Class Ruling CR 2017/59
Date of effect: 1 July 2016

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 are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies are all persons who: 4. The persons described in this class of entities at paragraph 3 are considered to be participants (' Participants ') for the purposes of this Class Ruling. Qualifications 5. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 6. 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 9 to 40 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies are all persons who: 4. The persons described in this class of entities at paragraph 3 are considered to be participants (' Participants ') for the purposes of this Class Ruling. | Qualifications: 5. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 6. 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 9 to 40 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. This Ruling applies from 1 July 2016 to 30 June 2017. The Ruling continues to apply after 30 June 2017 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 9. The following description of the scheme is based on information provided by the applicant. Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. | Alcoa Inc: 10. Alcoa Inc. (' Alcoa Inc. ') was a US company listed on the New York Stock Exchange (' NYSE ') and had a market capitalisation of approximately US $13 billion, based on the value of its common stock outstanding as at 31 December 2015. 11. Alcoa Inc.'s common stock was also listed and traded on the Australian Stock Exchange (' ASX ') as Chess Depository Instruments. Alcoa Inc. was removed from the official ASX listing, with its revocation of approval effective at end of day Monday, 17 October 2016. | The Separation and distribution: 12. On September 28, 2015, Alcoa Inc. announced its intention to separate its Alcoa Corporation business from its Arconic Inc. business (the Separation ). 13. The Separation occurred by means of a pro rata distribution to Alcoa Inc. shareholders of at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, which was formed to hold Alcoa Inc.'s Bauxite, Alumina, Aluminium, Cast Products and Energy businesses, and rolling mill operations in Warrick, Indiana, and Alcoa Inc.'s 25.1% interest in the Ma'aden Rolling Company in Saudi Arabia. 14. Following the distribution, Alcoa Inc.'s shareholders own directly at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, and Alcoa Corporation is a separate company from Alcoa Inc. Alcoa Inc. retained no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution. 15. In connection with the distribution: 16. On 29 September 2016, the Arconic Inc. board of directors approved the distribution of at least 80.1% of Alcoa Corporation's issued and outstanding shares of common stock on the basis of one share of Alcoa Corporation common stock for every three shares of Arconic Inc. common stock held as at close of business on 20 October 2016, the record date for the distribution. 17. At 12:01 a.m., Eastern Time U.S., on 1 November 2016, the distribution date, each Arconic Inc. shareholder received one share of Alcoa Corporation common stock for every three shares of Arconic Inc. common stock held at the close of business on the record date for the distribution, as described below. Arconic Inc. shareholders received cash in lieu of any fractional shares of Alcoa Corporation common stock that they would have received after application of this ratio. 18. Upon completion of the Separation, each Arconic Inc. shareholder as of the record date continued to own shares of Arconic Inc. (which, as a result of Alcoa Inc.'s name change to Arconic Inc., became Arconic Inc. shares (having NYSE listing reference ' ARNC ') and owned a proportionate share of the outstanding common stock of Alcoa Corporation (having NYSE listing reference ' AA ')). 19. Arconic Inc. shareholders were not required to make any payment, surrender, or exchange their Arconic Inc. common stock or take any other action to receive shares of Alcoa Corporation common stock in the distribution. | Employee share schemes: 20. The employee share schemes (' ESS '), the subject of this Class Ruling, and the treatment of that equity based compensation in connection with the Separation, are described in paragraphs 21 to 40. | Employee share scheme pre-Separation: 21. Alcoa Inc. (as it was known prior to the Separation and name change to Arconic Inc.) offered equity to Australian employees of Alcoa Inc. and its subsidiaries under the following equity plans over the years. The 2009 Plan 22. The 2009 Plan includes the following: The 2013 Plan 23. The 2013 Plan includes the following: Alcoa Employee Share Plan 24. In addition, Alcoa of Australia Limited operates the Alcoa Employee Share Plan by way of the Alcoa Employee Share Plan Trust Deed and annexures. 25. The Alcoa Employee Share Plan includes the following: | Employee Share Schemes post Separation and distribution: 26. In connection with the Separation: held by employees were either adjusted as an Arconic Inc. award or converted to an Alcoa Corporation award, depending upon each employee's post Separation employer as follows in paragraphs 27 to 37. Arconic Inc. Stock Options and RSUs Stock Options 27. Each award of Alcoa Inc. Stock Options held by an Arconic employee will continue to relate to Alcoa Inc. common stock (which, as a result of Alcoa Inc.'s name change to Arconic Inc., is now Arconic Inc. common stock after the Separation), provided that the exercise price of, and number of shares subject to, each such award was adjusted in a manner intended to preserve the aggregate intrinsic value of the original Alcoa Inc. award as measured immediately before and immediately after the Separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original Alcoa Inc. award immediately prior to the Separation. Restricted Stock Units 28. Each award of Alcoa Inc. RSUs held by an Arconic employee will continue to relate to Alcoa Inc. common stock (which, as a result of Alcoa Inc.'s name change to Arconic Inc., is now Arconic Inc. common stock after the Separation), provided that the number of shares subject to each such award was adjusted in a manner intended to preserve the aggregate intrinsic value of the original Alcoa Inc. award as measured immediately before and immediately after the Separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original Alcoa Inc. award immediately prior to the Separation. Alcoa Corporation Stock Options and RSUs Stock Options 29. Each award of Alcoa Inc. Stock Options held by an Alcoa Corporation employee was converted into an award of Stock Options with respect to Alcoa Corporation common stock. The exercise price of, and number of shares subject to, each such award was adjusted in a manner intended to preserve the aggregate intrinsic value of the original Alcoa Inc. award as measured immediately before and immediately after the Separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original Alcoa Inc. award immediately prior to Separation. Restricted Stock Units 30. Each award of Alcoa Inc. restricted share units held by an Alcoa Corporation employee was converted into an award of RSUs with respect to Alcoa Corporation common stock. The number of shares subject to each such award was adjusted in a manner intended to preserve the aggregate intrinsic value of the original Alcoa Inc. award as measured immediately before and immediately after the Separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original Alcoa Inc. award immediately prior to the Separation. Adjustment and conversion methodology for Stock Options and RSUs 31. On 5 October 2016, the Alcoa Inc. board recommended a reverse stock split ratio of 1-for-3. 32. On 1 November 2016 when Alcoa Inc. separated into Arconic Inc. and Alcoa Corporation, shareholders received one share of Alcoa Corporation common stock for every three shares of Alcoa Inc. common stock held as of the record date for the distribution, which was 20 October 2016. 33. The 2013 plan reflected the post-Separation employer, meaning that Arconic Inc. employees now hold Arconic Inc. Stock Options or RSUs, and Alcoa Corporation employees now hold Alcoa Corporation Stock Options or RSUs. 34. At the time of legal Separation, existing awards were cancelled and reissued under the 3-for-1 split. This changed the number of shares in ownership and under Stock Option, but not the value. 35. The formula used to convert the pre Separation interest into the post Separation interest is as follows: Stock Options 36. Pre-Separation Exercise Price x Opening Price / Closing Price = Post-Separation Exercise Price Number of Options Pre-Separation x Closing Price / Opening Price = number of Options Post-Separation Restricted Stock Units 37. Number of RSU's Pre-Separation x Closing Price / Opening Price = Number of RSUs Post-Separation RSUs were rounded down to the nearest whole share. The value of fractional shares were paid to the employee through payroll and tax was applied accordingly. 38. In connection with the Separation: held by employees were treated on the same basis as other shareholders for example, on 1 November 2016 when Alcoa Inc. separated into Arconic Inc. and Alcoa Corporation, employees received one share of Alcoa Corporation common stock for every three shares of Alcoa Inc. common stock held as of the record date for the distribution, which was 20 October 2016. 39. Alcoa Corporation employees now hold both Alcoa Corporation shares and Arconic shares. This changed the number of shares and the company in which the shares were held in ownership, but not the value. 40. The same terms and conditions that applied to the original Alcoa Inc. shares continue to apply. | $1,000 Plan Shares: 41. The $1,000 Plan Shares held under the Tax Exempt Scheme were taxed at acquisition (i.e. prior to Separation and distribution). The treatment of those awards is not addressed in this class ruling. | 7 or 10 Year Deferred Plan Shares: 42. The tax treatment for employees who held shares delivered as 7 or 10 year deferred plan shares and had already had a cessation time or an ESS deferred taxing point happen prior to Separation and distribution is not addressed in this class ruling. | Former employees: 43. The treatment of awards held by former employees of Arconic Inc. and its subsidiaries and former employees of Alcoa Corporation and its subsidiaries is not addressed in this class ruling. | Capital gains tax: 44. Employees who had shares of stock delivered as a result of a cessation time or an ESS deferred taxing point happening in relation to awards participated in the Separation on the same basis as other shareholders. The treatment of those awards is not addressed in this class ruling. | The Stock Options and RSUs are ESS interests: 45. The rights acquired pursuant to the Stock Options and the RSUs satisfy the definition of ESS interest under paragraph 83A-10(1)(b). That is, both the Stock Options and the RSUs are a beneficial interest in a right to acquire a beneficial interest in a share in the company. | The Separation and distribution is a restructure for the purposes of section 83A-130: 46. The Separation and distribution is a restructure within the meaning of section 83A-130 as the original ESS interests in Alcoa Inc. are replaced by ESS interests in Alcoa Corporation in connection with Separation. | New ESS interests are a continuation of old interests: 47. Pursuant to section 83A-130, the Alcoa Corporation Stock Options and the Alcoa Corporation RSUs are treated as a continuation of the Alcoa Inc. Stock Options and Alcoa Inc. RSUs for the purposes of Division 83A. | No ESS deferred taxing point arises for the Stock Options and RSUs as a result of the Separation: 48. The conversion of Stock Options originally held in Alcoa Inc. to Stock Options in Alcoa Corporation did not create an ESS deferred taxing point under section 83A-120. 49. The conversion of RSUs originally held in Alcoa Inc. to RSUs in Alcoa Corporation did not create an ESS deferred taxing point under section 83A-120. 50. The Alcoa Corporation Stock Options and the Alcoa Corporation RSUs are subject to the same ESS deferred taxing point that the Alcoa Inc. Stock Options and Alcoa Inc. RSUs would have had in the absence of the Separation. | ESS deferred taxing point arises for the shares held under the Tax Deferred Scheme: 51. Cessation of employment with Alcoa Inc. (now Arconic Inc.) will give rise to a deferred taxing point under section 83A-120 for the Alcoa Inc. shares held under the Tax Deferred Scheme. | CGT consequences: 52. Any capital gain or capital loss that arises in respect of an ESS interest that results from the Separation and distribution is disregarded under section 130-80. Commissioner of Taxation 23 August 2017 | The Stock Options and RSUs are ESS interests: 53. The Stock Options and the RSUs are described in paragraphs 27 to 37 and were originally granted in relation to the common stock of Alcoa Inc. under the 2009 Plan and the 2013 Plan. 54. Each award of Stock Options and RSUs held by an Alcoa Corporation employee was converted into an award of Stock Options and RSUs in the common stock of Alcoa Corporation after Separation and was adjusted to preserve the aggregate intrinsic value and will have the same terms and conditions that applied to the Alcoa Inc. Stock Options prior to Separation. 55. Subsection 83A-10(1) states that an 'ESS interest' in a company is a beneficial interest in a share in the company, or beneficial interest in a right to acquire a beneficial interest in a share in the company. 56. The rights acquired pursuant to the Stock Options and the RSUs satisfy the definition in paragraph 83A-10(1)(b). That is, both the Stock Options and the RSUs are a beneficial interest in a right to acquire a beneficial interest in a share. | The Separation and distribution is a restructure for the purposes of section 83A-130: 57. The Separation and distribution is described at paragraphs 12 to 19 in this document. 58. The Separation and distribution satisfies the requirements of section 83A-130 because: 59. Accordingly, for the purposes of Division 83A, the ESS interests in Alcoa Corporation acquired in connection with the Separation and distribution are treated as a continuation of the Alcoa Inc. awards under section 83A-130 because: | New ESS interests are a continuation of old interests: 60. For the reasons given regarding the restructure at paragraphs 54 to 56, the Alcoa Corporation Stock Options and the Alcoa Corporation RSUs are treated as a continuation (for the purposes of Division 83A) of the Alcoa Inc. Stock Options and Alcoa Inc. RSUs. | No ESS deferred taxing point arises for the Stock Options and RSUs as a result of the Separation: 61. Section 83A-120 applies to determine the ESS deferred taxing point if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a share. The Stock Options and RSUs are a beneficial interest in a right to acquire a beneficial interest in a share. 62. Subject to subsection 83A-120(3), the ESS deferred taxing point for the Stock Options and RSUs is the earliest of the times specified in subsections 83A-120(4) to (7): 63. Subsection 83A-120(3) provides that if the Participant disposed of the ESS interest within 30 days of the time which would otherwise be the ESS deferred taxing point, the ESS deferred taxing point would instead be the time of the disposal. 64. The Separation and the conversion of the old Alcoa Inc. Stock Option and RSUs into Alcoa Corporation Stock Option and RSUs did not give rise to any of the circumstances in section 83A-120 and therefore did not trigger an ESS deferred taxing point for these ESS interests. | ESS deferred taxing point arises for the shares held under the Tax Deferred Scheme: 65. The Tax Deferred Scheme is described in paragraph 25. 66. Shares held under the Alcoa Inc. Tax Deferred Scheme is an ESS interest acquired by a Participant under an employee share scheme in respect of the employment with the Alcoa Inc. group at the time it was entered into. 67. A Participant's employment with the new Alcoa Corporation group as a consequence of the Separation constitutes a cessation of their employment with the former Alcoa Inc. (now Arconic Inc.) group in respect of which the shares were originally awarded. 68. Consequently, a deferred taxing point arises in respect of the shares awarded under the Alcoa Inc. Tax Deferred Scheme (subsection 83A-120(5)). | CGT consequences: 69. Section 130-80 disregards any capital gain or capital loss to the extent that it results from a CGT event if: 70. Accordingly, any capital gain or any capital loss made from a CGT event happening to the ESS interest as a result of the Separation and distribution is disregarded under section 130-80. 71. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: The Stock Options and RSUs are ESS interests: 45. The rights acquired pursuant to the Stock Options and the RSUs satisfy the definition of ESS interest under paragraph 83A-10(1)(b). That is, both the Stock Options and the RSUs are a beneficial interest in a right to acquire a beneficial interest in a share in the company. | The Separation and distribution is a restructure for the purposes of section 83A-130: 46. The Separation and distribution is a restructure within the meaning of section 83A-130 as the original ESS interests in Alcoa Inc. are replaced by ESS interests in Alcoa Corporation in connection with Separation. | New ESS interests are a continuation of old interests: 47. Pursuant to section 83A-130, the Alcoa Corporation Stock Options and the Alcoa Corporation RSUs are treated as a continuation of the Alcoa Inc. Stock Options and Alcoa Inc. RSUs for the purposes of Division 83A. | No ESS deferred taxing point arises for the Stock Options and RSUs as a result of the Separation: 48. The conversion of Stock Options originally held in Alcoa Inc. to Stock Options in Alcoa Corporation did not create an ESS deferred taxing point under section 83A-120. 49. The conversion of RSUs originally held in Alcoa Inc. to RSUs in Alcoa Corporation did not create an ESS deferred taxing point under section 83A-120. 50. The Alcoa Corporation Stock Options and the Alcoa Corporation RSUs are subject to the same ESS deferred taxing point that the Alcoa Inc. Stock Options and Alcoa Inc. RSUs would have had in the absence of the Separation. | ESS deferred taxing point arises for the shares held under the Tax Deferred Scheme: 51. Cessation of employment with Alcoa Inc. (now Arconic Inc.) will give rise to a deferred taxing point under section 83A-120 for the Alcoa Inc. shares held under the Tax Deferred Scheme. | CGT consequences: 52. Any capital gain or capital loss that arises in respect of an ESS interest that results from the Separation and distribution is disregarded under section 130-80. Commissioner of Taxation 23 August 2017


Appendix: The Stock Options and RSUs are ESS interests: 53. The Stock Options and the RSUs are described in paragraphs 27 to 37 and were originally granted in relation to the common stock of Alcoa Inc. under the 2009 Plan and the 2013 Plan. 54. Each award of Stock Options and RSUs held by an Alcoa Corporation employee was converted into an award of Stock Options and RSUs in the common stock of Alcoa Corporation after Separation and was adjusted to preserve the aggregate intrinsic value and will have the same terms and conditions that applied to the Alcoa Inc. Stock Options prior to Separation. 55. Subsection 83A-10(1) states that an 'ESS interest' in a company is a beneficial interest in a share in the company, or beneficial interest in a right to acquire a beneficial interest in a share in the company. 56. The rights acquired pursuant to the Stock Options and the RSUs satisfy the definition in paragraph 83A-10(1)(b). That is, both the Stock Options and the RSUs are a beneficial interest in a right to acquire a beneficial interest in a share. | The Separation and distribution is a restructure for the purposes of section 83A-130: 57. The Separation and distribution is described at paragraphs 12 to 19 in this document. 58. The Separation and distribution satisfies the requirements of section 83A-130 because: 59. Accordingly, for the purposes of Division 83A, the ESS interests in Alcoa Corporation acquired in connection with the Separation and distribution are treated as a continuation of the Alcoa Inc. awards under section 83A-130 because: | New ESS interests are a continuation of old interests: 60. For the reasons given regarding the restructure at paragraphs 54 to 56, the Alcoa Corporation Stock Options and the Alcoa Corporation RSUs are treated as a continuation (for the purposes of Division 83A) of the Alcoa Inc. Stock Options and Alcoa Inc. RSUs. | No ESS deferred taxing point arises for the Stock Options and RSUs as a result of the Separation: 61. Section 83A-120 applies to determine the ESS deferred taxing point if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a share. The Stock Options and RSUs are a beneficial interest in a right to acquire a beneficial interest in a share. 62. Subject to subsection 83A-120(3), the ESS deferred taxing point for the Stock Options and RSUs is the earliest of the times specified in subsections 83A-120(4) to (7): 63. Subsection 83A-120(3) provides that if the Participant disposed of the ESS interest within 30 days of the time which would otherwise be the ESS deferred taxing point, the ESS deferred taxing point would instead be the time of the disposal. 64. The Separation and the conversion of the old Alcoa Inc. Stock Option and RSUs into Alcoa Corporation Stock Option and RSUs did not give rise to any of the circumstances in section 83A-120 and therefore did not trigger an ESS deferred taxing point for these ESS interests. | ESS deferred taxing point arises for the shares held under the Tax Deferred Scheme: 65. The Tax Deferred Scheme is described in paragraph 25. 66. Shares held under the Alcoa Inc. Tax Deferred Scheme is an ESS interest acquired by a Participant under an employee share scheme in respect of the employment with the Alcoa Inc. group at the time it was entered into. 67. A Participant's employment with the new Alcoa Corporation group as a consequence of the Separation constitutes a cessation of their employment with the former Alcoa Inc. (now Arconic Inc.) group in respect of which the shares were originally awarded. 68. Consequently, a deferred taxing point arises in respect of the shares awarded under the Alcoa Inc. Tax Deferred Scheme (subsection 83A-120(5)). | CGT consequences: 69. Section 130-80 disregards any capital gain or capital loss to the extent that it results from a CGT event if: 70. Accordingly, any capital gain or any capital loss made from a CGT event happening to the ESS interest as a result of the Separation and distribution is disregarded under section 130-80.


Summary - 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, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is 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


Related rulings: TR 2006/10
Legislative references: ITAA 1936 ITAA 1997 ITAA 1997 Div 83A ITAA 1997 83A-10 ITAA 1997 83A-10(1) ITAA 1997 83A-10(1)(b) ITAA 1997 83A-C ITAA 1997 83A-120 ITAA 1997 83A-120(3) ITAA 1997 83A-120(4) ITAA 1997 83A-120(5) ITAA 1997 83A-120(6) ITAA 1997 83A-120(7) ITAA 1997 83A-130 ITAA 1997 83A-130(1)(a)(ii) ITAA 1997 83A-130(1)(b) ITAA 1997 83A-130(2)(a) ITAA 1997 83A-130(2)(b) ITAA 1997 83A-130(4) ITAA 1997 83A-130(6) ITAA 1997 83A-130(9)(a) ITAA 1997 83A-130(9)(b) ITAA 1997 130-80 ITAA 1997 130-80(2) ITAA 1997 130-80(1)(a) ITAA 1997 130-80(1)(b) ITAA 1997 130-80(1)(d)(ii) ITAA 1997 Div 230 ITAA 1997 995-1(1) TAA 1953