Private ruling: Employee Share Scheme
Date of advice: 12 November 2025
Published: 5 January 2026
Ruling period: Questions 1 to 6 | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Questions 7 to 8 | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX | Fringe benefits year ended 31 March 20XX
Date scheme commenced: 1 July 20X

Ruling: Q1: Will the Company obtain an income tax deduction pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition of ordinary shares in the Company (Shares) by the Employee Share Trust (EST) to satisfy the issue of Shares by the Trustee to Participants under the Plans? | A1: Yes. | Q2: Will the Company obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by the Company in relation to the on-going administration of the EST? | A2: Yes. | Q3: Will the Company obtain an income tax deduction, pursuant to section 40-880 of the ITAA 1997, in relation to establishment costs of the EST? | A3: Yes. | Q4: Will irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition of Shares by the EST, be deductible to the Company at a time determine by section 83A-210 of the ITAA 1997 where contributions are made before the acquisition of the relevant ESS interests (as defined in subsection 83A-10(1) of the ITAA 1997)? | A4: Yes. | Q5: Where the EST satisfies its obligation under the Plan by subscribing for new Shares in the Company, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA? | A5: Yes. | Q6: Will the Commissioner seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition of Shares by the EST? | A6: No. Issue 2 - Fringe Benefits Tax | Q7: Will the provision of Options by the Company to employees of the Company under the Plans be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Assessment Act 1986 (FBTAA 1986)? | A7: No. | Q8: Will the irretrievable cash contributions made by WarpForge to the Trustee pursuant to the Trust Deed, to fund the subscription for or acquisition of Shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | A8: No. | Q9: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company, by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition of Shares? | A9: No.

Relevant facts and circumstances: Background The Company is an Australian registered company. The Company operates a business, operating across multiple industry sectors. The Company's performance is strongly correlated with the quality of its employees. Accordingly, The Company is committed to maintaining a remuneration policy that is simplified yet drives a performance culture and ensures employee rewards are aligned with the achievement of the Company's overall strategic objectives, outcomes and creation of value for shareholders. The Company rewards key employees with a mix of remuneration commensurate with their position and responsibilities. Remuneration structures are reviewed regularly to ensure that: • Remuneration is competitive by market standards; • rewards are linked to strategic goals and performance; and • the remuneration framework is effective in driving growth and profitability. The remuneration of key employees at the Company is comprised of the following elements: • Fixed remuneration, which includes base pay and other benefits; and • Performance linked remuneration, which consists of: ­ Short term incentives and ­ Long term incentives, which are discussed further below. Implementation of the Plans The Company maintains a strong focus on the attraction, retention and motivation of staff to facilitate continued growth of the Company over the short, medium and long-term. The retention of outstanding people is an ongoing challenge faced by many companies in the Australian market. Accordingly, the Company is continually evaluating ways to improve the scope and implementation of incentive programs to its employees. Pursuant to this growth strategy, the Company has implemented two equity incentive plans being: • The Equity X Plan and • The Premium X Plan (together, the Plans). • The purpose of the implementing the Plans is to: ­ assist in reward, retention and to motivate the Company employees; ­ link the reward of employees to shareholder value creation; and ­ align the interest of employees with shareholders by providing an opportunity to participants to earn rewards via equity interest in the Company based on creating shareholder value. Under the Plans, the Company has granted and intends to continue to grant participants the opportunity to acquire fully paid ordinary shares in the capital of the Company (Shares) subject to the satisfaction of various vesting and / or performance hurdles, under a range of award vehicles. These award vehicles include: • Start Up Options as defined under the Plan rules; • Deferred Tax Options as defined under the Plan rules; and • Premium X, being options granted under the Plans that have an exercise price specified in the Offer Letter at a premium to market value of the Shares at the date of grant. • Together these award vehicles represent the 'Options' granted to participants. The Options to be granted under the Plans will be acquired at a discount and in connection with employment by the Company. Key terms of the Plans The Plans will broadly operate as follows: • An Eligible Participant means a person who is a full time, part time or casual employee (including an executive director), a non-executive director, or a contractor or consultant, of a member of the Company group who has been determined by the Board to be eligible to participate in the Plan from time to time (definition of Eligible Participant in rule X). • The Board may, from time to time, determine that an Eligible Participant may participate in the Plan (rule X). • Following the determination that an Eligible Participant may participate in the Plan, the Board may make an invitation to the Eligible Participant to apply for Options (rule X). The terms of the Invitation will outline the following, including but not limited to: ­ the type or types of Options being granted; ­ the number of Options being granted and / or the method by which the number of Options will be calculated; ­ the Grant Date; ­ the amount (if any) that will be payable for the grant of an Option; and ­ details of any applicable conditions, including performance and/or service conditions (Vesting Conditions), and the applicable period (Vesting Period) (rule X). Eligible Participants who are invited to participate in the Plan must, on or before the period of time allowed for acceptance of the Invitation, give an application to the person specified in the Invitation in accordance with any instructions or conditions set out in the Invitation (rule X). In respect of the Options Options will only vest and be exercisable if the applicable Vesting Conditions have been satisfied, waived by the Board or deemed to have been satisfied under the Plan rules (rule X). Vested Options are exercisable by the participant within the period specified by the Board in the Invitation, subject to the participant delivering to the Company a signed Exercise Notice, payment of the Exercise Price (if any and subject to rule 7.3), and the relevant Certificate (rule X). The Board has discretion to, where Options are exercised, and the resulting Shares are to be delivered, sell on behalf of the participant the number of resulting Shares required to provide the funds required to be withheld on account of Tax or a superannuation amount or to provide the funds required for the Exercise Price (if any) relating to the exercised Options (Rule X) As soon as practicable after the valid exercise of an Option, the Company must issue to that Eligible Participant the number of Shares to which the Eligible Participant is entitled and a substitute certificate for any remaining unexercised Options of that Participant (rule X). Options may not be assigned, transferred, encumbered with a Security Interest in or over them, or otherwise be disposed of by a participant unless the prior consent of the Board is obtained, or effected by force of law upon the death of a participant or a participant's legal personal representative (rule X). On completion of the exercise of Options: • the Company will allocate the number of Shares the participant is entitled to subscribe for or acquire; or • Options will lapse on the earlier of: ­ the application of Good Leaver provisions (rule X), or Bad Leaver provisions (rule X); ­ application of Forfeiture event (rule X); ­ occurrence of a Change of Control event (rule X); ­ failure to satisfy Vesting Conditions by the relevant time, or the Board having determined that Vesting Conditions have not been met prior to the Expiry Date (rule X); or the Expiry Date. Additional overriding restrictions apply to the disposal of Start Up Options and the resulting Shares in the first X years (rule X). Specifically, where a participant has been granted a Start Up Option, that participant must not dispose of that Start Up Option or any resulting Share relating to that Start Up Option unless conditions X-X under rule X are satisfied. Where a participant becomes a Good Leaver all vested Options may be retained. In respect of treatment of unvested Options: • the proportion of unvested Options determined by reference to the period that has elapsed between the Grant Date and the date that the participant became a Good Leaver as a proportion of the period beginning on the Grant Date and ending on the date the Options would otherwise ordinarily have vested (as determined by the Board in its absolute discretion) will be retained; and must forfeit any unvested Options which are not retained in accordance with clause X of the Plan (rule X). Where a participant becomes a Bad Leaver all unvested and vested Options must be forfeited on a date determined by the Board, unless otherwise determined (rule X) Under the Plan, there are additional circumstances under which Options will automatically lapse, including where forfeiture Conditions set out in the participant's invitation are met, the participant acts fraudulently or dishonestly, or wilfully breaches his or her duties to the Group (rule X) All Shares issued under the Plan will rank equally with all existing Shares on and from the date of allotment, issue or transfer, including in respect of all rights and bonus issues (rule X). In relation to the treatment of Options where a Change of Control Event occurs: • A participant that is a Nominated Affiliate must obtain approval of the Board prior to undergoing a change of control; • If approval is not obtained, unless the Board otherwise determines, all of a participant's Options (whether vested or unvested) will be forfeited on the date that the Board determines (rule X) The Plan allows flexibility for the Board to use an employee share trust to hold Shares before or after the exercise of an Option for participants, or to deliver resulting Shares upon the exercise of Options (rule X). In respect of the Premium Priced Options An Eligible Person means any employee, individual contractor or director of one or more Company Group Members selected by the Board to participate in the Premium Priced Option Plan (section X of the Premium X Plan). The Board has the power, in its sole discretion, to select Eligible Persons who will participate in the Premium Priced Option Plan and to determine the terms and conditions of any offer made to Eligible Persons which includes: • the number of Options being granted; • the exercise price of the Options; • any trustee or nominee holding arrangements; • the vesting, disposal and forfeiture restrictions applying to the Options; and • the manner in which the Options may be accepted (rule X of the Premium X Plan). Options will only vest if the applicable Vesting Conditions have been satisfied (rule X and rule X of the Premium X Plan). Vested Options are exercisable during the Exercise Period, subject to the participant delivering to the Company a signed Exercise Notice; paying the Exercise Price (subject to rules X, X, and X of the Premium X Plan (rule X of the Premium X Plan); and delivering to the Company a document to which the participant agrees to become bound by the terms of the Constitution of the Company (rule X of the Premium X Plan). As soon as practicable after the valid exercise of an Option, the Company must issue to that Eligible Person the number of Shares to which the Eligible Person is entitled, free from any Security Interest (rule X of the Premium X Plan). Options may not be disposed of by a participant unless the prior consent of the Board is obtained (rule X of the Premium X Plan), or effected by force of law upon the death of a participant or a participant's legal personal representative (rule X of the Premium Priced Option Plan). Options may be transferred to a nominee who holds on bare trust for that person provided that no beneficial interest in the Options passes as a result of the transfer (rule X of the Premium Priced Options Plan. Options will lapse on the earlier of: • the application of Good Leaver or Bad Leaver provisions (rule X of the Premium X Plan); • failure to satisfy Vesting Conditions by the relevant time, or the Board having determined that Vesting Conditions have not been met prior to the Expiry Date (rule X of the Premium X Plan); • the Expiry Date. Where a participant becomes a Super Good Leaver all vested Options maybe retained (rule X of the Premium X Plan. In respect of treatment of unvested Options: • the Board may notify the Super Good Leaver that all or some of their unvested Options become vested Options on the date they become a Super Good Leaver, and if no such notice is given within X days of said date, all their unvested Options will automatically lapse ((rule X). • All Shares issued under the plan will rank equally with all existing Shares on and from the date of issue and subject to the terms of the Company Constitution (rule X of the Premium X Plan). • In relation to the treatment of Options where changes to corporate structure occur: ­ the Premium X Plan continues to apply in full force despite any Reorganisation Event or Reconstruction; and ii) each participant agrees to any such variations to the Premium Priced Option Plan resulting from any Reorganisation Event or Reconstruction. In respect of resulting Shares: Where an Option has been exercised and the participant has been issued resulting Shares, they will be subject to disposal restrictions (i.e, they cannot be transferred, encumbered or otherwise disposed of, or have a Security Interest granted over them) unless such disposal is in accordance with the Plan or the Company's constitution (rule X). Company Employee Share Trust Company Employee Share Trust (the EST) will be established as a sole purpose trust for the purpose of acquiring Shares for the satisfaction of Options under the rules of the Plans. The EST will be used to administer ESS interests currently on foot under the Plans as well as any other future grants of ESS interests under future equity plans. The Board may do all things necessary for the establishment, administration, operation, and funding of an employee share trust and may, in its absolute discretion, require that a participant's Shares are held in the Trust. The EST provides the Company with greater flexibility to accommodate the incentive arrangements of the Company both now and into the future as the group continues to expand its operations. The EST provides capital management flexibility for the Company, in that the EST can use the contributions made by the Company either to acquire Shares in the Company from a third party, or alternatively subscribe for new shares in the Company. The EST provides an arm's length vehicle through which Shares in the Company can be acquired and held in the Company on behalf of employees. This allows the Company to satisfy Corporations Act 2001 (Cth) (Corporations Act) requirements relating to companies dealing in their own Shares. Equity Trustees Limited, an independent third party, is the Trustee of the EST, and will operate the EST in accordance with the Company Employee Share Trust Deed. The EST will broadly operate as follows: • The Company must provide the Trustee with the funds required for the purchase of Shares in accordance with the Plan (refer to clause X of the Trust Deed). • Irretrievable cash contributions are made regularly and progressively to the EST in accordance with the rules of the Plan and the Trust Deed. • These funds are used by the Trustee to purchase or subscribe for Shares in the Company based on written instructions from the Company (refer to clauses X) and X of the Trust Deed). • Where the rules of the Plan and relevant terms of participation (i.e. Invitation) stipulate that the Shares are to be held by the Trustee on behalf of participants, the Trustee will hold Shares as Shares in respect of a participant(s) (i.e. on an allocated basis) (refer to clause X of the Trust Deed). • Where the rules of the Plan include that the Shares may be held by the Trustee on behalf of participants or employees, the Trustee will hold Shares as unallocated Shares for future allocation to participants (refer to clause X of the Trust Deed). • After a disposal restriction period lapses, the Trustee must transfer the relevant number of Shares into the name of the relevant participant or any third party as directed by the relevant participant (i.e. legal title) upon a withdrawal notice being submitted to the Trustee (refer to clauses X and X of the Trust Deed). • The Trustee can sell Shares on behalf of a participant where permitted to do so by the participant (refer to clause X of the Trust Deed). Contributions to the Trust The Company will not pay cash contributions to the EST in respect of Options prior to the issue of those Options under the Plans to participants. The Company, where possible, will wait until the Options vest (and to receive the Notice of Exercise from participants where relevant) before providing the EST with the cash necessary to acquire Shares to satisfy the acquisition of Shares related to those Options. If Options are granted under the Plans, the Company will also typically wait until grant of Options to make related contributions to the EST. Where it makes commercial sense to do so, the Company may make cash contributions to the EST prior to the Options vesting, and where relevant, Options being exercised by the participants. In this case, the Company will contribute to the EST enough funding to enable acquisition of Shares in advance of when Options are likely to be exercised or prior to the issue or grant of Options. This allows the Trustee to have enough Shares in the EST ahead of when they need to be allocated to participants; avoiding any delays in allocation.

Relevant legislative provisions: Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 subsection 25-5(1) | Income Tax Assessment Act 1997 section 40-880 | Income Tax Assessment Act 1997 section 83A-10 | Income Tax Assessment Act 1997 section 83A-210 | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 section 701-1 | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Detailed Reasoning - Issue 1: Income Tax | Detailed Reasoning - Question 1: Will the Company obtain an income tax deduction pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition of ordinary shares in the Company (Shares) by the EST to satisfy the issue of Shares by the Trustee to Participants under the Plans? | Summary: The Company can deduct an amount under section 8-1 in respect of irretrievable cash contributions that it makes to the trustee of the EST to fund the subscription for or acquisition of Shares by the Trustee to Participants under the Plans. | Detailed Reasoning - Detailed reasoning: 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. It is a privately held unlisted Australian company. The Company provides an employee share scheme (ESS) as part of its remuneration strategy. The Company employs staff and will make contributions to the Trustee of the Trust in relation to their employees who participate in the Plans. Under the Plans, the Company grants Options to eligible employees and will make irretrievable contributions to the Trust (in accordance with the Trust Deed) which the Trustee will use to acquire Shares (either off-market, or by subscription) for allocation to Plan participants to satisfy their awards. Based on the following, The Commissioner considers the contributions to the Trust are irretrievable and non-refundable: • all funds provided to the Trustee will constitute accretions to the corpus of the Trust and are not repayable by the Trustee (Clause X); • nothing in the Trust Deed confers or is intended to confer onto the Company any encumbrance, proprietary right or interest in the Shares acquired by the Trustee (Clause X) The Trustee may only carry out activities that constitute the management of an employee share scheme plan. In addition, the Trustee agrees that the Trust will be managed and administered so that it satisfies the definition of 'employee share trust' contained in subsection 130-85(4). The contributions to the Trust will be a loss or outgoing that is incurred at the time it is made in accordance with the Trust Deed and the rules of the Plans. | Detailed Reasoning - Incurred in carrying on a business: For a loss or outgoing to be deductible under subsection 8-1(1), it must be either incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing that assessable income. A relevant connection exists between a loss or outgoing and the derivation of income where there is a sufficient nexus; (see, Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47 at 56). In this case, the contributions are made by the Company to the Trust to enable the Company to meet its obligations arising from the grant of rights, options and awards under the Plans. The Commissioner accepts that granting awards under the Plan is to incentivise, remunerate and retain employees of the Company and in turn, is likely to result in the gaining or production of the assessable income of the Company as a result of the employee's increased performance and productivity. The Commissioner accepts there is sufficient nexus between: • the irretrievable cash contributions made by the Company to the Trustee to satisfy the granting of rights, options and awards under the Plans to the Participants, and • the Company's own income earning activities. Therefore, subsection 8-1(1) is satisfied. | Detailed Reasoning - Not capital or of a capital nature: Paragraph 8-1(2)(a) states that a loss or outgoing is not deductible if it is a loss or outgoing of capital, or of a capital nature. The Company will be making regular, irretrievable contributions, to the Trustee for awards granted under the Plan (in accordance with the Trust Deed and the rules of the Plans). These contributions are costs incurred by the Company to fund the acquisition of Shares for the purpose of the Plans. Therefore, the costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for the employees. 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 continue satisfying awards using shares acquired by the Trust. This indicates that the irretrievable cash contributions made by the Company to the Trustee are ongoing in nature, recurrent employment expenses, and are part of the broader remuneration expenditure of the Company. This is supported by the decisions in Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) FCAFC 339 and Federal Commissioner of Taxation v Spotlight Stores Pty Ltd (2004 FCA 650, which held that payments by an employer company to a trust established for the purpose of providing incentive payments to employees were on revenue account and not capital, or of a capital nature. | Detailed Reasoning - The loss or outgoing cannot be incurred in gaining or producing exempt income or non-assessable non-exempt income: Nothing in the facts suggest that the irretrievable cash contributions made to the Trustee are private or domestic in nature, or are incurred in gaining or producing exempt, non-assessable non-exempt income or are otherwise prevented from being deductible under a specific provision of either the ITAA 1936 or ITAA 1997. Accordingly, subject to the operation of section 83A-210, the Company will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee to acquire Shares in accordance with the Plans. | Detailed Reasoning - Question 2: Will the Company obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997), in respect of costs incurred by the Company in relation to the on-going administration of the EST? | Summary: The Company can deduct an amount under section 8-1 for costs it incurred in relation to the on-going administration of the Trust to the extent these costs relate to the Participants. | Detailed Reasoning - Detailed reasoning: 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. The Company will incur on-going administration costs in operating the Trust and has appointed the Trustee to administer the Trust. In this respect the Company will incur costs associated with the services provided by the Trustee including, • employee plan record keeping • production and dispatch of holding statements to employees • costs incurred in the acquisition of shares on market (e.g. brokerage costs and the allocation of such shares to Employees), and • other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. These are costs necessarily incurred by the Company in administering the ESS while carrying on its business for the purpose of gaining or producing its assessable income. That is there is a sufficient nexus. Given the loss or outgoing are regular, recurrent and part of the ordinary employee remuneration costs of the Company, they are not treated as capital or of a capital nature (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme' (TD 2022/8)). Accordingly, the Company will be entitled to deduct an amount under section 8-1 in respect of the costs incurred in relation to the on-going administration of the Trust to the extent those costs relate to the Participants. | Detailed Reasoning - Question 3: Will the Company obtain an income tax deduction, pursuant to section 40-880 of the ITAA 1997, in relation to the on-going administration costs of the EST? | Summary: The Company can deduct amounts under section 40-880 for costs it incurred in relation to the establishment costs of the EST. | Detailed Reasoning - Detailed reasoning: As outlined in TD 2022/8, establishment/implementation expenses are one-off in nature and used in setting up the ESS as part of the employer company's remuneration structure. The character of the advantage sought is the enduring benefit of having the ESS in its business structure to deliver ESS interests. Therefore, the establishment expenses for the EST are capital in nature including: • legal advice obtained in respect of the implications which may arise for both the Company and the Participants of the Plans in respect of the EST structure and the Plans • legal documents required in respect of the EST and the Plans, and • professional fees associated with the establishment of the EST including such costs associated with the creating and registration of the EST with various authorities. As also outlined in TD 2022/8, section 40-880 allows a deduction for certain business-related capital expenditure such as the implementation costs. Limitations and exceptions are in subsections 40-880(3) to (9). Relevantly, the business needs to be carried on for a taxable purpose and as stated above the Company carries on a business developing advanced manufacturing technologies. Therefore, as per paragraphs 4 to 9 of TD 2022/8, these costs are deductible to the Company under section 40-880. | Detailed Reasoning - Question 4: Will irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition of Shares by the EST, be deductible to the Company at a time determine by section 83A-210 of the ITAA 1997 where contributions are made before the acquisition of the relevant ESS interests (as defined in subsection 83A-10(1) of the ITAA 1997)? | Summary: Where the irretrievable cash contributions are made before the acquisition of the relevant ESS interest, section 83A-210 will determine the timing of the deduction. The contributions will be deductible to the Company in the income year when the relevant beneficial interest in a Company Share is acquired by a Participant under the Plan. | Detailed Reasoning - Detailed reasoning: A deduction for the irretrievable cash contributions under section 8-1 would generally be allowable in the income year in which the company incurred the outgoing. Under certain circumstances, the timing of the deduction is determined under section 83A-210. The effect of section 83A-210 is to deem the timing of when an employer incurred the outgoing to be the time when the ESS interest is acquired by the ultimate beneficiary, rather than the time when the employer makes the contribution to the trust, where the contribution is made before the ultimate beneficiary receives the ESS interest. The term ESS interest, in a company is defined in subsection 83A-10(1) as being either a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. The Plans meet the requirement of an ESS for the purpose of subsection 83A-10(2) as they are schemes under which ESS interests are provided to Participants in relation to their employment or engagement with the Company. The implementation of the Plans (as set out in the rules of the Plans), the establishment of the EST and the provision of irretrievable cash contributions by the Company to the Trustee of the EST, constitute an arrangement for the purpose of subparagraph 83A-210(a)(i). The ESS contains a number of interrelated components which include the provision of irretrievable cash contributions by the Company to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly as part of the Plans, to acquire ESS interests. The deduction for the irretrievable cash contributions, to the extent they relate to the Participants, can only be deducted from the assessable income of the Company in the income year when the relevant beneficial interest in a Share, or beneficial interest in an award to a beneficial interest in a Share, is acquired by the Participant under the Plans. This is consistent with the ATO view expressed in ATO Interpretive Decision ATO ID 2010/103 Income Tax - Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . | Detailed Reasoning - Question 5: Where the EST satisfies its obligation under the Plan by subscribing for new Shares in the Company, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA 1997? | Summary: Where the EST satisfies its obligations under the Plan by subscribing for new Shares in the Company, the subscription proceeds are not included in the assessable income of the Company under section 6-5 or section 20-20 of the ITAA 1997 and do not trigger a CGT event under Division 104 of the ITAA 1997. | Detailed Reasoning - Section 6-5: Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. Receipts of a capital nature do not constitute income according to ordinary concepts, whether incurred in carrying on a business or not. 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 subscription proceeds received by the Company from the Trustee of the Trust can be determined by the character of the right or thing disposed of in exchange for the receipt. Where the Company issues the Trust with new shares in itself, the character of the newly issued share is one of capital. Therefore, the receipt of the subscription proceeds takes the character of share capital and is 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 . When the Company receives subscription proceeds from the Trustee where the Trustee has subscribed for new shares in the Company to satisfy its obligations to Participants in the Plans, those subscription proceeds received are a capital receipt and will not be treated as 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. The Company 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. 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. Therefore, the receipt of the subscription proceeds does not constitute an assessable recoupment under subsection 20-20(2). Subsection 20-20(3) provides that an amount received by you as a 'recoupment' of a loss or outgoing, except by way of insurance or indemnity, is an 'assessable recoupment' if you can deduct the loss or outgoing because of a provision listed in the table in section 20-30. None of the provisions listed in section 20-30 are relevant to the current circumstances. Therefore, the subscription amount also does not constitute an assessable recoupment under subsection 20-20(3). | Detailed Reasoning - Division 104: A capital receipt will only be included as an assessable net capital gain only if it arises as a result of a CGT event (section 102-20). The only CGT events that may have possible application to the receipt of the subscription proceeds are CGT event D1 (Creating a contractual or other rights) and CGT event H2 (Receipt for event relating to a CGT asset) or both. Paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that CGT event D1 and CGT event H2 do not apply if a company issues or allots equity interest or non-equity shares in the company. As the Shares constitute an equity interest (see, subsection 974-75(1)), neither CGT event D1 nor CGT event H2 will occur. Since no CGT event occurs, the subscription proceeds will not be assessable as a capital gain to the Company. | Detailed Reasoning - Question 6: Will the Commissioner seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition of Shares by the EST? | Summary: The Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or in full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for or acquisition off-market of Shares by the Trust under the Plans. | Detailed Reasoning - Detailed reasoning: Part IVA is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a deduction may be available where an employer provides money or other property to an EST where the conditions of Division 83A are met. In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Company to obtain a tax benefit. | Detailed Reasoning - Issue 2: Fringe Benefits Tax | Detailed Reasoning - Question 7: Will the provision of Options by the Company to employees of the Company under the Plans be a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | Summary: The provision of Options by the Company to its employees will constitute a provision of ESS interests. The provision of ESS interest by the Company to employees under the Plans constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986. | Detailed Reasoning - Detailed reasoning: An employer's liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA 1986 which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. No amount will be subject to FBT unless a 'fringe benefit' is provided. In general terms, a 'fringe benefit' is defined in subsection 136(1) of the FBTAA 1986 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 the 'fringe benefit' definition excludes a benefit constituted by the acquisition of an ESS interest under an ESS (within the meaning of the ITAA 1997) to which Subdivision 83A-B or 83A-C applies. The Commissioner accepts that the Plan meets the requirement of an ESS, and the rights granted under the Plan are ESS interests under section 83A-340 and paragraph 83-10(1)(b), being a beneficial interest in a right to acquire a share in a company. Specifically, the Commissioner accepts that the rights provided under the Plan are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests acquired at a discount. Accordingly, the provision of Options under the Plans will not be subject to FBT on the basis that they are acquired by employees under an employee share scheme and exclude by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA 1986. | Detailed Reasoning - Question 8: Will the irretrievable cash contributions made by the Company or to the Trustee pursuant to the Trust Deed, to fund the subscription for or acquisition of Shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | Summary: The provision of Options by the Company to its employees will constitute a provision of ESS interests. The provision of ESS interest by the Company to employees under the Plans a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986. | Detailed Reasoning - Detailed reasoning: Paragraph (ha) of subsection 136(1) of the FBTAA 1986 excludes the acquisition of money or property by an employee share trust within the meaning of the ITAA 1997 from being a 'fringe benefit'. Therefore, for the irretrievable cash contributions to be excluded from the definition of 'fringe benefit', the Trust must be an 'employee share trust' as defined in subsection 130-85(4). 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: • obtaining shares or rights in a company (paragraph 130-85(4)(a)) • ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b)), and • other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(4)(c)). • Paragraph 130-85(4)(a) and (b) are satisfied because: • the Trust acquires shares in the Company • the Commissioner accepts that the Plans meet the requirements of an ESS under which ESS interests are provided to employees, and • the Trustee ensures that ESS interests (as defined in subsection 83A-10(1)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating Shares to Participants in accordance with the trust deed and the rules of the Plans. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? Activities that involve 'investing in assets other than shares or rights to shares in the employer company' or 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 objects of the EST are for the sole purpose of undertaking activities that are in line with the definition of an employee share trust under subsection 130-85(4), including paragraph 130-85(4)(c). The other activities undertaken by the Trustee under the trust deed are merely incidental to managing the Plans. Therefore, paragraph 136(1)(ha) of the FBTAA 1986 applies to exclude the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition of, Shares by the Trust from being a fringe benefit. | Detailed Reasoning - Question 9: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company, by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition of Shares? | Summary: The Commissioner will not make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company, by the amount of tax benefit gained from the irretrievable cash contributions made by the Company, to fund the subscription or acquisition from other shareholders of the Company shares. | Detailed Reasoning - Detailed reasoning: 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 1986 (refer to paragraphs 185-191). The Commissioner would only seek to make a determination under section 67 of the FBTAA 1986 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: 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 1986. Irretrievable cash contributions made by the Company to the EST will not be a fringe benefit defined in subsection 136(1) of the FBTAA 1986 as explained in the reasons for question 8. As a result, the FBT liability of the Company 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 1986 applies to increase the aggregate fringe benefits amount to the Company by the amount of the tax benefit gained from the irretrievable cash contributions made to the Trustee to fund the subscription for, or acquisition on market of the Company shares.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar . | Reasons for Decision: These reasons for decision accompany the Notice of private ruling for the Company.