Private ruling: Employee Benefits Arrangement
Published: August 2014
Ruling period: For income tax this ruling applies for the following periods: | 1 July 2013 - 30 June 2014 | 1 July 2014 - 30 June 2015 | 1 July 2015 - 30 June 2016 | 1 July 2016 - 30 June 2017 | 1 July 2017 - 30 June 2018 | In respect of FBT matters, this ruling applies to the following FBT years: | 1 April 2013 to 31 March 2014. | 1 April 2014 to 31 March 2015. | 1 April 2015 to 31 March 2016. | 1 April 2016 to 31 March 2017. | 1 April 2017 to 31 March 2018.
Date scheme commenced: 1 July 2013

Ruling: Q1: Will you obtain an income tax deduction, pursuant to section 8-1 of ITAA 1997, in respect of the irretrievable cash contributions made by you or other members of your tax consolidated group to the Trustee to fund the subscription for or acquisition on-market of your shares by the EST? | A1: Yes | Q2: Are you entitled to an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred in relation to the on-going administration of the EST by you or other members of your tax consolidated group? | A2: Yes. | Q3: Are irretrievable cash contributions made by you or other members of your tax consolidated group to the Trustee, to fund the subscription for or acquisition on market of your shares by the EST, deductible to you at a time determined by section 83A-210 of ITAA 1997? | A3: Yes. | Q4: If the EST satisfies its obligation under the Plan by subscribing for new shares, are the subscription proceeds included in your assessable income under sections 6-5 or 20-20 of ITAA 1997 or is a capital gains tax ("CGT") event under Division 104 of the ITAA 1997 triggered? | 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 full, any deduction claimed by you in respect of the irretrievable cash contributions made by you or other members of your tax consolidated group to the Trustee to fund the subscription for or acquisition on-market of shares by the EST? | A5: No. | Q6: Will the provision of Performance Rights or shares under the Plan be a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986? | A6: No. | Q7: Will the irretrievable cash contributions made by you or other members of your tax consolidated group to the Trustee, to fund the subscription for or acquisition on market of shares, be treated as a fringe benefit within the meaning of section 136(1) of the FBTAA 1986? | A7: No. | Q8: Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount, by the amount of any tax benefit gained from the irretrievable cash contributions made by you to the Trustee, to fund the subscription for or acquisition on-market of shares? | A8: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are the head entity of an Australian tax consolidated group and are listed on the Australian Securities Exchange (ASX). You established a Performance Rights Plan (the Plan) to facilitate the provision of your shares to your Australian employees. The Plan is operated through a trust. The Employee Share Trust (EST) was established in 2013. The stated reason for establishing the EST is as a sole purpose trust to acquire shares for Australian employees of your tax consolidated group (Group). The Trustee is an independent entity unrelated to you and your associated entities, i.e. an entity that is external to your Group. You operate an Australian-based business. Operation of the Performance Rights Plan (the Plan) The Plan broadly operates as follows: Invitations to apply for Performance Rights are at the absolute discretion of the Board (who will be appointed by head company) ("the Board"). Invitations are extended on such terms and conditions as the Board decides, from time to time, including: • The number of Performance Rights; • The Grant Date; • The amount payable (if any) for the grant of each Performance Right or how such amount is calculated; • The Performance Right Exercise Price; • Any vesting conditions; and • Any supplementary terms and conditions. Upon receipt of an Invitation an eligible person (ie an employee or director of any member of the company consolidated Group) may apply for the Performance Rights which are the subject of the Invitation by sending the completed application form to head company. The Board may accept an application from an eligible person in whole or in part, and may determine that an application not be accepted where certain conditions are not met. Upon acceptance of the application head company will grant the eligible person the relevant number of Performance Rights, subject to the terms and conditions set out in the Invitation, the Application Form, the Plan Rules and any other ancillary documentation. The eligible person will then be a Participant under the Plan. It is envisaged that the rights granted under the Plan will be subject to either Subdivision 83A-B of the ITAA 1997 or Subdivision 83A-C of the ITAA 1997. The Board may elect to use, on such terms and conditions as determined by the Board in its absolute discretion, an employee share trust for the purposes of holding Shares before or after the exercise of a Performance Right or delivering any Shares as a result of the exercise of a Performance Right under the Plan. Performance Rights granted are able to be exercised (subject to any exercise conditions as set out in the Plan Rules) once any vesting conditions have been satisfied and a Vesting Notice has been given to the Participant. Upon exercise of a Performance Right in accordance with the Plan Rules, the Participant is entitled to one fully paid ordinary share in head company. All shares provided to a Participant as a result of the exercise of Performance Rights, rank pari passu in all respects with all other ordinary shares. Performance Rights can only be exercised by the Participants to whom they are issued and cannot be sold, transferred, encumbered or disposed of by the Participant. Rights may be forfeited in accordance with the Plan Rules. If a holder of Performance Rights ceases to be an employee, they will be designated as either a 'Good' or 'Bad' Leaver under the Plan Rules. Unless otherwise stated in the Invitation, or determined by the Board in its absolute discretion, a Performance Right held by a 'Bad' Leaver (whether unvested, or vested but unexercised) will be forfeited. Unless the Invitation provides otherwise, within 20 days of the Participant becoming a 'Good' Leaver the Board shall issue a written notice (Performance Right Retention Notice) to the Participant confirming to them which of the Performance Rights may be retained. Generally they would be all vested Performance Rights held by the Participant, and to the extent expressly determined at the Board's absolute discretion, those unvested Performance Rights held by the Participant. Where a Performance Right has been forfeited it will automatically lapse. Shares that are acquired on exercise of Performance Rights may be subject to disposal restrictions that were provided for in the Invitation. The Plan Rules explain the nature of the disposal restrictions and permit the Board to implement any procedure necessary to ensure compliance with the restrictions, including but not limited to imposing an ASX administered holding lock or using an employee share trust to hold the shares during a restricted period. Administration of the Plan is vested in the Board. Operation of the EST Pursuant to the Trust Deed, the EST has been established for the sole purpose of subscribing for or acquiring, delivering, allocating and holding shares in head company in connection with the Plan (as well as any future plans established by head company under which shares are to be provided to employees where the written consent of the Trustee has been obtained). Pursuant to the Trust Deed the Board from time to time instructs the Trustee, by way of notice in writing, to: • purchase, subscribe for and/or allocate the requisite number of shares in Head company specified in the notice to be held by the Trustee in respect of an identified Participant or Participants as Allocated Shares; or • purchase, subscribe for and/or allocate a specified number of shares as Unallocated Shares; or • dispose of Unallocated Shares. Pursuant to the Trust Deed, the EST will be funded by cash contributions from Head company and members of the head company consolidated group. Provided the Trustee has received sufficient contributions or has sufficient capital, the Trustee must acquire shares in head company either on market or via a subscription for new shares for the benefit of relevant Participants or employees generally, or allocate any Unallocated Shares to Participants, in accordance with the written instructions from the Board. Head company envisages that contributions will be made at or about the time when the rights vest in Participants and the shares will be allocated to Participants as soon as practicable thereafter. The decision to either acquire shares on market or via a subscription for new shares will be made at or around the time the funds are contributed as part of Head company's capital management policy. The subscription price for each of the shares must be the market value of the shares as ascertained by the Board on the date on which the shares are issued to the Trustee. All funds received by the Trustee from head company, subject to the Trustee's rights to remuneration and indemnity, will constitute accretions to the corpus of the trust and will not be repaid to Head company unless the funds are used to subscribe for shares in Head company under the terms of the Trust Deed or Plan Rules. Pursuant to the Trust Deed, the Trustee holds a Participant's Allocated Shares for their benefit and the Participant is the beneficial owner of the Allocated Shares and absolutely entitled to those shares as against the Trustee from the time that the shares are allocated to them. While the Trustee holds shares for the benefit of an identified Participant (or a number of Identified Participants) the Trustee (or any other party which the Trustee considers appropriate) must establish and maintain a separate Trust Share Account in respect of each Participant. The Trustee and Participants must not deal with an Allocated Share during any period of disposal restrictions imposed in respect of the shares under the Plan Rules. After the expiry of any such disposal restriction period, Participants can give the Trustee a withdrawal notice requiring the Trustee to transfer legal title to the shares held in the EST on their behalf to themselves or their nominee or to sell the shares on their behalf with a remittance of the sale proceeds (less any brokerage costs). The Trust Deed states that the EST will be managed and administered so that it will be an 'employee share trust' as defined in subsection 995-1(1) of the ITAA 1997. The Trustee is not permitted to carry out activities that are not matters or things that are necessary or expedient to administer and maintain the EST. In addition, it will not be permitted to carry out activities that result in the Participants being provided with additional benefits other than the benefits that arise from the relevant Plan rules.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5, | Income Tax Assessment Act 1997 Section 8-1, | Income Tax Assessment Act 1997 Subsection 8-1(1), | Income Tax Assessment Act 1997 Subsection 8-1(2), | Income Tax Assessment Act 1997 Section 20-10, | Income Tax Assessment Act 1997 Section 20-20, | Income Tax Assessment Act 1997 Section 20-30, | Income Tax Assessment Act 1997 Section 83A, | Income Tax Assessment Act 1997 Section 83A-10, | Income Tax Assessment Act 1997 Subsection 83A-10(1), | Income Tax Assessment Act 1997 Subsection 83A-10(2), | Income Tax Assessment Act 1997 Subsection 83A-20(2), | Income Tax Assessment Act 1997 Subsection 83A-25(1), | Income Tax Assessment Act 1997 Section 83A-35, | Income Tax Assessment Act 1997 Subsection 83A-35(2)(b), | Income Tax Assessment Act 1997 Subsection 83A-105(1)(a), | Income Tax Assessment Act 1997 Section 83A-205, | Income Tax Assessment Act 1997 Section 83A-210, | Income Tax Assessment Act 1997 Section 104-35, | Income Tax Assessment Act 1997 Subsection 104-35(5), | Income Tax Assessment Act 1997 Section 104-155, | Income Tax Assessment Act 1997 Subsection 104-155(1), | Income Tax Assessment Act 1997 Subsection 104-155(5), | Income Tax Assessment Act 1997 Subsection 130-85(4), | Income Tax Assessment Act 1997 Subsection 701(1), | Fringe Benefits Tax Assessment Act 1986 Section 66, | Fringe Benefits Tax Assessment Act 1986 Section 67, | Fringe Benefits Tax Assessment Act 1986 Subsection 67(1), | Fringe Benefits Tax Assessment Act 1986 Subsection 67(2), | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1), | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)(h), | Income Tax Assessment Act 1936 Section 177A , | Income Tax Assessment Act 1936 Subsection 177A(1), | Income Tax Assessment Act 1936 Subsection 177A(5) , | Income Tax Assessment Act 1936 Subsection 177C(1) , | Income Tax Assessment Act 1936 Subsection 177D(2), and | Income Tax Assessment Act 1936 Subsection 177F(1).

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act ( ITAA 1997) states: 8-1 (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. 8-1 (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your * exempt income or your * non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. An employer is entitled to a deduction under section 8-1 of the ITAA 1997 for a contribution paid to the trustee of an employee share trust (EST) that is either • incurred in gaining or producing assessable income ('first limb') or • necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income ('second limb'), to the extent the contribution is not private or domestic in nature, is not of capital or of a capital nature and does not relate to the earning of exempt income or non-assessable non-exempt income. To qualify for a deduction under section 8-1 of the ITAA 1997 a contribution to the trustee of an employee share trust must be incurred. There is no statutory definition of the term 'incurred'. As a broad guide, a taxpayer incurs an outgoing at the time the taxpayer owes a present money debt that they cannot escape. This must be read subject to the propositions developed by the courts, which are discussed in more detail in Taxation Ruling TR 97/7 and Taxation Ruling TR 94/26. A contribution made to the trustee of an employee share trust is incurred only when the ownership of that contribution passes from an employer to the trustee and there is no circumstance in which the employer can retrieve any of the contribution - Pridecraft Pty Ltd v. Federal Commissioner of Taxation (2004) FCAFC 339 (Pridecraft); Spotlight Stores Pty Ltd v. Commissioner of Taxation v. (2004) FCA 650 (Spotlight). Head company intends to provide contributions to the trustee ("the Trustee") as the trustee of the head company's Employee Share Trust ("the EST") to fund head company's legal obligations to provide shares to its employees who participate in its employee share scheme and exercise the Performance Rights granted to them under the head company Limited Performance Rights Plan ("the Plan"). Pursuant to the head company's Employee Share Trust Deed ("the Trust Deed), head company must provide the Trustee of the EST with all the funds (contributions) required to enable it to subscribe for, or acquire shares in head company in accordance with the Trust Deed. The Trustee will, in accordance with instructions received pursuant to the relevant Plan Rules, acquire, deliver and allocate shares for the benefit of participants provided that the Trustee receives sufficient payment to subscribe for or purchase shares and / or has sufficient unallocated trust shares available. These contributions made to the Trustee by head company will be irretrievable and non-refundable to head company (per the Trust Deed). On this basis, it is concluded that the irretrievable contributions made by head company are considered to be a loss or outgoing for the purpose of subsection 8-1(1) of the ITAA 1997. | Detailed Reasoning - Relevant nexus: Further, to be deductible under section 8-1 of the ITAA 1997, a contribution must have been incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. In order to satisfy the second limb of section 8-1 of the ITAA 1997 there must be a relevant connection between the outgoing and the business. An expense will have the relevant connection to the business when it is 'desirable or appropriate in the pursuit of the business ends of the business' ( Ronpibon Tin NL and Tongkah Compound NL v. FC of T (1949) 78 CLR 47; 4 AITR 236; (1949) 8 ATD 431 ( Ronpibon ) ; Magna Alloys & Research Pty Ltd v. Federal Commission of Taxation 80 ATC 4542; (1980) 49 FLR 183 ( Magna Alloys )). Where an employer: • carries on a business for the purpose of gaining or producing assessable income and engages employees in the ordinary course of carrying on that business; • makes a contribution to the trustee of an employee share trust; and • at the time the contribution is made, the primary purpose of the contribution is for it to be applied, within a relatively short period of time, to the direct provision of remuneration of employees (who are employed in that business), then, such a contribution would ordinarily satisfy the nexus of being necessarily incurred in carrying on that business. All the documentation provided indicates that the contributions are made to the Trustee of the EST solely to enable the Trustee to acquire shares for eligible employees of the business. As stated by head company, "'contributions to the EST are incurred for the purposes set out in the Plan Rules which are designed, through the alignment of employee and shareholder interests, to improve head company's operating performance and to attract and retain valued employees. The contributions can only be used to acquire shares on behalf of employees and are therefore incurred to facilitate achievement of the purposes of the Plan which is ultimately designed to increase the operating performance of head company and therefore its assessable income." Accordingly, there is a sufficient nexus between the outgoings (head company's contributions to the Trustee of the EST) and the derivation of its assessable income ( Herald and Weekly Times Ltd v. FCT (1932) 48 CLR 113; (1932) 2 ATD 169, Amalgamated Zinc (De Bavay's) Ltd v. FCT (1935) 54 CLR 295; (1935) 3 ATD 288, W Nevill & Co Ltd v. FC of T (1937) 56 CLR 290; 4 ATD 187; (1937) 1 AITR 67, Ronpibon, Charles Moore & Co (WA) Pty Ltd v. FCT (1956) 95 CLR 344; (1956) 6 AITR 379; (1956) 11 ATD 147). | Detailed Reasoning - Negative Limbs: Where a contribution satisfies either limb of subsection 8-1(1) of the ITAA 1997, it may still be capital or of a capital nature. Pursuant to subsection 8-1(2) of the ITAA 1997, the contribution will not be deductible to an employer under section 8-1 to the extent to which it is capital or of a capital nature. Whether an outgoing is capital or revenue in nature can generally be determined by reference to the test articulated by Dixon J in Sun Newspapers Ltd and Associated Newspapers Ltd v. Federal Commissioner of Taxation (1938 ) 61 CLR 337: There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment. A contribution to the trustee of an EST is of capital or of a capital nature, where the contribution secures for an employer an asset or advantage of an enduring or lasting nature that is independent of year to year benefits that the employer derives from a loyal and contented workforce. Where a contribution is, ultimately and in substance, applied by the trustee of an EST to subscribe for equity interests in the employer (for example shares), the employer has also acquired an asset or advantage of an enduring nature. The combined operation of subsections 8-1(1) and 8-1(2) of the ITAA 1997 may require apportionment of a loss or outgoing into deductible and non-deductible components, where a single loss or outgoing is incurred for more than one purpose or on items of a differing nature. Where a contribution is made for the purpose of securing for the employer advantages of both a revenue and capital nature, but the advantages of a capital nature are only expected to be very small or trifling by comparison, apportionment may not be required. In this case, the outgoings incurred by head company in carrying on its business are either not capital in nature, or any capital component is sufficiently small or trifling such that the Commissioner would not seek to apportion the deduction. Finally, nothing in the facts suggests that the contributions are private or domestic in nature, or are incurred in gaining or producing exempt income, or are otherwise prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936. | Detailed Reasoning - Single entity rule: The single entity rule in subsection 701-1(1) of the ITAA 1997 does not affect the answer to the question of whether the contributions made by head company to the Trustee of the EST are deductible under section 8-1 of the ITAA 1997. The actions and transaction of a subsidiary member with someone outside the consolidated group are treated as undertaken by the head company for income tax purposes (TD 2004/36, TD 2004/76). Thus all the assessable income and deductions of the group are attributable to the head company (after eliminating intra-group transactions) As such the head company consolidated tax group can obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of the irretrievable cash contributions from any member of the head company consolidated tax group made to the Trustee to fund the subscription for, or acquisition on-market of, head company shares by the EST. | Detailed Reasoning - Question 2: Head company will incur various costs in relation to the implementation and on-going administration of the EST. For example, head company will incur costs associated with the services provided by the Trustee of the EST. These costs are likely to include: • employee plan record keeping; • production and dispatch of holding statements to employees; • provision of annual income tax return information; • costs incurred in the acquisition of shares and allocation to Participants (e.g. brokerage); • management of employee termination from the Plan; and • other Trustee expenses such as the annual audit of the financial statements of the EST In addition to the services to be provided by the Trustee of the EST, head company will also incur various implementation costs, including the services provided by the company's accounting and legal advisors. The costs incurred by head company in relation to the implementation and on-going administration of the EST are deductible under section 8-1 of the ITAA 1997 as either: • costs incurred in gaining or producing the assessable income of head company; or alternatively • costs necessarily incurred in carrying on head company's business for the purpose of gaining or producing the assessable income of head company. The view that the costs incurred by head company are deductible under section 8-1 of the ITAA 1997 is consistent with ATO ID 2002/961 in which it was decided that such costs are part of the ordinary employee remuneration costs of a taxpayer. The costs are revenue and not capital in nature on the basis that they are regular and recurrent employment expenses, and are deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 3: The provision of money by head company to the Trustee of the EST for the purpose of remunerating head company's employees under the Plan is an outgoing incurred in carrying on head company's business and is deductible under section 8-1 of the ITAA 1997. The deduction under section 8-1 of the ITAA 1997 would generally be allowable in the income year in which head company incurred the outgoing but, under certain circumstances, the timing of the deduction is specifically determined under section 83A-210 of the ITAA 1997. Section 83A-210 of the ITAA 1997 provides: If: (a) at a particular time, you provide another entity with money or other property: (i) under an arrangement; and (ii) for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest; then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. Section 83A-210 of the ITAA 1997 will only apply if there is a relevant connection between the money provided to the Trustee, and the acquisition of 'ESS interests' (directly or indirectly) by head company under the relevant head company in relation to the employee's employment. An 'ESS interest' in a company is defined in subsection 83A-10(1) of the ITAA 1997 as a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. An 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees, of the company or subsidiaries of the company, in relation to the employees' employment. Under the Plan, a Performance Right that is granted to an employee will be an ESS interest as it is a right to acquire a beneficial interest in a share in a company. This ESS interest will also be granted under an employee share scheme in relation to the employee's employment. A share acquired by the Trustee to satisfy a Performance Right, granted under the employee share scheme to an employee in relation to the employee's employment, is itself provided under the same scheme. The granting of the beneficial interests in the Performance Rights, the provision of the money to the Trustee under the arrangement, the acquisition and holding of the shares by the Trustee and the allocation of shares to the participating employees, are all interrelated components of the Plan. All the components of the scheme must be carried out so that the scheme can operate as intended. As one of those components, the provision of money by head company to the Trustee necessarily allows the scheme to proceed. Consequently, the provision of money by head company to the Trustee to acquire shares in head company is considered to be for the purpose of enabling the participating employees, indirectly as part of the Plan, to acquire the Performance Rights. If that money is provided before the Performance Rights are acquired then section 83A-210 of the ITAA 1997 will apply. However, section 83A-210 of the ITAA 1997 will not apply to a deduction for the purchase of shares to satisfy the obligation arising from Performance Rights already granted, and that deduction is accordingly allowable to head company in the year in which the money was paid to the Trustee, under section 8-1 of the ITAA 1997. If any amount of money is used by the Trustee to purchase excess shares intended to meet a future obligation arising from a future grant of Performance Rights, the excess payment occurs before the employees acquire the relevant Performance Rights (ESS interests) under the scheme. Section 83A-210 of the ITAA 1997 will apply in that case and the excess payment will only be deductible to head company in the year of income when the relevant Performance Rights are subsequently granted to the employees. | Detailed Reasoning - Question 4: As noted previously in this ruling, the stated purpose of head company in establishing and funding its Performance Rights Plan is to motivate achievement and promote longevity of employment by rewarding senior management and key executives for achieving performance criteria set by the Board. A general aim of head company's employee share scheme is to enhance the profitability of the Group's business. Therefore the character of the advantage sought is one of reward and retention of the human resources of the business as a contribution to its long term success. | Detailed Reasoning - Ordinary Income: Section 6-5 of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. The classic definition in Australian law was given by Chief Justice Jordan in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215. Chief Justice Jordan considered that: The word 'income' is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts. In GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient: To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In accordance with an employee share scheme, the Trustee subscribes to head company for an issue of shares. The Trustee pays the full subscription price for the shares and head company receives a contribution of share capital from the Trustee. The character of the contribution of share capital received by head company from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Here head company is issuing the Trustee with new shares in head company. The character of the newly issued share is one of capital. Therefore, it can be concluded that the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. Accordingly, when head company receives proceeds from the Trustee as subscriptions for new shares in head company to satisfy obligations to the Participants, the subscription price received by head company is a capital receipt. That is, it will not be on revenue account, and will not be ordinary income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Section 20-20 of the ITAA 1997: Subsection 20-20(2) of the ITAA 1997 provides that if you receive an amount as a recoupment of a loss or outgoing, it will be an assessable recoupment 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. Insurance or indemnity Head company will receive an amount for the subscription of shares by the Trustee, in this instance: • There is no insurance contract 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 it cannot be said that the subscription proceeds are by way of insurance or indemnity under subsection 20-20(2) of the ITAA 1997. Recoupment of a loss or outgoing Subsection 20-20(3) of the ITAA 1997 makes assessable a recoupment of a loss or outgoing that is deductible, or has been deductible or deducted in a previous income year, where the deduction was claimed under a provision listed in section 20-30 of the ITAA 1997. 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. The ordinary meaning of recoupment is extended by subsection 20-25(1) of the ITAA 1997 to include: (a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and (b) a grant in respect of a loss or outgoing. The Trustee, in subscribing for new shares in head company, is acquiring new equity in head company. This cannot be said to be a recoupment under subsection 20-25(1) of the ITAA 1997. As the subscription proceeds are not a recoupment, as defined in subsection 20-25(1) of the ITAA 1997, they will not be an assessable recoupment under section 20-20 of the ITAA 1997. | Detailed Reasoning - Capital Gains Tax: Section 102-20 of the ITAA 1997 states that you make a capital gain or loss if and only if a CGT event happens. The relevant CGT events that may be applicable when the subscription proceeds are received by head company are CGT events: • D1 (creating a contractual or other rights), and • H2 (receipt for event relating to a CGT asset). With regard to CGT event D1, paragraph 104-35(5)(c) of the ITAA 1997 states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. As event D1 is excluded, H2 is to be considered. CGT event H2, paragraph 104-155(5)(c) of the ITAA 1997 states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case head company is issuing shares, being equity interests as defined in section 974-75 of the ITAA 1997, to The Trustee, therefore neither CGT event D1 or H2 happens. Since no CGT event occurs, there is no amount that will be an assessable capital gain to the Company. In summary, if the EST satisfies the relevant obligations of head company's Performance Rights Plan by subscribing for new shares in head company, the subscription proceeds will not be included in the assessable income of head company under sections 6-5, Subdivision 20-A of Part III of the ITAA 1997, or trigger a CGT event under Division 104 of the ITAA 1997. | Detailed Reasoning - Question 5: Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules (PSLA 2005/24) deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936. Before the Commissioner can exercise the discretion in respect of Part IVA under subsection 177F(1) of the ITAA 1936, three requirements must be met. These are: • there must be a scheme within the meaning of section 177A of the ITAA 1936 • a tax benefit arises that was obtained or would be obtained in connection with the scheme but for Part IVA and • having regard to the matters in paragraph 177D(b) of the ITAA 1936, the scheme is one to which Part IVA applies. | Detailed Reasoning - The Scheme: Subsection 177A(1) of the ITAA 1936 defines a scheme as: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct; It is considered that this definition is sufficiently wide to cover the proposed arrangement under the Plan, which utilises a payment made by head company to the Trustee of an EST (in accordance with the Trust Deed), to fund the acquisition of head company shares on behalf of participating employees by that Trustee. | Detailed Reasoning - Tax Benefit: 'Tax benefit' is defined in subsection 177C(1) of the ITAA 1936. In relation to the scheme the subject of this ruling application, a reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to: … (b) a deduction being allowable to the taxpayer in relation to a year of income where the whole or a part of that deduction would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out; In order to determine the tax benefit that would be derived by head company from this scheme, it is necessary to examine alternative hypotheses or counterfactuals. That is, other schemes head company might reasonably have been expected to enter into to achieve its aims in relation to employee remuneration. The applicant has provided the following possible counterfactuals as follows: Firstly if the scheme were not entered into, (i.e. the Trust was not used and head company simply chose to issue new shares), head company may not receive a tax deduction for this amount. However it is noted that head company could have chosen to simply buy shares for employees on-market via a broker (subject to company law requirements) or secondly; remunerate the employees via an entirely different method such as discretionary cash bonuses both of which would have entitled head company to a deduction. A reasonable counterfactual (also referred to in the quoted paragraph above) to the scheme is that head company issues new shares as part of its arrangement to remunerate its employees. Head company would not be entitled to any deduction unless section 83A-205 of the ITAA 1997 was satisfied. This provision requires that: 1. Head company must have provided an ESS interest to an individual under an employee share scheme; 2. Head company must have done this as the individual's employer (or as the holding company of the employer); and 3. with the exception of paragraph 83A-35(2)(b) of the ITAA 1997, section 83A-35 must have applied to reduce the amount included in that individual's assessable income under subsection 83A-25(1). If the shares did meet these conditions, the company would be entitled to a deduction equal to the amount of the reduction allowable to the individual under section 83A-35 of the ITAA 1997 (a maximum deduction of $1,000). The use of the EST arrangement permits head company, subject to the requirements of sections 8-1 and section 83A-210 of the ITAA 1997, to claim a deduction for the full amount of the contributions it makes to the EST and it is not limited to a deduction claimed under section 83A-205 of the ITAA 1997. Therefore, to the extent of any increased deductions because of the trust arrangement, head company obtains a tax benefit. While, for the reasons noted above by the applicant it is unlikely that it would choose any other incentive plan that did not give rise to an allowable deduction (and therefore there would not be the necessary tax benefit), the analysis below proceeds on the assumption that the Commissioner would in fact be able to identify a relevant tax benefit. | Detailed Reasoning - Paragraph 177D(2) of the ITAA 1936: Paragraph 177D(2) of the ITAA 1936 sets out the following factors that must be considered in deciding whether a scheme was entered into for the purpose of obtaining a tax benefit: (a) the manner in which the scheme was entered into or carried out; (b) the form and substance of the scheme; (c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; (d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; (e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; (f) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; (g) any other consequence for the relevant taxpayer, or for any person referred to in paragraph (f), of the scheme having been entered into or carried out; and (h) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in paragraph (f). Subsection 177A(5) of the ITAA 1936 requires the purpose to be the dominant purpose. | Detailed Reasoning - (a) The Manner of the Scheme: In considering whether Part IVA applies or not, the necessary comparison to be made in relation to the factors listed in paragraph 177D(2) of the ITAA 1936 is between the scheme as proposed and the relevant counterfactual. The inclusion of the EST in the scheme does give rise to a tax benefit, but head company contends that the presence of the EST provides other commercial benefits. In particular it states that the use of the EST provides the following commercial benefits: a) Capital management flexibility as it provides a streamlined approach to using contributions received from head company and employees to either acquire shares in head company on-market (in a more convenient manner than if no trust was used) or alternatively to subscribe for new shares in head company. This provides flexibility as circumstances change in how shares are sourced for provision to employees. b) Administrative efficiency as it provides a single arm's length vehicle to facilitate the provision of shares to employees under the Plan. This is increasingly important as head company continues to expand operations and employee numbers in future years. c) Assisting head company to meet Corporations Act requirements in relation to dealing in its own shares and insider trading. The Corporations Act generally prohibits a company from acquiring its own shares. The use of the EST will assist head company to meet these requirements as it provides a mechanism for the acquisition of head company shares through the EST. The EST is not prohibited from doing this because head company has no beneficial interest in either shares held by the EST or the EST itself. The EST also helps head company manage any insider trading prohibitions in the Corporations Act as the Trustee, an independent party, is acquiring shares in accordance with a set policy for the sole benefit of employees. This is in part because the Corporations Regulations specifically exempt certain activities from some of the insider trading prohibitions in the Corporations Act. In particular, the regulations provide an exemption where there is an acquisition of the financial products of a company by employees, or by a trustee for employees, of that company or its related companies, under a scheme established solely or primarily for the benefit of employees. In addition, the ability of the EST to acquire shares in advance may allow the EST to hold those shares on behalf of employees at a time when head company would be otherwise prevented from issuing shares to its employees in order to satisfy obligations under the head company incentive Plans. Whilst head company may advise the EST on possible uses of contributed funds, the Trustee is independent of head company and is under a fiduciary obligation to act in the interests of the employees who participate in the Plan. Further, any such directions that head company provides to the Trustee have been, and will be made, for commercial purposes. For example, there may be a desire to retain cash for growth, or a desire to prevent dilution by buying shares on-market. Alternatively, head company may wish to spend excess cash through an on-market purchase of shares to boost earnings per share. It is noted that, for head company to provide shares or rights under the Plan to employees, head company is required to make the irretrievable contributions to the EST to allow the EST to obtain shares that will be held on behalf of employees. head company has not, and generally will not, issue rights or shares, or otherwise provide rights or shares, to employees without the issuance being facilitated through the EST. The ruling application also stated that: Unlike the case of Pridecraft Pty Ltd v. FC of T [2004] FCAFC 339; 2005 ATC 4001; 58 ATR 210, where an arrangement was established with a large up-front payment to a trust intended to provide for operations for the future, head company has and will fund the EST on a recurring basis as the need arises. Further, the substance equals the form - irretrievable contributions are made to the EST which cannot be refunded in that form to head company. As a separate step, the EST has and will disperse funds to acquire shares for employees, either on-market or by way of new issue. In terms of timing, the scheme has not been established to provide a substantial year-end deduction either to the Company or with a contribution sufficiently large to fund the trust for several years, but by recurring contributions. There is nothing regarding this factor that suggests a dominant purpose of seeking to obtain a tax benefit in relation to the scheme. The above submission suggests that head company intends to fund the EST on a recurring basis, as required, to satisfy the provision of shares in accordance with the terms of the head company incentive Plans. It is accepted that the EST provides benefits to the operation of the scheme that would not be available if the shares were provided directly by head company in the relevant counterfactual. | Detailed Reasoning - (b) The Form and Substance: The substance of the scheme is the provision of remuneration in the form of shares to eligible employees who participate in the head company Performance Rights Plans. It takes the form of payments by head company to the Trustee which acquires the shares and transfers them to Participants. While existence of the EST confers a tax benefit, it cannot be concluded that is the only benefit provided as outlined above. Head company has argued that the form of the arrangement with the EST provides the scheme with non-tax benefits and this is accepted. | Detailed Reasoning - (c) The Timing of the Scheme: As noted above, the scheme has not been established at a time to provide a substantial year-end deduction to the company nor with a contribution sufficiently large to fund the EST for several years, but by recurring contributions. There is nothing in this factor to suggest a dominant purpose of seeking to obtain a tax benefit in relation to the scheme. | Detailed Reasoning - (d) The Result of the Scheme: The result of the scheme is to provide head company with allowable deductions for the contributions it makes to the EST. However, it is noted that the contributions are irretrievable and reflect a genuine non-capital outgoing on the part of head company to achieve a business outcome. It is to be expected that a deduction would normally be allowable in these circumstances. | Detailed Reasoning - (e) Any Change in the Financial Position of head company: As noted above, head company makes irretrievable contributions to the EST and those contributions constitute a real expense with the result that head company's financial position is changed to that extent. While it is arguable that the quantum of the deductions is higher with an EST as part of the scheme than would be the case if head company provided shares to participants directly, there is nothing artificial, contrived or notional about head company's expenditure. | Detailed Reasoning - (f) Any Change in the Financial Position of other Entities or Persons: The contributions by head company to the Trustee will form part of the corpus of the trust and must be dealt with by the Trustee in accordance with the terms of the Trust Deed, that is, for the acquisition of shares to ultimately be provided to Participants in the Plan. Head company is not a beneficiary of the EST and its contributions cannot be returned to it in any form except where the Trustee acquires shares from head company by subscribing for new issues at market value. Therefore, the contributions made by head company amount to a real change to the financial position of the Trustee. The financial position of Participants in the schemes will also undergo a real change. There is nothing artificial, contrived or notional about these changes. | Detailed Reasoning - (g) Any Other Consequence: Not relevant to this scheme. | Detailed Reasoning - (h) The Nature of any Connection between head company and any Other Persons: The relationship between head company and the Participants in the Plan is one of employer / employee. The Trustee is an independent third party. As such, for the purposes of this scheme it will be acting solely in its capacity as trustee, and as the beneficiaries of the EST (that is the employee Participants) are not members of head company's tax consolidated group, the EST will also not be a member of that tax consolidated group. The contributions made by head company to the Trustee are commensurate with head company's stated aim of providing the Participants with remuneration in a form that aligns their personal financial rewards with the risks and returns of head company's shareholders. There is nothing to suggest that the parties to the employee share scheme are not acting at arm's length to one another. Accordingly, there is nothing in relation to this factor to indicate a dominant purpose of obtaining a tax benefit. | Detailed Reasoning - Conclusion - the Purpose of the Scheme: A consideration of all the factors referred to in paragraph 177D(2) of the ITAA 1936 leads to the conclusion that the dominant purpose of the scheme is to provide remuneration to head company's employees who participate in the scheme in a form that promotes head company's business objectives, rather than to obtain a tax benefit. Accordingly, the Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by head company in relation to irretrievable contributions made by head company to the EST to fund the acquisition of head company shares in accordance with the scheme as outlined above. | Detailed Reasoning - Question 6: In general terms, the definition of 'fringe benefit' in subsection 136(1) provides that a benefit will be a fringe benefit if the following conditions are met: (a) the benefit is provided to an employee or an associate of an employee; (b) the benefit is provided by • the employer; • an associate of the employer; • another person under an arrangement with the employer or an associate of the employer; • another person in circumstances that come within paragraph (ea) of the fringe benefit definition; (c) the benefit is provided in respect of the employment of the employee; and (d) the benefit does not come within paragraphs (f) to (s) of the fringe benefit definition. For the purpose of this Ruling the relevant paragraphs are paragraphs (h) and (ha). Paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA, provides that a fringe benefit does not include: 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 terms 'ESS interest' and 'employee share scheme' are defined in section 83A-10 of the ITAA 1997. An ESS interest in a company is a beneficial interest in a share in the company, or a right to acquire a beneficial interest in a share in the company (subsection 83A-10(1) of the ITAA 1997). An employee share scheme is a scheme under which ESS interests in the company are provided to employees (or associates of the employees) of the company or subsidiaries of the company, in relation to the employee's employment. It has been submitted that head company's employees will acquire Performance Rights in accordance with the Plan in respect of their employment. The Commissioner accepts that the Plan described in the applicant's private ruling application is an employee share scheme under which relevant ESS interests (being Performance Rights) are acquired by employees of head company (or 'associates of those employees'), and the acquisition of those ESS interests is in relation to those employees' employment. The shares acquired by the Trustee under the Plan to satisfy Performance Rights are also provided to employees under that same employee share scheme. Therefore, the granting of Performance Rights under the Plan to employees will not be subject to FBT because they are specifically not included in the definition of fringe benefits. However shares granted to employees under the Plan to satisfy Performance Rights are not ESS interests acquired under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies (see subsection 83A-20(2) of the ITAA 1997 and paragraph 83A-105(1)(a) of the ITAA 1997). Therefore the providing of these shares will not be specifically excluded from the definition of fringe benefits under paragraph (h) of the definition in subsection 136(1) of the FBTAA. As stated above, a fringe benefit will only arise under subsection 136(1) of the FBTAA where the benefit is provided to an employee or associate of the employee 'in respect of the employment of the employee'. Under the Plan, the benefit (beneficial interest in a share) that arises upon the exercise of a Performance Right is considered to be provided as a result of the employee exercising rights (previously obtained in respect of their employment). This situation is considered to be analogous to that stated in ATO Interpretative Decision ATO ID 2003/316 which refers to the case of FC of T v. McArdle 89 ATC 4051; (1988) 19 ATR 1901. In that case an employee was granted valuable rights in respect of his employment which he subsequently surrendered in return for a lump sum payment. The Court noted that what had occurred under the surrender agreement was not the granting of a valuable benefit, but the exploitation of rights received from the employer in previous years. In the present circumstances, when an employee receives a Performance Right under the Plan, they obtain a right to acquire a beneficial interest in a share in head company. When these Performance Rights are subsequently exercised, any benefit received would be in respect of the exercise of these rights, and not in respect of employment. Therefore, the benefit (beneficial interest in a share) that arises to an employee upon the exercise of Performance Rights granted under the Plan does not give rise to a fringe benefit as no benefit has been provided to the employee 'in respect of' the employment relationship. | Detailed Reasoning - Question 7: Paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA, excludes a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997 from the meaning of fringe benefit. An 'employee share trust' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by subsection 130-85(4) of the ITAA 1997. Subsection 130-85(4) of the ITAA 1997 provides that an employee share trust for an 'employee share scheme' (having the meaning given by subsection 83A-10(2) of the ITAA 1997) is a trust whose sole activities are: (a) obtaining shares or rights in a company; and (b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of: (i) the company; or (ii) a subsidiary of the company; and (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). The right to acquire a share and the beneficial interest in the share that is acquired pursuant to the exercise of the right are both ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997. An employee share scheme is defined in subsection 83A-10(2) of the ITAA 1997 as a scheme under which ESS interests in a company are provided to employees, or associates of employees (including past or prospective employees) in relation to the employees' employment. The head company Performance Rights Plan is an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which rights to acquire beneficial interests in shares in head company are provided to employees in relation to the employee's employment. Under the Plan, head company has established the EST to acquire shares in head company and to allocate those shares to employees. Note that, in the case of the Plan, the beneficial interest in the share is also itself provided under an employee share scheme because it is provided under the same scheme under which the rights to acquire the shares are provided to the employee in relation to the employee's employment, being an employee share scheme as defined in subsection 83A-10(2) of the ITAA 1997. Therefore, paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are satisfied because: • the EST acquires shares in head company, • the EST ensures that ESS interests as defined in subsection 83A-10(1) of the ITAA 1997, being beneficial interests in those shares, are provided under an ESS, as defined in subsection 83A-10(2) of the ITAA 1997, by allocating those shares to the employees in accordance with the Trust Deed and Plan Rules of the head company incentive plan. Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 will require that the Trustee undertake incidental activities that are a function of managing the head company incentive plan and administering the EST. For the purposes of paragraph 130-85(4)(c) of the ITAA 1997, activities which are merely incidental include: • the opening and operation of a bank account to facilitate the receipt and payment of money; • the receipt of dividends in respect of shares held by the EST on behalf of an employee, and their distribution to the employee; • the receipt of dividends in respect of unallocated shares and using those dividends to acquire additional shares for the purposes of the employee share scheme; • dealing with shares forfeited under an employee share scheme including the sale of forfeited shares and using the proceeds of sale for the purposes of the employee share scheme; • the transfer of shares to employee beneficiaries or the sale of shares on behalf of an employee beneficiary and the transfer to the employee of the net proceeds of the sale of those shares; • the payment or transfer of trust income and property to the default beneficiary on the winding up of the trust where there are no employee beneficiaries; • receiving and immediately distributing shares under a demerger. Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered merely incidental. Therefore, the EST is an employee share trust, as defined in subsection 995-1(1) of the ITAA 1997, as the activities of the trust in acquiring and allocating ESS interests meet the requirements of paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 and its other activities are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997. As such, paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA excludes the contributions to the Trustee of the EST from being a fringe benefit. Accordingly, head company will not be required to pay FBT in respect of the irretrievable cash contributions it makes to the Trustee of the EST to fund the acquisition of head company shares in accordance with the Trust Deed | Detailed Reasoning - Question 8: PSLA 2005/24 has been written to assist those who are contemplating the application of Part IVA or other general anti-avoidance rules to an arrangement, including in a private ruling. It succinctly explains how section 67 of the FBTAA operates. Most notably, paragraphs 145-148 provide as follows: 145. Section 67 is the general anti-avoidance provision in the FBTAA. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA is virtually identical to the definition of 'scheme' in section 177A of Part IVA. 146. Subsection 67(1) of the FBTAA is satisfied where a person or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer or the eligible employer and another employer(s) to obtain a tax benefit. 147. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 differs from paragraph 177D(2) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose. 148. Subsection 67(2) of the FBTAA provides that a tax benefit arises in respect of a year of tax in connection with an arrangement if under the arrangement: (i) a benefit is provided to a person; (ii) an amount is not included in the aggregate fringe benefits amount of the employer; and (iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into. It is clear, therefore, that 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 FBT than would be payable but for entering into the arrangement. The point is made effectively in Miscellaneous Taxation Ruling MT 2021 under the heading 'Appendix, Question 18' where, on the application of section 67, the Commissioner states: …As mentioned in the explanatory memorandum to the FBT law, section 67 may only apply where there is an arrangement under which a benefit is provided to a person and the fringe benefits taxable amount in respect of that benefit is either nil or less than it would have been but for the arrangement... Further, paragraph 151 of PSLA 2005/24 provides: 151. The approach outlined in this practice statement (refer to paragraphs 69 to 113) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. In the present case the benefits provided to the Trustee by way of irretrievable contributions to the EST, and to eligible employees by way of the provision of Performance Rights and shares under the relevant Plan, are excluded from the definition of a fringe benefit for the reasons given in the response to Question 7 (above). Therefore, as these benefits have been excluded from the definition of a fringe benefit and there is also no FBT currently payable under the existing Plan, nor likely to be payable under future alternative plans, the FBT liability is not any less than it would have been but for the arrangement. Accordingly, the Commissioner will not make a determination that section 67 of the FBTAA 1986 applies to include an amount in the aggregate fringe benefits amount of head company in relation to a tax benefit obtained under the Plan from irretrievable cash contributions made by head company to the Trustee of the EST to fund the acquisition of head company shares in accordance with the Trust Deed.