Class Ruling CR 2008/9
Date of effect: 30 June 2008

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: All legislative references in this Ruling are to the ITAA 1936 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is all persons who are Australian resident employees of the Brookfield Asset Management group (Brookfield) who are granted an award of options under the 2007 Management Share Option Plan (the Plan). In this Ruling, a person belonging to this class of entities is referred to as a participant. Qualifications 4. The Commissioner makes this ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 13 to 23 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is all persons who are Australian resident employees of the Brookfield Asset Management group (Brookfield) who are granted an award of options under the 2007 Management Share Option Plan (the Plan). In this Ruling, a person belonging to this class of entities is referred to as a participant. | Qualifications: 4. The Commissioner makes this ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 13 to 23 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 8. This Ruling applies to the income year ended 30 June 2008. However, the Ruling continues to apply after this date to all entities within the specified class who entered into the specified scheme during the term of the Ruling. 9. The Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling. Furthermore, the Ruling only applies to the extent that: 10. If this Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 11. If this Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Ruling is made, the following two conditions are met: 12. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). 13. The following description of the scheme is based on information provided by the applicant. The following documents or relevant parts of them, form part of and are to be read with, the description: | 2007 Management Share Option Plan: 14. Brookfield is a company co-listed on the New York and Toronto Stock Exchanges. As part of its senior employee and executive remuneration practice, it has established the Plan, which is aimed at creating a stronger link between performance and reward. 15. Under the Plan, participants will be granted an award of options, structured as rights to receive either: 16. Options are granted to a participant under the Plan for nil consideration and are subject to vesting conditions. The Brookfield board (the board) will determine the exercise price of an option at the time the option is granted. 17. The board will also determine whether a vested option is to be satisfied by the issue or transfer of a share or a cash payment to a participant. The applicant has advised that the board will generally determine this upon receipt of a notice provided by a participant (notice of exercise). However, the board has the discretion to make this decision at an earlier date. 18. The applicant has also advised that, contrary to section 2.3(h) of the Plan, participants will not be permitted to assign options granted to them. | Vesting conditions: 19. 20% of options will vest at the end of the first anniversary date of grant and 20% at the end of each subsequent anniversary date up to and including the fifth anniversary date, unless otherwise specified by the board. The applicant has advised that the vesting conditions for an option may also include performance hurdles. 20. The board will determine the maximum period following the grant date during which a vested option may be exercised, subject to a maximum period of 10 years. 21. Vested but unexercised options may be cancelled when certain other events happen, as stipulated in the Plan. | Exercise of options: 22. Once an option vests a participant will be entitled to exercise the option. 23. A participant may submit a notice of exercise in relation to vested options, the options being satisfied at the discretion of the board by either the issue or transfer of shares or the payment of cash as described in paragraph 15 of this Ruling. | Grant of an option: 24. A participant will not acquire a right under an employee share scheme for the purposes of Division 13A of Part III (Division 13A) on the grant of an option under the Plan. 25. The grant of an option under the Plan does not give rise to a reportable fringe benefits amount for the participant, for the purposes of Part XIB of the FBTAA. | Board decision prior to notice of exercise: 26. Where, prior to receiving a notice of exercise from a participant, the board decides that an option will be satisfied by the issue or transfer of a share, the participant will acquire a right under an employee share scheme for the purposes of Division 13A when the board makes that decision. | Board decision on notice of exercise: 27. Where, after the receipt of a notice of exercise from a participant, the board decides that an option will be satisfied by the issue or transfer of a share, the participant will acquire a share under an employee share scheme for the purposes of Division 13A when a share is issued or transferred to the participant, where that share is provided at a discount as calculated under section 139CC. Commissioner of Taxation 20 February 2008 | Acquiring a right under Division 13A: 28. An employee will acquire a right under an employee share scheme for the purposes of Division 13A where that right is: 29. The expression 'right' as used in Division 13A is not defined, but as 'right' and 'right to acquire a share' are used interchangeably throughout Division 13A, the Commissioner considers that a right should be taken to mean a 'right to acquire a share'. 30. Where at the time a right is granted to an employee: the Commissioner considers the right to be a right for the purposes of Division 13A. 31. However, where an employee is granted a right under a scheme that purports to be a right to acquire a share, and the scheme is operated so that the employer makes the ultimate decision as to whether an employee actually receives a share or cash in lieu of a share, the right will not be considered to be a right to acquire a share for the purposes of Division 13A at the time it is granted. | Grant of an option: 32. Under the Plan, the board will generally determine whether an option is to be satisfied by the issue or transfer of a share or by way of cash payment when it receives a notice of exercise from a participant. 33. Therefore, the Commissioner considers that a participant who is granted an option under the Plan will not acquire a right for the purposes of Division 13A at the time the option is granted, as they are not provided with a right to acquire a share at that time. | Fringe benefit: 34. Where an employee is granted a right or rights to remuneration (pre-existing remuneration rights) that are an intrinsic part of a contract for services that ultimately results in the receipt by the employee of remuneration that is subject to tax under the relevant tax laws as 'salary or wages' or as the discount on a right or share (under Division 13A), those pre-existing remuneration rights come within the definition of a 'benefit' for the purposes of the FBTAA. 35. However, those pre-existing remuneration rights, given the context in which they arise and the relevant tax laws, will not be 'fringe benefits' for the purposes of the FBTAA. Those pre-existing remuneration rights relate to the whole process that is the payment of 'salary or wages' or a benefit constituted by the acquisition by an employee of a right or share within the meaning of Division 13A. Both the payment of 'salary or wages' or a benefit constituted by the acquisition by an employee of a right or share within the meaning of Division 13A are specifically excluded from the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. 36. Therefore, where a participant is granted a right in the form of an option under the Plan which is not considered at that time to be a right for the purposes of Division 13A, the grant of that right will not be a 'fringe benefit' for the purposes of the FBTAA. Accordingly, as the grant of the option is not a 'fringe benefit', the grant of the option does not give rise to a reportable fringe benefits amount for the participant, for the purposes of Part XIB of the FBTAA. | Board decision prior to notice of exercise: 37. The board also has the discretion to determine whether an option will be satisfied by the payment of cash or the issue or transfer of a share prior to receiving a notice of exercise from a participant. 38. Thus, the Commissioner considers that where the board exercises this discretion to determine that an option will be satisfied by the issue or transfer of a share prior to receiving a notice of exercise from a participant, the participant will acquire a right under an employee share scheme for the purposes of Division 13A at the time the board exercises its discretion. | Acquiring a share on the exercise of a right: 39. Subsection 139C(4) provides that an employee will not acquire a share under an employee share scheme for the purposes of Division 13A, where the share is acquired as a result of exercising a right that the employee acquired under an employee share scheme (within the meaning of section 139C). 40. As explained in paragraph 38 of this Ruling, a participant will acquire a right under an employee share scheme at the time that the board exercises its discretion prior to receiving a notice to exercise from a participant (to determine that an option will be satisfied by the issue or transfer of a share). 41. Accordingly, a participant will not acquire a share under an employee share scheme for the purposes of Division 13A upon the issue or transfer of a share to a participant following the vesting and exercise of an option as set out in paragraph 38 of this Ruling. | Board decision on notice of exercise: 42. Section 139C effectively provides that a taxpayer acquires a share under an employee share scheme if the share is: 43. A person will acquire a share when, amongst other things, the share is issued or transferred to them. Therefore, where options granted under the Plan have vested and the board determines, upon the receipt of a notice to exercise, to satisfy the option by the issue or transfer of shares to a participant, such shares will be acquired by the participant within the meaning of section 139G. 44. Further, it is accepted that the shares are acquired directly or indirectly in relation to employment services provided (within the meaning of subsection 139C(2)) to Brookfield by a participant. 45. Therefore, provided that the exercise price of an option (effectively the consideration for a share) granted under the Plan that is satisfied by the issue or transfer of a share to a participant: the Commissioner accepts that the participant will acquire a share under an employee share scheme for the purposes of Division 13A. 46. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: Grant of an option: 24. A participant will not acquire a right under an employee share scheme for the purposes of Division 13A of Part III (Division 13A) on the grant of an option under the Plan. 25. The grant of an option under the Plan does not give rise to a reportable fringe benefits amount for the participant, for the purposes of Part XIB of the FBTAA. | Board decision prior to notice of exercise: 26. Where, prior to receiving a notice of exercise from a participant, the board decides that an option will be satisfied by the issue or transfer of a share, the participant will acquire a right under an employee share scheme for the purposes of Division 13A when the board makes that decision. | Board decision on notice of exercise: 27. Where, after the receipt of a notice of exercise from a participant, the board decides that an option will be satisfied by the issue or transfer of a share, the participant will acquire a share under an employee share scheme for the purposes of Division 13A when a share is issued or transferred to the participant, where that share is provided at a discount as calculated under section 139CC. Commissioner of Taxation 20 February 2008


Appendix: Acquiring a right under Division 13A: 28. An employee will acquire a right under an employee share scheme for the purposes of Division 13A where that right is: 29. The expression 'right' as used in Division 13A is not defined, but as 'right' and 'right to acquire a share' are used interchangeably throughout Division 13A, the Commissioner considers that a right should be taken to mean a 'right to acquire a share'. 30. Where at the time a right is granted to an employee: the Commissioner considers the right to be a right for the purposes of Division 13A. 31. However, where an employee is granted a right under a scheme that purports to be a right to acquire a share, and the scheme is operated so that the employer makes the ultimate decision as to whether an employee actually receives a share or cash in lieu of a share, the right will not be considered to be a right to acquire a share for the purposes of Division 13A at the time it is granted. | Grant of an option: 32. Under the Plan, the board will generally determine whether an option is to be satisfied by the issue or transfer of a share or by way of cash payment when it receives a notice of exercise from a participant. 33. Therefore, the Commissioner considers that a participant who is granted an option under the Plan will not acquire a right for the purposes of Division 13A at the time the option is granted, as they are not provided with a right to acquire a share at that time. | Fringe benefit: 34. Where an employee is granted a right or rights to remuneration (pre-existing remuneration rights) that are an intrinsic part of a contract for services that ultimately results in the receipt by the employee of remuneration that is subject to tax under the relevant tax laws as 'salary or wages' or as the discount on a right or share (under Division 13A), those pre-existing remuneration rights come within the definition of a 'benefit' for the purposes of the FBTAA. 35. However, those pre-existing remuneration rights, given the context in which they arise and the relevant tax laws, will not be 'fringe benefits' for the purposes of the FBTAA. Those pre-existing remuneration rights relate to the whole process that is the payment of 'salary or wages' or a benefit constituted by the acquisition by an employee of a right or share within the meaning of Division 13A. Both the payment of 'salary or wages' or a benefit constituted by the acquisition by an employee of a right or share within the meaning of Division 13A are specifically excluded from the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. 36. Therefore, where a participant is granted a right in the form of an option under the Plan which is not considered at that time to be a right for the purposes of Division 13A, the grant of that right will not be a 'fringe benefit' for the purposes of the FBTAA. Accordingly, as the grant of the option is not a 'fringe benefit', the grant of the option does not give rise to a reportable fringe benefits amount for the participant, for the purposes of Part XIB of the FBTAA. | Board decision prior to notice of exercise: 37. The board also has the discretion to determine whether an option will be satisfied by the payment of cash or the issue or transfer of a share prior to receiving a notice of exercise from a participant. 38. Thus, the Commissioner considers that where the board exercises this discretion to determine that an option will be satisfied by the issue or transfer of a share prior to receiving a notice of exercise from a participant, the participant will acquire a right under an employee share scheme for the purposes of Division 13A at the time the board exercises its discretion. | Acquiring a share on the exercise of a right: 39. Subsection 139C(4) provides that an employee will not acquire a share under an employee share scheme for the purposes of Division 13A, where the share is acquired as a result of exercising a right that the employee acquired under an employee share scheme (within the meaning of section 139C). 40. As explained in paragraph 38 of this Ruling, a participant will acquire a right under an employee share scheme at the time that the board exercises its discretion prior to receiving a notice to exercise from a participant (to determine that an option will be satisfied by the issue or transfer of a share). 41. Accordingly, a participant will not acquire a share under an employee share scheme for the purposes of Division 13A upon the issue or transfer of a share to a participant following the vesting and exercise of an option as set out in paragraph 38 of this Ruling. | Board decision on notice of exercise: 42. Section 139C effectively provides that a taxpayer acquires a share under an employee share scheme if the share is: 43. A person will acquire a share when, amongst other things, the share is issued or transferred to them. Therefore, where options granted under the Plan have vested and the board determines, upon the receipt of a notice to exercise, to satisfy the option by the issue or transfer of shares to a participant, such shares will be acquired by the participant within the meaning of section 139G. 44. Further, it is accepted that the shares are acquired directly or indirectly in relation to employment services provided (within the meaning of subsection 139C(2)) to Brookfield by a participant. 45. Therefore, provided that the exercise price of an option (effectively the consideration for a share) granted under the Plan that is satisfied by the issue or transfer of a share to a participant: the Commissioner accepts that the participant will acquire a share under an employee share scheme for the purposes of Division 13A.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Appendix 2 - Detailed contents list


Legislative references: ITAA 1936 Pt III Div 13A ITAA 1936 139B(2) ITAA 1936 139C ITAA 1936 139C(1) ITAA 1936 139C(2) ITAA 1936 139C(3) ITAA 1936 139C(4) ITAA 1936 139CC ITAA 1936 139G ITAA 1936 Pt III Div 13A Subdiv F FBTAA 1986 Pt XIB FBTAA 1986 136(1) TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968
Subject references: employee share scheme fringe benefit reportable fringe benefits amount