EST to fund the subscription for, or acquisition on-market of, the Company shares under the Equity Plans 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 the Trust 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, which is considered in the following section of the reasons for decision. The EST is established solely to manage and administer the Company Equity Plans so that it satisfies the definition of an 'employee share trust' in subsection 130-85(4) of the ITAA 1997 (clause 3.1(l) of the Trust Deed). The general power granted to the Trustee of the EST must be exercised only for the purposes of the EST and only to give effect to the Equity Plans. Clause 2.5 of the Trust Deed states that all funds received from the Company for the purposes of the Equity Plans will constitute accretions to the corpus of the EST. Furthermore under the terms of the Trust Deed, the Trustee must use the contributions from the Company to acquire the Company shares on behalf of the Participants when directed by the Company to do so, The decision in ATO Interpretative Decision ATO ID 2002/965 provides that the Trustee of an employee share trust will not be assessed under section 6-5 of the ITAA 1997 or section 6-10 of the ITAA 1997 on contributions made to the trust by an employer for the purpose of, and under, the employer's employee share scheme. ATO ID 2002/965 determines that the contributions constitute capital receipts to the trustee. In accordance with the decision in ATO ID 202/965 the irretrievable non-refundable contributions made by the Company to the Trustee for the EST to acquire the Company shares will not be assessable income under section 6-5 of the ITAA 1997, but will constitute capital receipts of the Trustee. Accordingly, the irretrievable cash contributions made by the Company to the Trustee are used in accordance with the Trust Deed and plan rules for the sole purpose of and under the employee share scheme. The contributions constitute capital receipts to the Trust, and are not assessable under section 6-5 of the ITAA 1997 (ordinary income) or section 6-10 of the ITAA 1997 (statutory income) | Summary: The Trustee of the EST will not derive any assessable income under section 6-5 or section 6-10 of the ITAA 1997 in respect of shares allocated or transferred to Participants. | Detailed Reasoning - Detailed reasoning: As discussed in Question 1 above, subsection 6-5(1) of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts, which is also called ordinary income. Subsection 95(1) of the ITAA 1936 defines net income of a trust as the total assessable income of the trust calculated as if the trustee were a resident taxpayer in respect of that income, less all allowable deductions. Draft Taxation Ruling TR 2014/D1 explains the consequences for a trustee who participates in an EST at paragraph 30 as follows: 30. Gains made by a trustee of an ERT on the realisation of trust assets are included in the trust's section 95 net income as ordinary income if after a wide survey and exact scrutiny of all of the relevant factors, it is determined that the gain or loss was made: • in the ordinary course of carrying on a business of investment; • outside of the ordinary course of that business but from an arrangement entered into with the intention of making a profit or gain; or • from a one-off or isolated transaction where the investment was acquired in a business operation or commercial transaction for the purpose of profit-making. In the present case, the activities carried out by the Trustee in facilitating the Company Equity Plans do not meet the above criteria. The Trustee is not carrying on a business of investment (there is no systematic course of buying and selling shares with the intent of profit-making). Furthermore, the role of the Trustee is not to enter into investments for the purposes of making a profit or a gain. The Trustee is bound to the operation of the Trust Deed which constrains the means by which the Trustee can dispose of shares as indicated in the following clauses of the Trust Deed: | Detailed Reasoning - Clause 3.2 General limitation on Trustees powers: The Trustees's power to subscribe for, purchase or otherwise acquire and to sell, dispose or otherwise deal with any property, rights or privileges which the Trustee is authorised to acquire or dispose is: a) confined to the purposes of this Trust Deed; and b) is for the benefit of the Participants. | Detailed Reasoning - Clause 6.8 Sale of Shares: Allocated Shares acquired under the Equity Plans may only be sold in accordance with clause 7.3, 7.4 and 7.5 and any applicable Rules of Participation. | Detailed Reasoning - Clause 7.3 - Sale of Allocated Shares before Restriction Period: Except where an event described in clause7.4 has occurred, an Allocated Share that is subject to a Restriction Period must not, before the expiration of the Restriction Period, be: a) sold by the Trustee on behalf of the Participant; or b) transferred to the Participant, c) unless the Board decides otherwise. | Detailed Reasoning - Clause 7.4- Forfeiture of Allocated Shares: If the Participant forfeits their interest in the Allocated Shares, the Trustee may sell the Allocated Shares held on behalf of that Participant and the Participant has no entitlement to the proceeds of sale which will be treated as a contribution to the Trust Fund. | Detailed Reasoning - Clause 7.5- Sale of Allocated Shares: a) If permitted by the relevant Equity Plan and any applicable Rules of Participation, the Trustee may, subject to clause 7.3, at the direction of the Participant, sell Allocated Shares. b) The Trustee will apply the proceeds of sale in the following order: (i) first, in payment of brokerage and any other costs and expenses of sole incurred by the Trustee (including an amount sufficient to meet any liability for tax imposed on the Trustee as a result of the sale); and (ii) second, any balance will be paid to the Participant as soon as practicable. (iii) A Participant may agree with the Trustee to repay debts owing or monies payable to o Group Company on his or her behalf from the proceeds of disposal of the Participant's Allocated Shares. The above clauses indicate the allocation, transfer, discharge or sale of shares may only occur in specified circumstances. Further it is evident that such actions are carried out in the course of performing the Trustee's fiduciary duty to preserve for the Participants the trust assets until such time as the Participants are entitled to those assets or alternatively, where the Trustee is instructed to release or discharge those assets. At no point is the Trustee engaged in any activities to derive profits. Rather the Trustee is acquiring shares (upon instruction from the Company) with the intention of preserving any capital growth for the benefit of the Participants. Therefore, the Trustee should not be considered to derive any ordinary income under section 6-5 of the ITAA 1997 as a result of performing its function as Trustee of the Employee Share Trust by acquiring, holding and transferring shares under the terms of the Trust Deed and the Equity Plans. Furthermore, acquiring, holding and transferring shares under the terms of the Trust Deed and the Equity Plans should not give rise to particular kinds of assessable income contained in the list of provisions in section 10-5 of the ITAA 1997. Accordingly, the Trustee of the EST will not derive any assessable income under section 6-5 or section 6-10 of the ITAA 1997 in respect of shares allocated or transferred to Participants. | Summary: Any capital gain or capital loss that arise for the Trustee of the EST under CGT Event E5 (section 104-75 of the ITAA 1997) or CGT Event E7 (section 104-85 of the ITAA 1997) in respect of shares acquired by the Trustee of the EST under the terms of the Equity Plans will be disregarded. | Detailed Reasoning - CGT event E5: Section 104-75 of the ITAA 1997 provides that CGT event E5 happens at the time a beneficiary becomes 'absolutely entitled' to a CGT asset of a trust as against the trustee. Section 130-90 of the ITAA 1997 operates to ensure that any capital gain or loss made by an EST is disregarded if it arises as a result of the beneficiary of the trust becoming absolutely entitled to an employee share scheme share (CGT event E5), or as a result of a disposal of an employee share scheme share or right to a beneficiary (CGT event E7). In respect of PRs, Participants will be absolutely entitled to Allocated shares after meeting vesting conditions, once shares have been acquired and allocated by the Trustee of the EST to the Participant but continue to be held by the Trustee pursuant to the Trust Deed. In respect of Options, Participants will be absolutely entitled to Allocated shares following exercise of options, acquisition and allocation of shares to Participants. (Clause 4.5 of the Trust Deed) Subsections 130-90(1) and 130-90(2) state: 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 (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. | Detailed Reasoning - Employee share trust: As discussed at Question 1, the terms of the Trust Deed indicate that the EST is an 'employee share trust' as defined in subsection 130-85(4) of the ITAA 1997. | Detailed Reasoning - Paragraph 130-90(1)(a) of the ITAA 1997: CGT event E5 is the CGT event that will apply under the terms of the Equity Plans at the time each Participant becomes absolutely entitled to shares, on the exercise of the Options and PRs in the Company as against the Trustee. Therefore paragraph 130-90(1)(a) will be satisfied. | Detailed Reasoning - Paragraph 130-90(1)(b) of the ITAA 1997: Section 995-1 of the ITAA 1997 defines a share to mean a share in the capital of a company. An ordinary share held by the Trustee and to which a Participant is entitled is a share in the capital of the Company. A Participant will be absolutely entitled to a share when the share is allocated to the Participant after vesting of a PR or exercise of an Option. Accordingly, paragraph 130-90(1)(b) is satisfied as CGT event E5 happens when the share is allocated to a Participant. | Detailed Reasoning - Paragraph 130-90(1)(c) of the ITAA 1997: Paragraph130-90(1)(c) is satisfied as a Participant will have acquired a beneficial interest in a share (in the Company) by exercising an Option or vesting of a PR granted under the Company Equity Plans. | Detailed Reasoning - 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 995-1 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 scheme is an employee share scheme for the purposes of Division 83A of the ITAA 1997 as it is an arrangement/plan (scheme) under which an ESS interest i.e. a beneficial interest in a right to acquire a beneficial interest in a share of the Company, is provided to eligible employees in relation to their employment by the Company. The ESS interests are acquired at a discount. Accordingly, prima facie Subdivision 83A-B of the ITAA 1997 will apply to the options and rights acquired as pursuant to subsection 83A-20(1) of the ITAA 1997 the ESS interest will be acquired under an employee scheme at a discount. 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(d) of the ITAA 1997 will be satisfied. Accordingly, all the conditions in subsection 130-90(1) of the ITAA 1997 have been satisfied. Because the beneficiary will not acquire the beneficial interest in the share for more than its cost base in the hands of the EST at the time that CGT event E5 happens, subsection 130-90(2) of the ITAA 1997 will also 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 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. As discussed earlier for CGT event E5, section 130-90 of the ITAA 1997 operates to ensure that any capital gain or loss made by an EST is disregarded if it arises as a result of a beneficiary of the trust becoming absolutely entitled to an employee scheme share (CGT event E5), or as a result of a disposal of an ESS share or right to a beneficiary (CGT event E7). Under the Equity Plans, the transfer or sale of shares held by the Trustee is contained in Clause 7 of the Trust Deed. Clause 7.1 - Transfer of Trust shares Subject to clause 7.5, the Trustee must as soon as practicable, transfer an Allocated share to the Participant: a) where the Trustee is required to do so, or permitted, by the relevant Equity Plan and any applicable rules of participation; b) if the Trust is terminated under clause 11; or c) otherwise, where the Board in its discretion determines. Clause 7.5 - Sale of Allocated Shares a) If permitted by the relevant Equity Plan and any applicable Rules of Participation, the Trustee may, subject to clause 7.3, at the direction of the Participant, sell Allocated Shares; b) The Trustee will apply the proceeds of sale in the following order: i) first, in payment of brokerage and any other costs and expenses of sole incurred by the Trustee (including an amount sufficient to meet any liability for Tax imposed on the Trustee as a result of the sale); and ii) second, any balance will be paid to the Participant as soon as practicable. c) A Participant may agree with the Trustee to repay debts owing or monies payable to o Group Company on his or her behalf from the proceeds of disposal of the Participant's Allocated Shares. Upon transfer of the legal title in those trust shares, in accordance with the relevant Plan Rules, CGT event E7 will occur at the time legal title in the shares is transferred either to the Participant, or a third party as directed by the Participant. 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. Participants, on allocation of shares by the Trustee of the EST, become absolutely entitled to those shares as against the Trustee (clause 4.5 of the Trust Deed). Once the Participants are absolutely entitled to shares held on their behalf by the EST, section 106-50 of the ITAA 1997 will deem the disposal of such 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 the Company Equity Plans (by way of transfer to a Participant or to a third party as directed by the Participant), the Trustee will not make a capital gain or capital loss under CGT event E7. A capital gain arises to the Trustee if the market value of the share at the time of disposal to the Participant is more than the share's cost base (subsection 104-85(3) of the ITAA 1997). A capital loss arises to the Trustee if the market value of the share at the time of disposal to the Participant is less than the share's reduced cost base (subsection 104-85(3) of the ITAA 1997). As discussed for CGT Event E5 above, all the conditions in paragraphs 130-90(1)(a) to (d) will be satisfied. Provided a Participant does not acquire the beneficial interest in the share for more than its cost base in the hands of the EST, at the time that CGT event E7 happens, subsection 130-90(2) of the ITAA 1997 will also be satisfied. Under these circumstances, section 130-90 will also operate to disregard a CGT event E7 capital gain or capital loss made by the Trustee or a beneficiary of the EST.

Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | 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 first need to obtain and consider all the facts about the arrangement that are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter ' part iva general ' in the search box at the top right of the page, then select ' Part IVA: the general anti-avoidance rule for income tax '.