Private ruling: Employee share schemes
Date of advice: 15 July 2022
Published: October 2022
Ruling period: For ruling questions 1 to 5 Income tax years ended 30 June 20XX to 30 June 20XX | For ruling questions 6 to 8, the ruling period is the fringe benefit tax years ended 31 March 20XX to 31 March 20XX.
Date scheme commenced: In a particular income year

Ruling: Q1: Will Company X 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 Company X to the trustee of the Company X Employee Share Trust (Trustee) to fund the subscription for or acquisition on-market of Company X shares by the Company X Employee Share Trust (Trust) , to satisfy ESS interests issued pursuant to the Plans in respect of its Australian employees (Participants)? | A1: Yes. | Q2: Will Company X as head company of the Company X income tax consolidated group (Company X TCG) obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by Company X or any subsidiary member of the Company X TCG in relation to the on-going administration of the Trust? | A2: Yes. | Q3: Will each irretrievable cash contribution made by Company X or any subsidiary member of the Company X TCG to the Trustee, to fund the subscription for or acquisition on-market of Company X shares by the Trust, be deductible to Company X at the time determined by section 83A-210 of the ITAA 1997 where the contribution is made before the acquisition of the relevant ESS interests? | A3: Yes. | Q4: If the Trust satisfies its obligation under the Plans by subscribing for new shares in Company X, will the subscription proceeds be included in the assessable income of Company X under section 6-5 or section 20-20 of the ITAA 1997 or trigger a CGT event under Division 104 of the ITAA 1997? | A4: No. | Q5: Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to deny, in part or in full, any deduction claimed by Company X in respect of the irretrievable cash contributions made by Company X or any member of the Company X TCG to the Trustee to fund the subscription for or acquisition on-market of Company X shares by the Trust? | A5: No. | Q6: Will the provision of awards under the Plans by the Employer Entities to employees of Company X under the Plans be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | A6: No. | Q7: Will the irretrievable cash contributions made by Company X or any subsidiary of Company X to the Trustee pursuant to the Deed, to fund the subscription for or acquisition on-market of Company X shares, be treated as a fringe benefit within the meaning of subsection 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 of a Company X Employer Entity by the amount of tax benefit gained from irretrievable cash contributions made by Company X to the Trustee, to fund the subscription for or acquisition on-market of Company X shares? | A8: No.

Relevant facts and circumstances: Company X 1. Company X is an Australian incorporated company involved in a particular industry. 2. Company X is the head company of the Company X income tax consolidated group (Company X TCG) consisting of itself and its wholly owned Australian subsidiaries. 3. Company X's remuneration policy aims to embody transparency, competitiveness and reasonableness, with the goal of retaining key talent in alignment with business and shareholder objectives. 4. As part of the overall remuneration and retention strategy, in addition to fixed remuneration, Company X offers employees and executives, the opportunity of equity ownership upon the satisfaction of certain service and performance conditions. This is implemented through the Plans. a. Plan 1 b. Plan 2 c. Plan 3; and d. Plan 4. 5. The Plans also allow access to Participants who are non-residents. Contributions to the Trust may be made to acquire Shares in relation to rights and awards granted to non-resident Participants. The consideration of contributions made with respect to non-resident Participants (and any associated Australian tax implication for Company X) is outside the scope of this ruling. 6. Company X and a number of wholly owned subsidiaries of the Company X TCG are employers of individuals that participate in the Plans (Employer Entities): Plan 1 7. Plan 1 was adopted by Company X's board of directors (Board) on a certain date. The terms and conditions of Plan 1 are set out in the Plan 1 Rules. 8. Broadly under Plan 1, eligible employees will be offered the opportunity to acquire Company X shares (Acquired Shares) on the basis that, after holding the Acquired Shares for a specified period, an Eligible Employee will be entitled to receive additional shares in Company X at no cost (Matched Shares), provided they continue to be employees of the Company X TCG during the specified period. Under Plan 1 and the Plan 1 Rules there are a number of other conditions to satisfy. Plan 2 9. Plan 2 was approved by Company X's board of directors on a certain date. The terms and conditions of Plan 2 are set out in the Plan 2 Rules. 10. Broadly under Plan 2, Company X may issue Restricted Shares to Eligible Participants or make Awards of Plan 2 Rights to Eligible Participants as a retention or attraction bonus (or other mechanism) to key employees and key contractors. Under Plan 2 and the Plan 2 Rules there are a number of conditions to satisfy. Plan 3 11. Plan 3 was approved by Company X's board of directors on a particular date. The terms and conditions of Plan 3 are set out in the Plan 3 Rules. 12. Broadly under Plan 3, Participants are offered Plan 3 Rights which do not automatically entitle a participant to a Company X share. The actual number of shares to which they may become entitled will depend on: a. the degree to which the performance measures are satisfied; b. satisfaction/waiver of the Vesting Conditions and exercise conditions; and c. the operation of the Plan 3 Rules. 13. A Plan 3 Right is a conditional right which, upon the satisfaction or waiver of the relevant Vesting Conditions, and, if required by the Company X the exercise of that right, entitles its holder to receive one share. Under Plan 3 and Plan 3 Rules there are a number of conditions to satisfy. Plan 4 14. The terms and conditions of Plan 4 are set out in the Plan 4 Rules. 15. Broadly under Plan 4, eligible employees are issued annually up to x amount worth of ordinary fully paid shares in Company X for no cash consideration. Under Plan 4 and Plan 4 Rules there are a number of conditions to be satisfied. Company X Employee Share Trust (Trust) 16. The Trust was established for the sole purpose of subscribing for, acquiring, allocating, holding and transferring shares for the benefit of Participants under the Plans. 17. The trustee of the Trust (Trustee) is an external trustee acting in an independent capacity on behalf of the beneficiaries of the Trust. 18. The Trust will be managed and administered so that it satisfies the definition of "employee share trust" for the purposes of subsection 130-85(4) of the ITAA 1997. 19. The Trust broadly operates as follows: a. Company X or its Related Body Corporate will provide the Trustee with the funds required for the purchase or subscription of shares in accordance with the Plans and funds provided to the Trustee will constitute accretions to the corpus of the Trust and will not be repayable by the Trustee other than to purchase or subscribe for shares. b. These funds will be used by the Trustee to acquire the shares in Company X either by on-market purchase or via a subscription for new shares in Company X based on the written instructions from Company X's Board. c. Allocated Shares acquired by the Trustee must be allocated to the relevant employees and held on their behalf as soon as reasonably practicable where required to do so, or permitted, by the relevant Plan Rules. Each Participant will be the beneficial owner of and absolutely entitled to their Allocated Shares and is entitled to the same rights in respect of those shares as they were the legal owner of the shares. d. Unallocated Shares must be held by the Trustee on behalf of Participants generally. The Trustee must deal with each Unallocated Share in the manner set out in a written instruction from the Board. e. The Trustee must not exercise any voting rights in relation to Unallocated Shares. f. At any time after expiry of the Restrictive Period, the Trustee must transfer the relevant number of Allocated Shares into the name of the relevant Participant or any third party nominated by the Participant (i.e. legal title) upon a Withdrawal Notice being lodged with and approved by the Board. g. The Trustee can sell Allocated shares on behalf of a Participant where permitted to do so by the Participant less any costs incurred by the Trustee to sell these shares, with Participant receiving the proceeds. h. The Trustee may deal with shares forfeited under the Plans. i. The powers of the Trustee in respect of the Trust are set out the Trust Deed and they include the power to open bank accounts and operate bank accounts. j. The Trustee is not entitled to receive from the Trust any fees, charges, commission or other remuneration for operating or administering the Trust. However, Company X may pay or reimburse to the Trustee from Company X's own resources any such fees, commission or other remuneration incurred by the Trustee, as Company X and the Trustee agree from time to time. The Trustee is entitled to retain for its own benefit any such renumeration or reimbursement. k. Company X will pay the Trustee's costs of operation to the extent they relate to the operation of the Trust used to facilitate Company X's Plans. l. Upon termination of the Trust, if there are any Trust Assets remaining in the Trust after distribution to Participants, then those Trust Assets must be applied for the benefit of an employee share or option trust established and maintained for the benefit of the employees of the Group and/or any charity nominated by the Trustee. m. In the event that the Trust is terminated, the Trustee must not pay any balance to any member of the Group. The Group is defined as Company X and any Related Body Corporate (as defined by the Corporations Act), not including the Trustee. Associated costs 20. Company X will incur various on-going administration costs associated with the services provided by the Trustee of the Trust in respect of the on-going administration and management of the Trust, such as: a. Employee plan record-keeping b. Production and dispatch of holding statements to employees c. Provision of annual income tax return information for employees d. Costs incurred in the acquisition of shares (e.g., brokerage costs and the allocation of shares to Participants) e. Management of employee termination f. Other trustee expenses such as the annual audit of the financial statements and preparation of annual income tax return of the Trust, and obtaining tax advice for the Trust (however, ongoing tax advice does not include legal/advisory fees incurred in amending the EST and ESS plan rules). g. Preparing the annual audit of the financial statements of the Trust 21. Company X has and will incur on-going administration costs associated with the company's accounting and legal advisors in relation to the Plans.

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) | Fringe Benefits Tax Assessment Act 1986 section 67 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: Yes, Company X will be entitled to a deduction under section 8-1 of the ITAA 1997 in respect of the irretrievable cash contributions made by Company X to the Trustee of the Trust to fund the subscription for, or acquisition on-market of Company X shares, as the contributions are part of an on-going series of payments in the nature of remuneration of Company X's employees/Participants. | Detailed Reasoning - Detailed reasoning: Subsection 8-1(1) of the ITAA 1997 allows 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. Company X is an Australian company involved in a certain industry. Company X operates employee share schemes (ESS's) as part of its remuneration strategy. Under the various Company X Plans, Company X may grant Shares or Rights to shares to employees and makes cash contributions to the Trust (in accordance with Trust Deed) which the Trustee uses to acquire shares (either on-market or by subscription) for allocation to Participants to satisfy their Rights or allocation of Shares. Company X must provide the Trustee with all the funds required to enable the Trustee to subscribe for, or acquire, the Company X shares. The cash contributions made by Company X to the Trust are irretrievable and non-refundable to Company X in accordance with the Trust Deed, as: Therefore, if Company X makes a cash contribution to the Trust to acquire or subscribe for Company X shares to satisfy the grant of Rights pursuant to the Plans, the amount has been incurred for the purposes of subsection 8-1(1) of the ITAA 1997. The costs incurred by Company X for the acquisition of shares to satisfy its obligations under the Plans in respect of the grant of Rights or Shares arise as part of Company X's remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of its employees. As such, it is incurred in the process of carrying on a business for gaining or producing Company X's assessable income. The cash contributions will be an outgoing incurred for periodic (rather than once-off) funding of an ESS for employees of Company X. The cash contributions are made as part of an ongoing process of remunerating employees, with the Trust expected to acquire shares regularly. Nothing in the facts suggests any intention for any contribution to be retained in the Trust for an extended period of time. While the contributions may secure an enduring or lasting benefit for the employer that is independent of the year-to-year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature. Company X will be entitled to a deduction under section 8-1 of the ITAA 1997 in respect of the irretrievable cash contributions made by Company X to the Trustee of the Trust to fund the subscription for, or acquisition on-market, of Company X shares. | Summary: Yes, the on-going administration costs incurred by Company X associated with the services provided by the Trustee of the Trust are deductible to Company X under section 8-1 of the ITAA 1997 as they are costs necessarily incurred in operating the ESS while carrying on its business for the purpose of gaining or producing its assessable income. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction. Company X carries on a business in a particular industry. Company X operates employee share schemes (ESS's) as part of its remuneration strategy. Company X will incur various on-ongoing administration costs associated with the services provided by the Trustee of the Trust in respect of the on-going administration and management of the Trust, such as: a. Employee plan record-keeping b. Production and dispatch of holding statements to employees c. Provision of annual income tax return information for employees d. Costs incurred in the acquisition of shares (e.g., brokerage costs and the allocation of shares to Participants) e. Management of employee termination f. Other trustee expenses such as the annual audit of the financial statements and preparation of annual income tax return of the Trust, and obtaining tax advice for the Trust (however, ongoing tax advice does not include legal/advisory fees incurred in amending the EST and ESS plan rules). g. Preparing the annual audit of the financial statements of the Trust Pursuant to the Trust Deed, the Trustee is not entitled to receive from the Trust any remuneration in respect of its performance of its obligations as trustee of the Trust. Instead, Company X is required to pay or reimburse to the Trustee any fees, commission or other remuneration incurred by the Trustee, as Company X and the Trustee agree from time to time. These costs are regular and recurrent employment expenses which are deductible to Company X under section 8-1 of the ITAA 1997 as they are costs necessarily incurred in operating the ESS while carrying on its business for the purpose of gaining or producing its assessable income. For completeness, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company (see also ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible). | Summary: Yes, pursuant to section 83A-210 of the ITAA 1997, where irretrievable cash contributions are made at a time before the Participants acquire the relevant ESS interest, the irretrievable cash contribution can only be deducted from the assessable income of Company X in the income year when the ESS interest is acquired by the Participant under the Plan. | Detailed Reasoning - Detailed reasoning: It is often the case that an outgoing will be both incurred and paid in the same year of income, and as such, the amount is deductible in that income year for the purposes of section 8-1 of the ITAA 1997. [1] However, section 83A-210 of the ITAA 1997 modifies this rule in certain circumstances in respect of contributions provided by an employer to a trust to purchase shares under an ESS. The effect of section 83A-210 is to deem the timing an employer incurred the outgoing to be the time when the ESS interest is acquired by a beneficiary under an arrangement, rather than the time when the employer makes the contribution to the trust, if the contribution was made before the ESS interests are acquired. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income Tax- Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust . An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. Shares that are purchased by the Trustee to satisfy its obligation under the Company X ESS, and subsequently granted to Company X Participants pursuant to the Plan, are ESS interests for the purposes of section 83A-210. The Company X ESS satisfies the definition of an 'employee share scheme' in subsection 83A-10(2) as it is a scheme under which ESS interests in Company X are provided to the Participants of Company X in relation to their employment with Company X. The granting of the ESS interest to the Participants, the provision of the cash contributions to the Trustee, the acquisition and holding of shares by the Trustee and the allocation of shares to Participants are all interrelated components of the Company X ESS. All the components constitute an arrangement for the purposes of section 83A-210 that must be carried out so that the scheme can operate as intended. Company X will make irretrievable cash contributions to the Trust and intends to only hold sufficient shares in the Trust to settle obligations arising from Rights currently on issue under the Plan. Therefore, where irretrievable cash contributions are made at a time before the Participants acquire the relevant ESS interest, the irretrievable cash contribution can only be deducted from the assessable income of Company X in the income year when the ESS interest is acquired by the Participant under the Plan, as provided by section 83A-210 of the ITAA 1997. | Summary: No, if the Trust satisfies its obligation under the Plans by subscribing for new shares in Company X, the subscription proceeds will not be included in the assessable income of Company X under section 6-5 of the ITAA 1997 (because it is capital in nature); section 20-20 of the ITAA 1997 (because it is not an assessable recoupment); or trigger a CGT event under Division 104 of the ITAA 1997 (because it is excluded by paragraphs 104-35(5)(c) and 104-155(5)(c) of the ITAA 1997). | Detailed Reasoning - Detailed reasoning: Section 6-5 Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. The expression " income according to ordinary concepts " is not a defined term. However, case law has identified certain factors which may assist in determining whether a receipt is properly characterised as income according to ordinary concepts. As a general rule, amounts received as a result of carrying on a business should represent ordinary income. However, receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In GP International Pipecoaters v. Federal Commissioner of Taxation (1990) 170 CLR 124; (1990) 64 ALJR 392; (1990) 93 ALR 193; (1990) 21 ATR 1; 90 ATC 4413; [1990] HCA 25 ( Pipecoaters ), the High Court of Australia found that: To determine whether a receipt is of an income or of a capital character, various factors may be relevant. Sometimes, the character of receipt 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. The character of the subscription proceeds received by Company X from the Trust can be determined by the character of the right or thing disposed of in exchange for the receipt. Where Company X 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 accordingly, is of a capital nature. In conclusion, the subscription proceeds should not be treated as ordinary income assessable in the hands of Company X under section 6-5 of the ITAA 1997. Section 20-20 Subsection 20-20 relevantly provides for the assessment of recoupment received by way of insurance or indemnity or under a provision listed in section 20-30. By its very nature, the subscription proceeds received by Company X from the Trust will not represent an amount received by way of insurance or indemnity. There is no insurance contract involved; and the receipt does not arise because of a statutory right or contract of indemnity nor in the nature of compensation. Therefore, the receipt of the subscription proceeds does not constitute an assessable recoupment under subsection 20-20(2) of the ITAA 1997. As for subsection 20-20(3), an amount that Company X receives as recoupment of a loss or outgoing, except by way of insurance or indemnity, is an assessable recoupment if such loss or outgoing is deductible in the current or a prior income year 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) of the ITAA 1997. 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 of the ITAA 1997). 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/or CGT event H2 (Receipt for event relating to a CGT asset). Paragraphs 104-35(5)(c) and 104-155(5)(c) of the ITAA 1997 respectively provide that CGT event D1 and CGT event H2 do not apply if a company issues or allots equity interests or non-equity shares in the company. As the ordinary shares of Company X constitute "equity interests" (see subsection 974-75(1) of the ITAA 1997), neither CGT event D1 nor CGT event H2 will occur. Accordingly, the subscription proceeds will not be assessable as a capital gain to Company X. | Summary: No, Part IVA of the ITAA 1936 will not apply to deny, in part or in full, any deduction claimed by Company X in respect of the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for or acquisition on-market of Company X shares by the Trust. | Detailed Reasoning - Detailed reasoning: Part IVA of the ITAA 1936 is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A of the ITAA 1997 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 Company X to obtain a tax benefit. | Summary: No, the provision of rights to acquire ordinary shares or shares by Company X to employees under the Plan will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986 as they are excluded by paragraph 136(1)(h) of the FBTAA 1986 as ESS interests acquired under an 'employee share scheme'. | 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. 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 definition. Paragraph (h) of subsection 136(1) of the FBTAA 1986 excludes the following from being a 'fringe benefit': (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997 ) to which Subdivision 83A-B or 83A-C of that Act applies; 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 employee's employment. An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. Shares that are purchased by the Trustee to satisfy its obligation under the Plans, and subsequently granted to Company X Participants pursuant to the Plans, are ESS interests for the purposes of section 83A-10(1). Therefore, Company X's ESS constitutes an 'employee share scheme' within the meaning of subsection 83A-10(2) because it is a scheme under which ESS interests in Company X are provided to the employees of Company X in relation to their employment with Company X. As the rights to acquire ordinary shares or shares granted under the Plans will be acquired by the employees at a discount, they are ESS interests to which subdivision 83A-B of 83A-C of the ITAA 1997 applies. Accordingly, the provision of rights to acquire ordinary shares or shares by Company X to Participants under the Plan will not be subject to FBT on the basis that they are acquired by Participants under an 'employee share scheme' (to which subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph 136(1)(h) of the FBTAA 1986. In addition, when a right to acquire ordinary shares is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the right to acquire shares and not in respect of employment (refer ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). | Summary: No, the irretrievable cash contributions made by Company X to the Trustee pursuant to the Trust Deed, to fund the subscription for or acquisition on-market of Company X shares will not be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986 by virtue of the exclusion in paragraph 136(1)(ha) of the FBTAA 1986 on the basis that the Trust Deed satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Paragraph (ha) of subsection 136(1) of the FBTAA 1986 excludes from the definition of 'fringe benefit': (ha) 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 ); 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) of the ITAA 1997. Subsection 130-85(4) provides that an employee share trust, for an employee share scheme, is a trust whose sole activities are: (a) obtaining shares or rights in a company; and (b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of: (i) the company; or (ii) a subsidiary of the company; and (c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). In the present case, paragraphs 130-85(4)(a) and (b) are satisfied because: a) The Trust acquires shares in a company, namely Company X; and b) The Trust ensures that ESS interests as defined in subsection 83A-10(1) are provided under an employee share scheme (discussed above in Questions 3 and 6) by allocating those shares to the Participants of Company X in accordance with the Trust Deed and the Plan. 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 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'? (TD 2019/13). According to paragraph 13 of TD 2019/13, 'investing in assets other than shares or rights to shares in the employer company' is not an activity that is 'merely incidental' as it is not a natural incident or consequence of administering an ESS. [2] Neither is the provision of 'additional benefits to participants and/or employees, over and above the delivery of the ESS interests or resulting shares and any dividend equivalent payment that accrues directly from the employee's ESS interest'. Accordingly, the Trust Deed contains only powers and/or duties that are merely incidental, as required by subsection 130-85(4)(c) of the ITAA 1997. The Trust Deed, therefore, satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997 and, in turn, paragraph 136(1)(ha) of the FBTAA 1986 applies to exclude the irretrievable cash contributions made by Company X to the Trustee under the Trust Deed from being a fringe benefit. | Summary: No, the Commissioner will not seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount to the Company X Employer Entities. | Detailed Reasoning - Detailed reasoning: PS LA 2005/24 Application of General Anti-Avoidance Rules (PSLA 2005/24) provides guidance on the application of Part IVA of the ITAA 1936 and other general anti-avoidance rules. In respect of section 67 of the FBTAA 1986, guidance is provided at paragraphs 185 to 188 of PSLA 2005/24. As discussed above, the irretrievable cash contributions made by Company X to the Trustee (pursuant to both the Plans and Trust Deed) will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986. Therefore, the fringe benefits liability is not any less than it would have been but for the existence of the arrangement. In conclusion, the Commissioner will not seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount by the amount of the tax benefit gained from the irretrievable cash contributions made by Company X to the Trustee to fund the subscription for, or acquisition on-market, of shares in Company X. [1] Paragraph 15 of TR 97/7. [2] See also paragraph 11 of TD 2019/13.

All funds provided to the Trustee will constitute accretions to the corpus of the Trust and will not be repayable by the Trustee; and | On termination of the Trust, the Trustee must not pay any of the Surplus Assets to any Group Company.