Edited version of your private ruling

Authorisation Number: 1012398534568

Ruling

Subject: Employee Share Scheme

Question 1

Will the head company (the Company) obtain a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable cash contributions made by it or a member of the Company's income tax consolidated group (Group) to the trustee of the Employee Share Trust (EST) to fund the subscription for, or acquisition on-market of, its shares?

Answer

Yes.

Question 2a

Are the irretrievable cash contributions made by the Company or a subsidiary member of the Group to the Trustee of the EST deductible to it under section 8-1 of the ITAA 1997 at the time determined by section 83A-210 of the ITAA 1997 if the contributions are made before the relevant ESS interests are acquired?

Answer

Yes.

Question 2b

Are the irretrievable cash contributions made by the Company to the Trustee of the EST deductible to it under section 8-1 of the ITAA 1997 in the income year the contributions are made if the contributions are made after the relevant ESS interests are acquired?

Answer

Yes.

Issue 2 Part IVA

Question 3

Will Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the arrangement where irretrievable cash contributions are made to the Trustee of the EST to fund the subscription for, or acquisition on-market of the Company's shares by the EST

Answer

No.

Issue 3 Fringe benefit tax

Question 4

Is the provision of Rights and shares by the Company to its employees or subsidiary member employees a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefit Tax Assessment Act 1986 (FBTAA)?

Answers

No.

Question 5

Will the irretrievable cash contributions made by the Company or any other subsidiary member of the Group to the Trustee of the EST, to fund the subscription for, or acquisition on-market of its shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA?

Answers

No.

Relevant facts and circumstances

The Company is listed on the Australian Securities Exchange (ASX) and is the head company of an income tax consolidated group comprising itself, the current and any future employing entities, and other wholly owned Australian resident subsidiaries (the Group).

The Company has two classes of shares on issue being ordinary shares and convertible preference shares.

The Company established the Equity Incentive Plan (EIP) which is governed by the Equity Incentive Plan Rules (EIP Rules).

The Company has also established the Employee Share Plans consist of the Tax-Deferred Plan and Tax-Exempt Plan governed by the Tax-Deferred Plan Rules and Tax-Exempt Plan Rules respectively.

The Company established the Employee Share Trust (the Trust) by entering into the Trust Deed on with a trustee company as the trustee (Trustee).

The Company is seeking a private binding ruling on tax issues concerning these arrangements

Unless otherwise stated, for the purposes of this ruling the reference to the Plan collectively includes EIP and ESP and Plan Rules include EIP Rules, Tax-Deferred Plan Rules, Tax Exempt Plan Rules, the Trust Deed and relevant Offer Documents containing the terms and conditions.

EIP

The EIP allows the Company to offer Performance Rights (Rights) and Performance Shares to eligible employees of the Group. Currently, the Company only intends to grant Rights under the EIP which are rights to acquire fully paid shares in the Company (Shares) at no cost.

A "Performance Right" is defined in the EIP Rules as "an entitlement to a Share subject to satisfaction of applicable conditions (including any Performance Condition)"

The Company intends to use the EIP to grant equity-based awards under:

· Long-term Incentive Plan (LTI Plan); and

· Deferred short-term Incentive (STI) awards under the STI plan

Each award is structured as a Right, but with particular terms and conditions specified in the Offer Letter.

Under the terms of the offer, the employee may accept the Rights by completing the application form accompanying the Offer Letter. Alternatively, if determined by the Company Board (the Board) in relation to a particular offer, acceptance of Rights may occur if an employee fails to lodge an election not to participate in a proposed grant of Rights by a certain time.

The employee becomes a Participant once Rights have been granted to that employee. Where the specified vesting conditions are met, Rights vest and will be settled in Shares.

Common terms under LTI Plan and STI Plan

In an Offer Letter for a Right, the vesting conditions (including performance conditions, if relevant) that must be satisfied before the Right can vest are specified.

Rights held by Participants generally lapse upon the Participant ceasing to be a Group employee prior to vesting, due to leaving for "Bad Leaver" reasons

Bad Leaver reasons include termination for cause, gross misconduct or any other circumstances determined by the Board to constitute a Bad Leaver reason (which will normally include voluntary resignation of the Participant).

If a Participant ceases employment other than as a Bad Leaver prior to vesting, different treatment will apply (see STI Plan and LTI awards below).

Participants are not entitled to any voting or dividend rights during the vesting performance period. Participants are not required to pay any consideration for the grant of Rights or on vesting of the Rights to acquire Shares.

STI Plan

The vesting conditions that must generally be satisfied before Rights granted as deferred STI awards can vest are that the Participant remains an employee of the Group at the vesting date. No further performance conditions apply

Deferred STI awards will vest in three equal tranches, over three years after grant of the Rights.

Although participants will not have any entitlement to dividends until the Rights have vested, participants holding deferred STI awards will be entitled to receive notional accrued dividends at vesting representing the net dividends the Participants would have received had they held Shares during the service period; i.e., to the extent Rights vest, at vesting the Participant will receive an additional amount (delivered as a separate cash payment - either via payroll or the Trust) in respect of the dividends that would have been paid on the vested Shares during the relevant vesting period.

If the Participant ceases employment with the Group prior to vesting in Bad Leaver circumstances, Rights granted as deferred STI awards are forfeited.

If the Participant ceases employment with the Group prior to vesting other than in Bad Leaver circumstances, the Participant may be entitled to retain a pro-rated amount of their unvested Rights in respect of that year.

LTI awards

In addition to continuing to be an employee of the Group until the Rights vest, the performance conditions that apply to the LTI awards to be granted in the financial year ending 30 June 2013 are:

· Relative Total Shareholder Return (TSR) - Rights vest relative to the Company's TSR performance over a three-year period against 30 ASX-listed entities in a comparator group (the comparator group being the 15 ASX-listed companies positioned on either side of the Company by market capitalisation). The level of vesting will depend on the ranking of the Company relative to the companies in the comparator group, by reference to TSR performance over the three years. If the Company's TSR ranks below the 51st percentile of the comparator group, no Rights subject to the TSR hurdle will vest and they will be forfeited. Full vesting requires ranking at the 75th percentile or above; and

· Diluted Earnings Per Share (DEPS) - Rights vest by reference to the Company's aggregate EPS growth over a three-year period against the Threshold DEPS and Stretch DEPS targets as set by the Board. Full vesting requires aggregate DEPS at a level that is equal to or above the Stretch DEPS target set by the Board. If the Company's aggregate DEPS over the three- year period is less than the aggregate Threshold DEPS target set by the Board, no Rights subject to the DEPS hurdle will vest and they will be forfeited.

The performance conditions to be applied to future grants of LTI awards will be determined by the Company at the relevant time.

If the Participant ceases employment with the Group prior to vesting in Bad Leaver circumstances or the threshold performance hurdles are not achieved, Rights granted as LTI awards will be forfeited.

If the Participant ceases employment with the Group prior to vesting, other than in Bad Leaver circumstances, unvested Rights will generally continue to be held by the Participant and will be tested at the end of the performance period in accordance with all of the performance conditions set out in the Offer Letter except the continuous service condition (although in case of leavers who are not Bad Leavers, the Board also has discretion to determine that unvested Rights should vest at the time the Participant's employment ceases).

Vesting and transfer of Shares under the EIP

Under rule 1.3 of the EIP Rules, the Company is required to allocate Shares to a Participant when Rights vest. The Company (via the Trust) can satisfy Rights using newly issued Shares, by causing existing Shares to be acquired on-market, or by a combination of the two methods.

Acquiring Shares on-market to satisfy Rights, and specifically acquiring Shares before they are to be allocated to employees (e.g., before the Rights vest and Shares are transferred) creates administrative difficulties for the Company as it is legally unable to acquire its own Shares. As discussed further below, one reason the Company has decided to introduce the Trust for use with the EIP is that it allows the Company to procure the acquisition of Shares to satisfy Rights before Rights vest.

Employee Share Plan (ESP)

The Company has also established the Tax-Deferred Plan and Tax-Exempt Plan (collectively the ESP) which allow employees to acquire shares out of pre-tax salary and wages under a salary sacrifice arrangement.

To be a participant under the ESP, a person must be an eligible employee of the Group.

Tax-Deferred Plan

The Tax-Deferred Plan allows employees to acquire a minimum of $X and a maximum of $Y worth of shares out of pre-tax cash salary and wages.

Under the terms of the Tax-Deferred Plan, participants will be restricted from dealing with their shares until the earlier of cessation of employment or three years from the date that the shares are allocated (Restriction Period).

Tax-Exempt Plan

The Tax-Exempt Plan allows employees to acquire a maximum of $Z worth of shares out of pre-tax cash salary and wages under a salary sacrifice arrangement.

Under the terms of the Tax- Exempt Plan, participants will be restricted from dealing with their shares until the earlier of cessation of employment or three years from the date that the shares are allocated.

Employee Share Trust

Establishment of the Trust

The Company established the Trust by entering into the Trust Deed (the Trust Deed) with the trustee company (Trustee) that is not a related party of the Company nor is it a subsidiary member of the Group.

The Company established the Trust to facilitate the allocation of Shares to Participants in accordance with Plan Rules of the EIP and ESP. The EIP and ESP operate in accordance with Division 83A of the ITAA 1997.

The Plan Rules contemplate that a Trust may be used to satisfy awards made under the Plan (rules 1.3 and 14.3(a)(D). The Company proposes that 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.

Reasons for establishing the Trust

As a company, the Company is unable to hold its own Shares under Australian Corporations Law. Using the Trust allows the Company to:

· warehouse Shares in the Trust (i.e., acquire and hold Shares before they are to be allocated to Participants);

· hedge the cost of satisfying Rights by funding the acquisition of Shares via the Trust at the time Rights are granted;

· "recycle" Shares that are no longer required for Rights that are forfeited under the Plan Rules, to satisfy other Rights and grants under the Employee Share Plans;

· have greater choice in the source of the Shares used to satisfy Rights and grants under the Employee Share Plans, e.g., market purchase, new issue or other transfer.

Shares can be acquired in such manner as the Company considers appropriate.

Contributions to the Trust

Clauses 2.3, 3.1(c) and 7(b) of the Trust Deed allow the Company (and its subsidiaries) to make contributions to the Trust to allow the Trustee to acquire Shares for the Plan.

Cash accrued in the Trust in relation to dividends paid on Shares held as deferred STI awards may be used to fund the related distribution of notional dividend amounts to Participants who hold the deferred STI awards as outlined under STI Plan.

In relation to the timing of contributions to the Trust:

· where Shares are to be acquired on-market, contributions may be made to the Trust at any time to satisfy existing or future grants of Rights;

· where Shares are to be newly issued, contributions will typically be made around the time Rights vest or grants are to be made under the Employee Share Plans.

The Company (or any other Group company) cannot be a beneficiary of the Trust (clause 14) and it (or any other Group company) cannot receive any balance of capital or income of the Trust on termination of the Trust (clause 13(b), other than as repayment of an outstanding liability).

Allocating Shares for the EIP and ESP

The Trust Deed does not specify when the Trustee must acquire shares to satisfy Rights granted under the EIP and Shares to be allocated under the Employee Share Plans. However, clauses 3.1(f) and 3.1(g) of the Trust Deed provide that the Company may direct the Trustee to acquire Shares in a particular manner, provided sufficient funds have been provided.

Obligations on the Trustee

The Trustee is required to have the trust accounts audited annually (clause 6.2 of the Trust Deed).

Relevant legislative provisions

Income Tax Assessment Act 1936 Part IVA

Income Tax Assessment Act 1936 Section 177A

Income Tax Assessment Act 1936 Section 177C

Income Tax Assessment Act 1936 Section 177D

Income Tax Assessment Act 1936 Section 177F

Taxation Administration Act 1953 Division 359

Fringe Benefits Tax Assessment Act 1986 Section 136(1)

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 83A

Income Tax Assessment Act 1997 Section 83A-210

Income Tax Assessment Act 1997 Section 130-85(4)

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Section 995-1(1)

Reasons for decision

Issue 1 Question 1

Detailed reasoning

Subsection 8-1(1) of the ITAA 1997 is a general deduction provision. Broadly, the provision provides an entitlement to a deduction from assessable income for any loss or outgoing, to the extent that it is incurred in gaining or producing your assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, subsection 8-1(2) of the ITAA 1997 prevents such a deduction to the extent that it is a loss or outgoing of capital, or of a capital nature, is a loss or outgoing of a private or a domestic nature, is incurred in gaining or producing exempt income, or is prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936.

The Company established the Plan to grant Rights and Shares to eligible employees under the respective Plan Rules as part of its remuneration and reward program for employees.

Under the terms of the rules of each plan, the Company will make regular irretrievable contributions to the Trustee of the Trust when those contributions are required by the Trustee to acquire shares for the benefit of employees participating in the Plan. The Company will incur an outgoing on the day the irretrievable contributions are made to the Trust.

In Pridecraft Pty Ltd v. FC of T; FC of T v. Spotlight Stores Pty Ltd [2004] FCAFC 339; 2005 ATC 4001; 58 ATR 209, the Court held that payments by an employer company to a trust established for the purpose of providing incentive payments to employees were on revenue account and not capital or of a capital nature. This is consistent with the opinion expressed in ATO Interpretative Decision ATO ID 2002/1074: that a company will be entitled to a deduction under section 8-1 ITAA 1997 for irretrievable contributions made to the trustee of its employee share scheme.

Thus, the provision of money to the trustee of an employee share trust by the employer for the purpose of remunerating its employees under an employee share scheme is an outgoing in carrying on the employer's business and is deductible under section 8-1 of the ITAA 1997.

Accordingly, the irretrievable contributions the Company makes to the Trust to acquire shares are allowable deductions.

Issue 1 Question 2(a)

Detailed reasoning

When the Company makes a cash contribution to the Trustee of the Trust to fund the acquisition of Shares in relation to the grant of Rights (ESS interests) in an income year before the acquisition time for the Rights occurs, the timing of the deduction allowable under section 8-1 of the ITAA 1997 will be determined by section 83A-210 of the ITAA 1997.

The Company will be entitled to a deduction in the income year in which the acquisition of the ESS interest occurs, this is when the ESS interest (Right) is granted to the Participant.

Section 83A-210 of the ITAA 1997 states:

If:

(a) at a particular time, you provide another entity with money or other property:

(i) under an arrangement; and

(ii) for the purposes of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and

(b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest;

then, for the purposes of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time.

Section 83A- 210 of the ITAA 1997 will only apply if there is a relevant connection between the money provided to the Trustee, and the acquisition of the ESS interests (directly or indirectly) by the Company under the Plan, in relation to the employee's employment.

An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 as 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 a company.

Because the EIP and ESP are both schemes under which ESS interests are provided to employees in relation to their employment, they are both employee share schemes under subsection 83A-10(2) of the ITAA 1997.

The adoption of the Plan, associated Rules and the Trust, constitutes an arrangement in these circumstances for the purposes of paragraph 83A-210(a)(i) of the ITAA 1997 and the provision of money from the Company to the Trustee of the Trust necessarily allows the scheme to proceed.

The deductibility of money provided to employee share trusts is considered 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 (ATO ID 2010/103).

The facts described in ATO ID 2010/103 are comparable to the present Plan and therefore, the reasoning in it is relevant to them, as explained immediately below.

Granting the ESS interests, the provision of money to the Trust from the Company under the arrangement, the acquisition and holding of Shares by the Trust and the allocation of those Shares to participants by the Trust are all interrelated components of the Company's employee share schemes. All the components of these schemes must be carried out so that the schemes can operate as intended.

As one of those components, the provision of money to the Trustee necessarily allows the scheme to proceed.

Accordingly, the provision of money to the Trustee to acquire Shares is considered to be for the purpose of enabling the participating employees, indirectly as part the Plan to acquire the ESS interests.

If the Company makes irretrievable cash contributions to the Trust in an income year prior to the year the relevant ESS interests are acquired, the deduction available to the Company under section 8-1 of the ITAA 1997 will be determined by the operation of section 83A-210 of the ITAA 1997 and the Company will be entitled to a deduction in the income year in which the acquisition of the ESS interests occurs, this is when the ESS interests are granted to the participant.

If the irretrievable cash contributions are made by the Company before the relevant ESS interests have been acquired but the ESS interests are subsequently acquired in the same financial year the contributions are made, the deduction available to the Company under section 8-1 of the ITAA 1997 will arise in that financial year. Although section 83A-210 of the ITAA 1997 will operate to defer the time at which the contribution is taken to have occurred, that deferral is within the same financial year as the actual payment of the contribution resulting in no practical impact on the timing of the deduction.

Issue 1 Question 2(b)

Detailed reasoning

The Company is entitled to a deduction under section 8-1 of the ITAA 1997 for the irretrievable cash contributions made by the Group to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, the Company shares. The timing of that deduction is governed by principles generally applicable to section 8-1 of the ITAA 1997 unless modified by the specific rule in section 83A-210 of the ITAA 1997.

Section 83A-210 of the ITAA 1997 will not apply if the Company makes the irretrievable cash contributions after the relevant ESS interests are acquired. If the irretrievable cash contribution is made after the relevant ESS interests have been acquired, the irretrievable cash contribution will be deductible under section 8-1 of the ITAA 1997 in the income year in which the loss or outgoing is incurred, being the income year when the cash contribution is made.

Issue 2 Question 3

Detailed reasoning

Part IVA ITAA 1936 contains a number of anti-avoidance provisions which give the Commissioner discretion to cancel a tax benefit, however before the Commissioner can exercise the discretion under subsection 177F(1) ITAA 1936, three requirements must be met, as follows:

· there is a scheme

· a tax benefit was obtained or would be obtained in connection with it; and

· the scheme is one to which Part IVA applies.

As discussed in response to Questions 1-3 above the facts described in ATO ID 2010/103 are comparable to the facts relating to the Company, namely that an employer has established an ESS (the Plan) which complies with the provisions of Division 83A of the ITAA 1997.

The Plan was established to grant Rights and Shares to eligible employees under the respective Plan Rules as part of its remuneration and reward program for employees to further align the interests of staff and shareholders and the structure of the Plan including the use of the Trust have a range of commercial benefits for the Company.

The characteristics of the scheme, as described in the Facts establish that the substance of the scheme is the provision of remuneration in the form of shares to participants in the Plan.

There is nothing in this arrangement to suggest a dominant purpose of seeking to obtain a tax benefit in relation to a scheme. Accordingly, the Commissioner will not make a determination that Part IVA ITAA 1936 applies to deny, in part or in full, any deduction claimed by the Company in relation to the irretrievable contributions made to the Trust under the scheme.

Issue 3 Question 4

Detailed reasoning

The Company's liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. The fringe benefits taxable amount is calculated under the FBTAA by reference to the taxable value of each fringe benefit provided.

No amount will be subject to FBT unless a 'fringe benefit' is provided.

A "fringe benefit" is defined in section 136(1) of the FBTAA as, broadly, a benefit provided to an employee by their employer in respect of their employment. The definition also contains a number of exclusions; in particular, section 136(l)(h) states that a "fringe benefit" does not include a benefit constituted by the acquisition of an "ESS interest" under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies.

The terms 'ESS interest' and 'employee share scheme' are defined in section 83A-10 of the ITAA 1997.

An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 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 a company. An employee share scheme is a scheme under which ESS interests in the company are provided to employees (or associates of the employees) of the company or subsidiaries of the company, in relation to the employee's employment.

The Company has stated that it will grant ESS interests (being the Rights, which are rights to acquire a beneficial interest in the Company) to Participants of the Plan. The ESS interests offered to Participants under the Plan is offered in connection with a Participant's employment by the Company.

The acquisition of ESS interests pursuant to the Plan will not be subject to fringe benefits tax on the basis that they are acquired under an employee share scheme (to which Subdivision 83A-B or 83A-C of the ITAA 1997 will apply). The ESS interest is thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA.

Thus, the provision by the Company of Rights and Shares under the Plan to the employees is the provision of a benefit that is the acquisition of an ESS interest under an employee share scheme and therefore will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA.

A benefit will arise when a Right vests under the Plan that results in the allocation/transfer of a Share to a participant. This issue is considered to be analogous to that stated in ATO Interpretative Decision ATO ID 2003/316 which refers to the case of FC of T v. McArdle 89 ATC 4051; (1988) 19ATR 1901. In that case an employee was granted valuable rights in respect of his employment which he subsequently surrendered in return for a lump sum payment. The Court noted that what had occurred under the surrender agreement was not the granting of a valuable benefit, but the exploitation of rights received from the employer in previous years.

When a Participant acquired a Right under the Plan, they obtain a right to acquire a beneficial interest in a share in the Company. When the Right subsequently vests, any benefit received (i.e. the allocation of a Share to the participant) would be in respect of the vesting of the right, and not in respect of employment.

Therefore, the benefit (i.e. beneficial interest in a share) that arises to an employee upon vesting of a Right granted under the Plan, does not give rise to a fringe benefit as no benefit has been provided to the employee in respect of' the employment relationship.

Issue 3 Question 5

Detailed reasoning

The definition of 'fringe benefit' in subsection 136(1) of the FBTAA excludes:

§ a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997)

An 'employee share trust' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by subsection 130-85(4) of the ITAA 1997.

Subsection 130-85(4) of the ITAA 1997 provides that an employee share trust for an 'employee share scheme' (having the meaning given by subsection 83A-10(2) of the ITAA 1997) is a trust whose sole activities are:

(a) obtaining shares or rights in a company; and

(b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of:

(i) the company; or

(ii) a subsidiary of the company; and

(c) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b).

In this case, the Trust will receive money (the irretrievable cash contributions) from the Company in respect of the Plan.

A payment of money by the Company to the Trustee of the Trust will therefore not be subject to FBT provided that the sole activities of the Trust are obtaining shares or Rights to acquire Shares.

The Plan is an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which Rights to acquire Shares are provided to employees in relation to the employee's employment.

Under the Plan, the Company has established the Trust to acquire Shares and to allocate those Shares to employees to satisfy the Rights acquired under the Plan. The beneficial interest in the Share is itself provided under an employee share scheme because it is provided under the same employee share scheme under which the rights to acquire the Shares are provided to the employee in relation to the employee's employment.

Therefore, paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are satisfied because:

· the Trust acquires Shares in the Company; and

· the Trust ensures that ESS interests as defined in subsection 83A-10(1) of the ITAA 1997are provided under an employee share scheme, as defined in subsection 83A-10(2) of the ITAA 1997, by allocating those Shares to the employees in accordance with the governing documents of the scheme.

Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 will require a Trustee to undertake incidental activities that are a function of managing the employee share scheme and administering the trust.

For the purposes of paragraph 130-85(4)(c) of the ITAA 1997, activities which are merely incidental, as set out in ATO Interpretative Decision ATO ID 2010/108 Income Tax Employee share trust that acquires shares to satisfy rights provided under an employee share scheme and engages in other incidental activities, include:

· the opening and operation of a bank account to facilitate the receipt and payment of money

· the receipt of dividends in respect of Shares held by the trust on behalf of an employee, and their distribution to the employee

· the receipt of dividends in respect of unallocated Shares and using those dividends to acquire additional Shares for the purposes of the employee share scheme

· dealing with shares forfeited under an employee share scheme including the sale of forfeited shares and using the proceeds of sale for the purposes of the employee share scheme

· the transfer of shares to employee beneficiaries or the sale of shares on behalf of an employee beneficiary and the transfer to the employee of the net proceeds of the sale of those shares

· the payment or transfer of trust income and property to the default beneficiary on the winding up of the trust where there are no employee beneficiaries

· receiving and immediately distributing shares under a demerger.

Activities that result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares) are not considered merely incidental.

In the present case, cash held by the Trust (derived through the receipt of dividends declared and paid on unallocated Shares held by the Trust) may be distributed to Participants to satisfy entitlements to notional accrued dividends in relation to deferred STI awards which vest.

The distribution of net dividend amounts to employees (using cash received by the Trustee from dividends on Shares held in the Trust), to the extent Rights vest, is considered to be incidental to the provision of the Rights to employees under the EIP, and therefore does not invalidate the sole purpose test.

Therefore, the Trust is an employee share trust as the activities of the Trust in acquiring and allocating ESS interests meet the requirements of paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 as concluded above, and its other activities (general powers) are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997.

Accordingly, as paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA 1986 excludes the contributions to the Trustee of the Trust from being a fringe benefit, the Company will not be required to pay FBT in respect of the irretrievable cash contributions it makes to the Trustee of the Trust to fund the acquisition of Shares in accordance with the Trust Deed.

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