Private ruling: Employee Share Scheme (ESS)
Date of advice: 22 September 2025
Published: 17 November 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: In a particular income year

Ruling: Q1: Will the irretrievable cash contributions by Company X (as head company of the Company X tax consolidated group), or any subsidiary member of the Company X tax consolidated group, to Company Y (the Trustee) as trustee for the Company X Employee Share Trust (the Trust) to fund the acquisition of Company X shares by the Trust for the purposes of the Company Employee Securities Incentive Plan (ESIP) be assessable income of the Trust under section 6-5 or 6-10 of Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No Question 2A Will capital gains tax (CGT) event E5 happen at the time when the employees become absolutely entitled to Company X shares held by the Trustee of the Trust under the ESIP? Answer 2A Yes Question 2B If CGT event E5 does happen, will a capital gain or capital loss made by the Trustee as a result of CGT event E5 happening be disregarded under section 130-90 of the ITAA 1997 if the employees acquire the Company X shares for the same or less than the cost base of the Company X shares in the hands of the Trustee? Answer 2B Yes Question 2C Will CGT event E7 happen in respect of the Company X shares held by the Trustee of the Trust? Answer 2C No - the specified scheme does not include any facts that gives rise to CGT event E7 happening Question 2D If CGT event E7 does happen, will a capital gain or capital loss made by the Trustee as a result of CGT event E7 happening be disregarded under section 130-90 of the ITAA 1997 if the employees acquire the Company X shares for the same or less than the cost base of the Company X shares in the hands of the Trustee? Answer 2D Not applicable

Relevant facts and circumstances: Company X Limited 1. Company X is listed on the Australian Securities Exchange (ASX). 2. Company X carries on a business for the purpose of gaining or producing assessable income. 3. As detailed in Company X's 20XX Annual Report, the objective of the company's remuneration philosophy and framework is to attract and retain key talent to deliver the company's goals and to ensure that remuneration practices align with Company X's performance and shareholder interests. 4. As part of the overall remuneration strategy, in addition to fixed remuneration, Company X offers an incentive program to eligible personnel whereby they receive shares in the company upon the satisfaction of certain performance conditions. 5. Company X will incur the following costs in relation to the on-going administration of the Employee Share Trust (EST), including but not limited to: • Employee plan record keeping • Production and dispatch of holding statements to employees • Provision of annual income tax return information for employees • Costs incurred in the acquisition of shares on market (e.g. brokerage costs and the allocation of such shares to Participants) • Management of employee termination, and • Other trustee expenses such as the annual audit of the financial statements and annual income tax return of the Trust. 6. Company X will incur the following costs in relation to the establishment and implementation of the EST, including but not limited to: • Legal advice obtained in respect of the implications which may arise for both Company X and the Participants of the ESIP in respect of the EST structure • Legal documents required in respect of the EST and the ESIP • Legal advice obtained in respect of the drafting of changes required to the existing ESIP in order to accommodate the EST structure, and • Professional fees associated with the establishment of the EST including such costs associated with the creating and registration of the EST with various authorities. 7. Company X will also incur various costs relating to tax advice associated with the implementation of the EST, including taxation fees associated with the drafting and lodgment of the private ruling application with the ATO. ESIP 8. The Employee Securities Incentive Plan (ESIP) encompasses an incentive framework that implements Company X's remuneration strategy. 9. Company X and one of its subsidiaries, Company Z, are the employers of individuals that participate in the ESIP (Employer Entities). 10. Company X shareholders initially approved the ESIP on XX XX 20XX. 11. There are currently 1,XXX,XXX incentives on issue under the XX XX 20XX version of the ESIP. 12. The ESIP was subsequently renewed on YY XX 20YY with no changes. 13. The ESIP was then amended by Board Resolution to reflect legislative changes without materially reducing the rights of any Participants on XX XX 20XX. 14. There are currently 5,XXX,XXX incentives on issue under the XX XX 20XX ESIP. 15. The ESIP was then subsequently renewed by shareholders on ZZ XX 20ZZ with no change to the XX XX 20XX version. 16. There are currently 5,XXX,XXX incentives on issue under the ZZ XX 20ZZ ESIP. 17. The ZZ XX 20ZZ ESIP is ongoing with new offers to relevant employees annually. 18. The key provisions of the ZZ XX 20ZZ ESIP Terms and Conditions are outlined below. 19. The Board will determine the commencement date of the ESIP (Rule 2.2) and eligibility for participating in the ESIP (Rule 3.1). 20. Eligible Participants (hereafter referred to as Participants), upon being issued written invitations by the Board (Invitation) (Rule 3.2(a)), can apply for up to a specified number of Securities which vest according to performance criteria. The Invitation will outline the number of Securities that a Participant can apply for, and the relevant conditions attached to the Securities (Rule 3.2(b)). 21. The Participant may accept the Invitation in accordance with the instructions accompanying the Invitation, ancillary documentation (if any), the ESIP and the constitution of the Company by submitting a completed form (Application Form) (Rules 3.3 and 3.4). 22. The Board may accept an Application Form from a Participant in whole or in part. (Rule 3.7(a)). 23. To the extent it accepted the Application Form, the Company will grant the Participant the relevant number and type of Securities, subject to the terms and conditions set out in the Invitation, the ESIP and the Ancillary Documentation (Rule 4.1) and issue the Participant a certificate (Rule 4.2). 24. Participants do not have any legal, equitable or other interest in any share underpinning the Convertible Security (unless expressly set out in the ESIP) (Rule 5.1(a)) and accordingly is not entitled to: • notice of, or to vote, or attend shareholders' meetings of the Company; nor • receive any dividends declared by the Company (Rule 5.1(b)). 25. Restrictions on Participants' dealings with Convertible Securities includes no disposal (Rule 5.2) and no hedging of economic exposure of the Convertible Security (Rule 5.3). 26. Unless determined otherwise by the Board, a Convertible Security will not be quoted on the ASX or any other recognised exchange (Rule 5.5). 27. A Convertible Security will vest when a Vesting Notice in respect of that Convertible Security is given to the Participant (Rule 6.1), noting that vesting conditions may be waived (as determined by the Board) (Rule 6.2). 28. To exercise a Convertible Security (Rule 7.1), the Participant must: • deliver a signed Notice of Exercise; and • subject to clause 7.2, pay the Exercise Price (if any) to or as directed by the Company, • at any time prior to the earlier of: • any date specified in the Vesting Notice; and • the Expiry Date. 29. Convertible Securities that have been exercised may be satisfied, at the discretion of the Board, in cash rather than shares (Rule 7.3). 30. The Board may exercise its discretion to require automatic conversion/exercise of vested Convertible Securities for some incentives pursuant to Rule 3.2 and Rule 16.1. 31. As soon as practicable after the valid exercise of a Convertible Security, the Company will: • Issue, allocate or cause to be transferred the number of shares to which the Participant is entitled (Rule 8(a)); and • Issue a substitute Certificate for any remaining unexercised Convertible Securities held by that Participant (Rule 8(b)). 32. Convertible Securities may be forfeited, for example under the following circumstances (subject to the Board's discretion): • Purported disposal of the Convertible Security by a Participant in breach of the ESIP (Rule 5.2); • Where a Participant ceases to be eligible to participate in the ESIP (e.g. termination or resignation of employment) (Rule 9.1); • Where the Board determines that a Participant has acted fraudulently or dishonestly or wilfully breached their duties to the Company X group company (Rule 9.2); • Failure to satisfy the vesting conditions (Rule 9.3); • A Participant becomes insolvent (Rule 9.4); or • Expiration date of the Convertible Security occurs prior to vesting (Rule 9.5). 33. Notwithstanding the above examples of forfeiture circumstances, the Board also has the discretion to decide that some or all of the Participant's Convertible Securities will not be forfeited at that time (on any conditions which it thinks fit), but will be forfeited at the time and subject to the conditions it may specify by written notice to the Participant (Rule 9.6). 34. Where a Convertible Security has been forfeited in accordance with these rules (Rule 10): • the Convertible Security will automatically lapse; • the Participant or the Participant's agent or attorney must sign any transfer documents required by the Company to effect the forfeiture of that Convertible Security; and • the Company will not be liable for any damages or other amounts to the Participant in respect of that Convertible Security. 35. All ESIP shares will rank equally in all respects with the shares of the same class for the time being on the issue (except for any rights attaching to the shares by reference to a record date prior to the date of the allotment or transfer of the ESIP shares) (Rule 12.1). 36. If ESIP shares are in the same class as shares which are listed on the ASX, the Company will apply for quotation of the ESIP shares issued (or any unquoted ESIP shares transferred) within the time required by the Listing Rules after the date of allotment (Rule 12.2) 37. The Board may, in its discretion, use an employee share trust or other mechanism for the purposes of holding Company X shares and ESIP shares before or after the exercise of a Convertible Security or delivering any ESIP shares arising from exercise of a Convertible Security under these Rules on such terms and conditions as determined by the Board. For the avoidance of doubt, the Board may do all things necessary for the establishment, administration, operation and funding of an employee share trust (Rule 17). Company X Limited Employee Share Trust (the Trust) 38. The Trust was established for the sole purpose of subscribing for, acquiring, holding and transferring shares in connection with the ESIP for the benefit of the Participants in the ESIP. 39. The Trust will be funded by contributions from Company X or a member of the Company X Group (i.e. for the subscription or purchase of shares in accordance with the ESIP) as specified in Clause 5.3 of the Trust Deed. 40. Company X or a member of the Company X Group are likely to contribute funds, by way of capital contributions, to the Trust when written notice is provided by the Board to the Trustee. A notice can be issued from time to time, however, typically are issued when the incentives vest to the Participant and are subsequently exercised by the Participant or when incentives vest and are converted into vested rights. 41. These funds will be used by the Trustee of the Trust 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 notice provided by Company X (Clause 5.2 of the Trust Deed). 42. Upon being directed by the Board, the Trustee must allocate the specified number of shares to the specified Participant, on the date as directed by the Board (Clause 5.1(a) of the Trust Deed). The Participant will become the beneficial owner of the allocated shares. 43. The Trustee will hold any and all allocated shares held on behalf of the Participant and agrees that the Participant is absolutely entitled to these shares (Clause 3.1(b) of the Trust Deed). The Trustee also holds on behalf of, and the Participant is entitled to, all other benefits and privileges attached to or resulting from the allocated shares (Clause 3.1(a) of the Trust Deed). The Trustee's activities as Trustee of the Trust will be limited to the ESIP (Clause 4.2(a) of the Trust Deed). 44. The structure of the Trust and the ESIP is such that the shares may be dealt with at any time after the Restrictive Period lapses by allocating shares to each Participant by way of transfer into the name of the Participant (i.e. legal title) (or to a third party nominated Participant) upon notification by the Board (Clause 9.2 of the Trust Deed). 45. Company Y is an external trustee acting in an independent capacity on behalf of the beneficiaries of the Trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 Subdivision 83A-B | Income Tax Assessment Act 1997 subsection 83A-10(1) | Income Tax Assessment Act 1997 subsection 83A-10(2) | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 subsection 104-75(1) | Income Tax Assessment Act 1997 subsection 104-75(2) | Income Tax Assessment Act 1997 subsection 104-75(3) | Income Tax Assessment Act 1997 subsection 104-85(1) | Income Tax Assessment Act 1997 subsection 104-85(2) | Income Tax Assessment Act 1997 subsection 104-85(3) | Income Tax Assessment Act 1997 Division 128 | Income Tax Assessment Act 1997 section 130-85 | Income Tax Assessment Act 1997 subsection 130-85(4) | Income Tax Assessment Act 1997 paragraph 130-85(4)(a) | Income Tax Assessment Act 1997 paragraph 130-85(4)(b) | Income Tax Assessment Act 1997 paragraph 130-85(4)(c) | Income Tax Assessment Act 1997 section 130-90

Reasons for decision: Detailed Reasoning - Detailed reasoning: Assessable income includes both ordinary income and statutory income according to sections 6-5 and 6-10. Ordinary income is income according to ordinary concepts. Statutory income is income that is not ordinary income but is included in assessable income because of a specific provision of the ITAA 1997 or ITAA 1936. As Chief Justice Jordan noted in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 ( Scott ): .. 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 receipts. Ordinary income 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] 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 contributions made by Company X or any other member of the Company X tax consolidated group to the Trust forms part of the corpus of the Trust (clause 5.3(b) of the Trust Deed) that will be applied for the sole purpose of acquiring, or subscribing for, shares for the benefit of the Participants under the ESIP (clause 5.2 of the Trust Deed). The cash contributions received by the Trustee are therefore of a capital nature. It is irrelevant that, from Company X's perspective, the cash contribution may be deductible under section 8-1 because whether a receipt is income or capital depends on its objective character in the hands of the recipient, rather than the payer. This is made clear in Pipecoaters , where the High Court held that: ...although the amount expended on the construction of the plant was a capital expenditure, it does not follow that the taxpayer's receipt of the establishment costs was a receipt of capital. From the Trustee's perspective, the irretrievable cash contributions made by Company X are capital in nature and therefore not assessable to the Trust under section 6-5. Statutory income Section 10-5 provides a list of provisions of assessable income for section 6-10 purposes. None of the provisions apply to a cash contribution made by an employer to a trust established under an employee share scheme (ESS). Therefore, the irretrievable cash contributions made by Company X or any other member of the Company X tax consolidated group to the Trustee of the Trust to fund the acquisition of, or subscription to, Company X shares are also not assessable income of the Trust pursuant to section 6-10.This view is consistent with ATO Interpretative Decision ATO ID 2002/965 Income Tax - trustee not assessable on employer contributions made to it under the employer's employee share scheme, which found that: The funds provided to the Trustee are used in accordance with the Trust Deed and Plan Rules for the sole purpose of and under the employee share scheme. The contributions constitute capital receipts to the Trustee, and are not assessable under sections 6-5 or 6-10 of the ITAA 1997. | Detailed Reasoning - Question 2A: Will CGT event E5 happen at the time when the employees become absolutely entitled to Company X shares held by the Trustee of the Trust under the ESIP? | Detailed Reasoning - Detailed reasoning: Pursuant to section 102-20, an entity can make a capital gain or loss if, and only if, a CGT event happens. Under subsection 104-75(1), CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee. The time of the event is when the beneficiary becomes absolutely entitled to the asset (subsection 104-75(2)). According to subsection 104-75(3), if CGT event E5 happens, the trustee may make a capital gain if the market value of the asset, at the time of the event, is more than its cost base. The trustee makes a capital loss if that market value is less than the asset's reduced cost base. In the present case, the Trust is neither a unit trust nor a deceased estate to which Division 128 applies. Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25) explains the principles set out in the leading English trust law case of Saunders v. Vautier (1841) 49 ER 282 in relation to 'absolutely entitled' as follows: ... if a sole beneficiary's interest in the trust property is vested and indefeasible and they are of age then they can put an end to the trust by directing the trustees to transfer the trust property to them or at their direction, even though the trust deed contains a contrary intention. The basis of the principle is that a beneficiary is entitled now to that which will be theirs eventually anyway. Pursuant to clause 3.1(b) of the Trust Deed, a Participant is the beneficial owner of and absolutely entitled to their allocated shares. An allocated share is defined as a Trust share that is credited to the Trust share account of a Participant. Once credited, the Participant (i.e., the beneficiary) will become absolutely entitled to the allocated share (i.e., a CGT asset of the Trust) as against the Trustee. Accordingly, pursuant to subsection 104-75(1), CGT event E5 happens. | Detailed Reasoning - Question 2B: If CGT event E5 does happen, will a capital gain or capital loss made by the Trustee as a result of CGT event E5 happening be disregarded under section 130-90 of the ITAA 1997 if the employees acquire the Company X shares for the same or less than the cost base of the Company X shares in the hands of the Trustee? | Detailed Reasoning - Detailed reasoning: If CGT event E5 happens, any capital gain or loss that the Trustee makes is disregarded if section 130-90 applies. Section 130-90 provides as follows: (1A) Disregard any *capital gain or *capital loss made by an *employee share trust to the extent that it results from a *CGT event, if: (a) immediately before the event happens, an *ESS interest is a *CGT asset of the trust; and (b) either of the following subparagraphs applies: (i) the event is CGT event E5, and the event happens because a beneficiary of the trust becomes absolutely entitled to the ESS interest as against the trustee; (ii) the event is CGT event E7, and the event happens because the trustee *disposes of the ESS interest to a beneficiary of the trust; and (c) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest. (1) Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if: (a) the CGT event is CGT event E5 or E7; and (b) the CGT event happens in relation to a *share; and (c) the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d) the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. (2) Subsection (1A) or (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens. To qualify for the exemption in section 130-90, there must be an 'employee share trust' and an 'ESS interest'. Subsection 130-85(4) defines an employee share trust as 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). 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 ESIP, and subsequently allocated to Company X's Participants pursuant to the ESIP, are ESS interests for the purposes of subsection 83A-10(1). An 'employee share scheme' is defined in subsection 83A-10(2) 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. Company X's ESIP constitutes an 'employee share scheme' 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. Therefore, paragraphs 130-85(4)(a) and (b) of the definition of an employee share trust 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 by allocating those shares to the employees of Company X in accordance with the Trust Deed and the ESIP. Paragraph 130-85(4)(c) of the definition of an employee share trust 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). However, whilst the relevant trust documents may include powers and/or duties that are broad reaching, the mere existence of those powers or duties in the trust document does not, of itself, mean that the trustee has breached the requirements to be an employee share trust. In examining whether the requirements of subsection 130-85(4) are met, it is necessary to examine the actual activities that the trustee has undertaken (paragraph 6 of TD 2019/13). The Trust Deed contains only powers and/or duties that are merely incidental, as required by paragraph 130-85(4)(c). Therefore, the Trust established pursuant to the Trust Deed satisfies the definition of an employee share trust in subsection 130-85(4). As the rights granted under the ESIP will be acquired by the employees at a discount, they are ESS interests to which Subdivision 83A-B applies. As such, a capital gain or capital loss that arises for the Trustee of the Trust established pursuant to the Trust Deed at the time when CGT event E5 happens in relation to Company X shares held by the Trustee will be disregarded under section 130-90, if the employees acquire the shares for the same or less than the cost base of the shares in the hands of the Trustee. | Detailed Reasoning - Question 2C: Will CGT event E7 happen in respect of the Company X shares held by the Trustee of the Trust? | Detailed Reasoning - Detailed reasoning: Under subsection 104-85(1), CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital. The timing of the event is when the disposal occurs (subsection 104-85(2)). According to subsection 104-85(3), if CGT event E7 happens, the trustee may make a capital gain if the market value of the asset, at the time of the disposal, is more than its cost base. The trustee makes a capital loss if that market value is less than the asset's reduced cost base. However, in relation to the scheme as set out in the 'Relevant facts and circumstances' section above, CGT event E7 does not occur. This is because the scheme does not include any facts that gives rise to CGT event E7 happening. | Detailed Reasoning - Question 2D: If CGT event E7 does happen, will a capital gain or capital loss made by the Trustee as a result of CGT event E7 happening be disregarded under section 130-90 of the ITAA 1997 if the employees acquire the Company X shares for the same or less than the cost base of the Company X shares in the hands of the Trustee? | Detailed Reasoning - Detailed reasoning: As per the answer in Question 2C above, CGT event E7 does not arise. Therefore, it is not necessary to consider whether a capital gain or capital loss made by the Trustee as a result of CGT event E7 happening be disregarded under section 130-90 if the Participants acquire the Company X shares at a price that is the same as, or less than, the cost base of the Company X shares in the hands of the Trustee.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar . | Reasons for decision: All legislative references in the Detailed Reasoning are to the Income Tax Assessment Act 1997 , unless otherwise indicated. | Question 1: Will the irretrievable cash contributions by Company X (as head company of the Company X tax consolidated group), or any subsidiary member of the Company X tax consolidated group, to the Trustee to fund the acquisition of Company X shares by the Trust for the purposes of the ESIP be assessable income of the Trust under section 6-5 or 6-10 ofITAA 1997?