Edited version of your written advice

Authorisation Number: 1051304958102

Date of advice: 7 November 2017

Ruling

Subject: Employee Share Scheme

Issue 1 – Income Tax

Question 1

Will the Company as head company of the tax consolidated group obtain an income tax deduction, pursuant to section 8-1 of the Income Tax Assessment Act 1997 (‘ITAA 1997’) in respect of the irretrievable cash contributions made by the Company or any subsidiary member of the tax consolidated group to the Trustee to fund the subscription for or acquisition of the Company shares by the Trust?

Answer

Yes.

Question 2

Will the Company as head company of the tax consolidated group obtain an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by the Company or any subsidiary member of the tax consolidated group in relation to the implementation and on-going administration of the Trust?

Answer

Yes.

Question 3

Will irretrievable cash contributions made by the Company or any subsidiary member of the tax consolidated group to the Trustee, to fund the subscription for or acquisition on-market of the Company shares by the Trust, be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997?

Answer

Yes.

Question 4

If the Trust satisfies its obligation under the Option Plan by subscribing for new shares in the Company, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 20-20 of the ITAA 1997 or trigger a capital gains tax (‘CGT’) event under Division 104 of the ITAA 1997?

Answer

No.

Question 5

Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (‘ITAA 1936’) applies to deny, in part or full, any deduction claimed by the Company as head company of the tax consolidated group in respect of the irretrievable cash contributions made by the Company or any subsidiary member of the tax consolidated group to the Trustee to fund the subscription for or acquisition on-market of the Company shares by the Trust

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

The scheme for the Issue 1 commences on:

1 July 2016

Issue 2 – Fringe Benefits Tax

Question 1

Will the provision of Options and shares by the Company (or its employer entities) to employees of the Company under the Option Plan be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (‘FBTAA’)?

Answer

No.

Question 2

Will the irretrievable cash contributions made by the Company or any subsidiary of the Company to the Trustee, to fund the subscription for or acquisition on-market of the Company shares, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986?

Answer

No.

Question 3

Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the fringe benefits taxable amount to the Company or any subsidiary of the Company, by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition on-market of the Company shares?

Answer

No.

This ruling applies for the following periods

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

Year ended 31 March 2020

Year ended 31 March 2021

Year ended 31 March 2022

The scheme for the Issue 2 commences on

1 April 2016

Relevant facts and circumstances

Background

The Company is a private company for the purposes of the ITAA 1936. The company is the head company in a tax consolidated group.

The Company’s remuneration strategy is designed to attract, retain and motivate appropriately qualified and experienced employees whilst balancing the expectations of shareholders. As part of its remuneration strategy, the Company operates the Option Plan and may operate other long term equity incentive plans from time to time.

The Option Plan

The Company’s Option Plan broadly operates as follows:

● Options issued by the Company will be subject to the terms specified in the Invitation Letter accompanying the offer of Options. It is anticipated that the terms of the initial tranche of Options being offered to Participants under the Option Plan rules will be fully vested and will not be subject to any vesting conditions or performance hurdles.

● Options are not transferrable without the consent of the Board pursuant to the Option Plan rules.

● The Options may be exercised at certain times as specified in the Invitation Letter or immediately prior to an Exit Event, such as the Company listing on a stock exchange.

● For the initial tranche of Options, the Options will entitle Participants to either Class B or Class C shares of the Company, as follows:

● Class B and C shares will convert into Ordinary shares in the Company on a one for one basis if, at any time between the Grant Date and the Expiry Date, an Exit Event has occurred, or the Board, acting in its sole and absolute discretion, has determined that the an Exit Event is likely to occur.

● A Change of Control Event means:

● Where a person or entity and its respective associates become entitled to, acquires, holds or has a beneficial interest in more than 50% of the issued share capital of the Company;

● The Company passes a resolution for the voluntary winding-up of the Company;

● An order is made for the compulsory winding up of the Company; or

● The sale of substantially all of the business and assets of the Group;

● But does not include any internal reorganisation of the structure, business and/or assets of the Group.

● An Exit Event means a Change of Control Event or the Company becoming listed on the ASX or another stock exchange.

● The Class B and Class C shares will be subject to a disposal restriction until the earlier of an Exit Event, 15 years from the date of grant of the options, or if a Participant leaves the employment of the Company.

● The Class B and Class C shares will be compulsory divested in accordance with the Plan Rules upon a Participant ceasing employment with the Company.

● The Class B and Class C shares will be automatically forfeited if an Exit Event does not occur within 15 years from the Grant Date of the Options, unless a Participant has given written notice to the Company prior to this date that the Participant wishes to retain some or all of the Class B and Class C shares.

Class B and C Share Rights

Both Class B and C shares in the capital of the Company have the following features:

● (Dividends) Both Class B and Class C shares confer on their holders the right to receive dividends on a pari passu basis with ordinary shares in the capital of the Company. Therefore, should the Board in its sole and absolute discretion, declare or determine a dividend on the ordinary shares of the Company, the Board will be deemed to have declared or determined (as the case may be) on the same date a dividend on the same class of shares (to which they hold) of the same amount per share with the same level of franking as the ordinary share dividend.

● (Voting Rights) Holders of Class B or Class C shares have the right to receive notice of and to attend any general meeting of members of the Company, and to vote on any resolution to be passed at that general meeting of members. They are entitled to on a show of hands, to one vote; and on a poll, to one vote for each class share held. The holder of either Class B or Class C may vote in person or by proxy or attorney.

● (Conversion to ordinary shares) Each shares of either Class B or Class C will, on a date determined by the Board, be automatically varied and converted into one ordinary share in the capital of the Company if, at any time after the Grant Date, an Exit Event has occurred, or the Board, acting in its sole and absolute discretion, has determined that an Exit Event is likely to occurred.

● Prior to such conversion and resulting variation, the Board must resolve for such Conversion to occur and to set out the relevant date of Conversion.

● The rights attaching to each class of shares will, upon conversion, be automatically varied so that each class of shares has identical rights to one fully paid ordinary share and is considered to be one fully paid ordinary share from the date of conversation

● Each share whose rights have been varied and converted under this schedule will rank pari passu with each other fully paid ordinary share in the capital of the Company on and from the date of Conversion.

● (Winding Up) Both Class B and Class C shares confer on their holders the right to participate on a winding up in respect to paid-up capital and surplus assets on a pari passu basis as holders of ordinary shares in the capital of the Company.

● (Variation of Class Rights) For the purposes of the Constitution and the Corporations Act: any issue of Class B share, Class C shares or ordinary shares in accordance with the Constitution and the Company’s shareholders agreement; any variation and conversion of either Class B or Class C shares; and any issue of preference shares ranking equally with or in preference to the either Class B or Class C shares, will not be regarded as a variation or abrogation of the rights of the holders of either class of shares

The Employee Incentive Trust

The Company established an Employee Incentive Trust (‘Trust’) in accordance with the Company Employee Incentive Trust Deed (‘Trust Deed’), in order to facilitate and administer the current and future employee incentive plans. The Trust was set up for the sole purpose of obtaining shares for the benefit of employees and executives of the Company.

It is intended that the Trust will be used to acquire shares for employees of the Company and its employing entities pursuant to the Option Plan and other equity incentive plans the Company may implement from time to time. The Trust provides capital management flexibility for the Company, in that it has the ability to use the contributions made by the Company either to acquire shares in the Company from existing shareholders, on-market if the Company becomes listed, or alternatively to subscribe for new shares in the Company. Similarly, it provides an arm’s-length vehicle through which shares in the Company can be acquired and held on behalf of employees providing the liquidity of employee shares in a simple flexible manner compared to the employer buying back shares from employees. In effect, this aspect allows the Company to satisfy corporate law requirements relating to companies dealing in their own shares.

The Trustee is an independent third party.

The Trust operates as follows:

● The Trust will be funded by contributions from the Company or a subsidiary member of the tax consolidated group (e.g. for the purchase of shares in accordance with the Option Plan).

● These funds will be used by the Trustee to acquire shares in the Company either from an existing shareholder, on-market to the extent the Company becomes listed, or via a subscription for new shares in the Company.

● Shares acquired by the Trustee will be allocated to the relevant employees following instructions from the Company.

● The Trustee can sell shares on behalf of an employee where permitted to do so by the employee, subject to any disposal restrictions set out in the Option Plan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 20-20

Income Tax Assessment Act 1997 Section 83A-10

Income Tax Assessment Act 1997 Section 83A-35

Income Tax Assessment Act 1997 Section 83A-205

Income Tax Assessment Act 1997 Section 83A-210

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-25

Income Tax Assessment Act 1997 Section 104-35

Income Tax Assessment Act 1997 Section 104-155

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

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Section 139DB

Income Tax Assessment Act 1936 Section 139E

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

Income Tax (Transitional Provisions) Act 1997 Section 83A-5

Income Tax (Transitional Provisions) Act 1997 Section 83A-10

Fringe Benefits Tax Assessment Act 1986 Section 67

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Issue 1 – Income Tax

Question 1

Summary

The Company (as the head company of the tax consolidated group) will be entitled to an income tax deduction, pursuant to section 8-1, in respect of the irretrievable cash contributions made to the Trustee to fund the subscription for, or acquisition on-market of the Company shares by the Trust.

Detailed reasoning

As the Company is the head company of the tax consolidation group, the single entity rule in subsection 701-1 applies to treat subsidiary members of the tax consolidated group as part of the head company, rather than separate entities. Accordingly, the Company (as the head company of the tax consolidated group) is the only entity that is recognised for income tax purposes under the single entity rule. The actions and transactions of the subsidiary members are thus treated as having been undertaken by the head company the Company. (TR 2004/11)

An employer is entitled to a deduction under section 8-1 for a contribution paid to the trustee of a Trust that is either incurred in gaining or producing the employer’s assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing the employer’s assessable income (‘positive limbs’).

However subsection 8-1(2) 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 non-assessable non-exempt income, or is prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936 (‘negative limbs’).

First positive limb - incurred

To qualify for a deduction under section 8-1, a loss or outgoing must be incurred.

Although the term ‘incurred’ is not defined in the legislation, reference can be made to Taxation Ruling TR 97/7 Income tax: section 8-1 – meaning of ‘incurred’ – timing of deductions (TR 97/7) and Taxation Ruling TR 94/26 Income tax: subsection 51(1) – meaning of incurred – implications of the High Court decision in Coles Myer Finance (TR 94/26).

Broadly, a taxpayer incurs an outgoing at the time the taxpayer owes a present money debt that they cannot escape. Otherwise a loss or outgoing is incurred when a taxpayer is definitively committed to the loss or outgoing (refer to FC of T v James Flood Pty Ltd (1953) 88 CLR 492).

It is important to establish that the contributions are irretrievable and not refundable, as they will otherwise not be a permanent loss or outgoing incurred.

A contribution made to the trustee of a trust is incurred only when the ownership of that contribution passes from an employer to the trustee and there is no circumstance in which the employer can retrieve that contribution – Pridecraft Pty Ltd v Federal Commissioner of Taxation [2004] FCAFC 339; Spotlight Stores Pty Ltd v Commissioner of Taxation [2004] FCAFC 339.

In the present case, the Company has established the Trust for the purpose of facilitating the acquisition, holding and allocation of shares to meet its obligations under the Plans, by making irretrievable and non-refundable contributions to the Trust. The Trustee will then follow instructions or notices from the Board to acquire, deliver and allocate the Company’s shares for the benefit of Participants, subject to receiving sufficient contributions.

On this basis, it is concluded that the Company will incur an outgoing for purposes of subsection 8-1(1) at the time it makes irretrievable contributions to the Trustee.

Second positive limb – Relevant Nexus

To be deductible under section 8-1, a contribution must have been incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

To satisfy the second positive limb of section 8-1, there must be a sufficient nexus between the outgoing (contributions made by the Company) and the derivation of the Company’s assessable income – The Herald and Weekly Times Limited v The Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 2 ATD 169, Amalgamated Zinc (De Bavay's) Limited v The Federal Commissioner of Taxation (1935) 54 CLR 295;(1935) 3 ATD 288, W. Nevill And Company Limited v The Federal Commissioner of Taxation (1937) 56 CLR 290;4 ATD 187;(1937) 1 AITR 67, Charles Moore & Co (W.A.) Pty Ltd v Federal Commissioner of Taxation (1956) 95 CLR 344;(1956) 6 AITR 379; (1956) 11 ATD 147.

An expense will have the relevant connection to the business when it is ‘desirable or appropriate in the pursuit of the business ends of the business – Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 at 56) and Magna Alloys & Research Pty Ltd v Federal Commissioner of Taxation (1980) 33 ALR 213.

In the context of a payment to an Employee Share Trust the payment will have the relevant connection where it is an irrevocable payment of cash, made at a time when the employer carries on a business for the purpose of gaining or producing assessable income and the employer reasonably expects their business to benefit from the contribution via an improvement in employee performance, morale, efficiency or loyalty.

On the basis of the facts, the Company will make contributions to the Trustee for the primary purpose of enabling the Trustee to acquire the Company shares which will, in accordance with the Trust Deed, be allocated to and held for Participants upon granting of the Options.

The right to acquire a share and the beneficial interest in the share that is acquired pursuant to the exercise of the right are both ESS interests within the meaning 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 employees' employment.

The remuneration scheme is an employee share scheme within the meaning of subsection 83A-10(2) because it is a scheme under which rights to acquire shares in the company are provided to employees in relation to the employee's employment.

Under the remuneration scheme, the employer has also established a trust to acquire shares in the company and to allocate those shares to employees to satisfy the rights acquired under the scheme. The beneficial interest in the share is itself provided under an employee share scheme because it is provided under the same scheme under which the rights to acquire the shares are provided to the employee in relation to the employee's employment, being an employee share scheme as defined in subsection 83A-10(2).

Accordingly, it is considered that the irretrievable contributions made by the Company to the Trustee will be an employee remuneration cost incurred in carrying on the Company’s business, and will satisfy the nexus of being necessarily incurred in carrying on that business for the purpose of gaining or producing assessable income.

Negative Limb – Revenue vs Capital

Where a contribution satisfies the positive limbs of subsection 8-1(1), it may not be deductible to an employer under subsection 8-1(2) to the extent that such contribution 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.

On the facts, nothing has suggested that the contributions are private or domestic in nature, or are related to producing exempt income or non-assessable non-exempt income, or are otherwise prevented from being deductible under a specific provision of the ITAA 1997 or the ITAA 1936.

Whether an outgoing is capital or revenue in nature can generally be determined by reference to the test articulated by Dixon J in the leading case on the capital/revenue distinction, Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337. In that case Dixon J stated that:

There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay…

A contribution is not deductible under section 8-1 to the extent it secures a capital advantage for the employer, unless that advantage is small or trifling.

The nature of an outgoing as either capital or revenue can generally be determined by examining the character of the advantage sought, the manner in which it is to be used, relied upon or enjoyed and the means adopted to obtain it.

When considering the character of expenditure, it is critical to consider the advantage sought by it from a practical and business point of view, not just on the basis of a 'juristic classification of legal rights'.

At the time of issuing the options and/or making the contribution to the trust the employer cannot predict with certainty if, or when, the options may be exercised and the trust fund depleted. However it is clear that it is the employer’s intention to provide a real and tangible incentive to the employees by issuing the options and the expectation is that such options will be exercised at some point in the future.

The remunerative benefit provided under the plan is in the form of the options and they are issued immediately. The contribution to the trust and subsequent acquisition of the shares merely ensures that the options can be exercised and is an inherent part of the overall option scheme. Therefore any capital benefit which may accrue in making the contribution to the trust is at most incidental and trifling compared to the immediate benefit of the provision of a direct incentive in the form of an option.

Conclusion

On weighting up the facts, the Commissioner considers that:

● the contributions by the Company to the Trust are for the purpose of acquiring the Company shares to meet the Company’s commitments arising under the Option Plan.

● The advantage obtained by the Company by each contribution for the facilitation of the Option Plan does not have a lasting quality because it merely allows the Company to provide immediate remuneration in the form of the options;

Therefore, the contributions made by the Company are not considered capital in nature.

No other provision of the ITAA 1936 or ITAA 1997 prevents the Company from deduction of the contribution.

Accordingly, the irretrievable cash contributions made by the Company to the Trustee to fund the acquisition of Company shares will be an allowable deduction to the Company under section 8-1.

Question 2

Summary

The Company (as the head company of the tax consolidated group) will be able to obtain an income tax deduction, pursuant to section 8-1, in respect of costs incurred in relation to the on-going administration of the Trust.

Detailed reasoning

The Company will incur costs associated with the services provided by the Trustee, including but not limited to:

● employee share 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 shares to Participants;

● management of employee termination; and

● other Trustee expenses such as the annual audit of the financial statements and the annual income tax return of the Trust.

In addition to services provided by the Trustee, the Company has incurred and will incur various implementation costs, including the services provided by the Company’s accounting, tax and legal advisors in drafting the Deed and applying for this private ruling.

In accordance with the Trust Deed, the Trustee is not entitled to receive from the Trust or Eligible Participants any fees, commission or other remuneration for operating or administering the Trust. The Company must pay to the Trustee from the Company’s own resources any fees, commission or other remuneration and may reimburse any expenses incurred by the Trustee as agreed upon from time to time. The Trustee is entitled to retain for its own benefit any such remuneration or reimbursement.

The costs incurred by the Company in relation to the implementation and on-going administration of the Trust are deductible under section 8-1 as either:

● costs incurred in gaining or producing the assessable income of the Company, or

● costs necessarily incurred in carrying on the Company’s business for the purpose of gaining or producing the assessable income of the Company.

The view that the costs incurred by the Company are deductible under section 8-1 is consistent with ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible in which it was decided that such costs are part of the ordinary employee remuneration costs of a taxpayer.

Consistent with the analysis above in question 1, the costs are revenue and not capital in nature on the basis that they are regular and recurrent employment expenses and therefore, are not excluded from being deductible under paragraph 8-1(2)(a). Accordingly the Company is entitled to an income tax deduction, pursuant to section 8-1, in respect of costs incurred in relation to the implementation and on-going administration of the Trust.

Question 3

Summary

Irretrievable cash contributions made by the Company (or any subsidiary member of the tax consolidated group) to the Trustee, to fund the subscription for or acquisition on-market of the Company shares by the Trust, are deductible to the Company at a time determined by section 83A-210.

Detailed reasoning

Irretrievable contributions that are deductible under section 8-1 would generally be an allowable deduction in the income year in which the outgoing was made. However, under certain circumstances, the timing of the deduction is instead determined under section 83A-210.

Section 83A-210 provides that:

(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 will only apply if there is a relevant connection between the money provided to the Trustee of the Trust, and the acquisition of ESS interests (directly or indirectly) by the employee under an employee share scheme in relation to the employee's employment.

An ESS interest, in a company, is defined in subsection 83A-10(1) as either a beneficial interest in a share in a company or the right to acquire a beneficial interest in a share in a company.

An employee share scheme is defined in subsection 83A-10(2) as a scheme under which the ESS interests in a company (or its subsidiaries) are provided to employees of a company, or their associates, in relation to their employment.

In the ATO Interpretative Decision ATOID 2010/103 Income Tax: Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust, it provides:

An option granted to an employee under the scheme will be an ESS interest as it is a right to acquire a beneficial interest in a share in a company. A share purchased by the trustee to satisfy the option to acquire shares under the scheme, for an employee in relation to the employee's employment, is itself provided under the same scheme.

The granting of the beneficial interests in the options, the provision of the money to the trustee under the arrangement, the acquisition and holding of the shares by the trustee and the allocation of shares to the participating employees are all interrelated components of the employee share scheme. All the components of the scheme must be carried out so that the scheme can operate as intended.

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

Consequently, the provision of money to the trustee is considered to be for the purpose of enabling the participating employees, indirectly as part of the employee share scheme, to acquire the options. A deduction for the purchase of shares to satisfy the obligation arising from the grant of options is therefore allowable to the employer in the year in which the money was paid to the trustee, under section 8-1 of the ITAA 1997.

However, the amount of money used by the trustee to purchase excess shares is intended to meet obligations arising from a future grant of options. The excess payment therefore occurs before the employees acquire the relevant options under the scheme. Section 83A-210 of the ITAA 1997 will apply and the excess payment will be deductible to the employer in the year of income when the relevant options are subsequently granted to the employees.

Application to this case

The Options meet the definition of ESS interest in subsection 83A-10(1) as the right to acquire a beneficial interest in a share in the Company. The Option Plan meet the definition of employee share schemes under subsection 83A-10(2) in that they are schemes under which ESS interests (being Options) are provided to employees or their associates of the Company in relation to the employee’s employment.

Pursuant to section 83A-210, provided that at the time the contribution is made, the amount is not in excess of that required to purchase shares to satisfy rights which have already been issued, the deduction under section 8-1 would be allowable immediately.

Where the amount is in excess of that required to purchase shares to satisfy rights which have already been issued, the deduction under section 8-1 would be deferred until such time further ESS interests are issued and the same treatment would apply at that time.

You submitted that the Company does not intend to hold more shares in the Trust than required to settle obligation arising from Options issued at the time under the Option Plan, as set out above.

In this case, where contributions are made by the Company or its subsidiaries to the Trust:

● In the same income year in which the Options are granted to the employee under the Option Plan; or in a later income year, the deduction under section 8-1 will be available in the income year in which the contribution is made.

● In income years prior to the income year in which Options are granted, section 83A-210 will operate to delay the deduction under section 8-1 to the income year in which the Options are granted to the employee under the Option Plan.

Question 4

Summary

If the Trust satisfies its obligations under the Plans, the subscription proceeds will not be included in the assessable income of the Company under section 6-5 or 20-20, nor will it trigger a CGT event under Division 104.

Detailed reasoning

Ordinary Income

Section 6-5 provides that a taxpayer’s assessable income includes income according to ordinary concepts, which is called ordinary income. The definition of ‘income’ was observed by Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219; 3 ATD 142 at 144-145 where his Honour said:

The word “income” is not a term of art, and 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 such receipts…

A leading case on ordinary income is Eisner v Macomber 252 US 189 (1919). It was said in that case that:

The fundamental relation of “capital” to “income” has been much discussed by economists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time. …Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being “derived” that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; …that is income derived from property. Nothing else answers the description.

In G.P. International Pipecoaters Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1990) 170 CLR 124 the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient. Brennan, Dawson, Toohey, Gaudron and McHugh JJ stated at page 138 that:

To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts 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.

Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business.

In accordance with an employee share scheme, the Trustee subscribes to the Company for an issue of shares, it pays the full subscription price for the shares and the Company receives a contribution of share capital from the Trustee.

The character of the contribution of share capital received by the Company from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Under this arrangement, the Company is issuing the Trust with a new share in itself. The character of the newly issued share is one of capital. Therefore, it can be concluded that the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. This view is supported by the reasoning in ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee.

As the Company receives subscription proceeds from the Trustee where the Trust has subscribed for new shares to satisfy obligations to Participants, that subscription price received by the Company is a capital receipt, is not on revenue account, and not ordinary income under section 6-5.

Section 20-20

Division 20 deals with amounts included to reverse the effect of past deductions and section 20-20 deals with assessable recoupments, which are described at subsection 20-20(2) as ‘an amount you receive by way of insurance, indemnity or other recoupment’.

The Company will receive an amount for the subscription of shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance.

Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation.

In relation to ‘other recoupments’ subsection 20-20(3) makes assessable a recoupment of a loss or outgoing that is deductible, or has been deductible or deducted in a previous income year, where the deduction was claimed under a provision in section 20-30.

Recoupment of a loss or outgoing is defined in subsection 20-25(1) to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of the loss or outgoing.

The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing.

So far as a deduction under section 8-1 allowed for bad debts or rates or taxes is concerned, section 20-30 would apply such that if there was a recoupment of that deduction, that amount would be assessable. However, the subscription for new shares in the Company by the Trustee cannot be said to be a recoupment under subsection 20-25(1).

In any event, even if it were a recoupment, the receipt by the Company made in return for issuing shares to the Trustee would not be a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes to which section 20-30 could apply. As such, the amount could not be an assessable recoupment under subsection 20-20(3).

Capital Gains Tax (CGT)

Section 102-20 states that a taxpayer can only make a capital gain or loss if, a CGT event happens. It is not possible to make a capital gain or loss if there is no CGT event.

No CGT events occur when the Trustee satisfies its obligations under the Plans by subscribing for new shares.

The relevant CGT events that may be applicable when the subscription proceeds are received by the Company are CGT events D1 (creating a contractual or other rights) and H2 (receipt for event relating to a CGT asset).

However, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company. In this case, the Company is issuing shares, being equity interests as defined in section 974-75, to the Trustee and therefore CGT event D1 does not happen.

In relation to CGT event H2, paragraph 104-155(5)(c) states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. Therefore, CGT event H2 does not occur.

As no CGT event occurs, there is no amount that will be assessable as a capital gain to the Company.

Therefore, when the Trustee satisfies its obligations under the Plans by subscribing for new shares, the subscription proceeds will not be included in the assessable income of the Company under section 6-5 or section 20-20, nor trigger a CGT event under Division 104.

Question 5

Summary

The Commissioner will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company to the Trustee to fund the subscription for or acquisition on-market of the Company shares by the Trust.

Detailed reasoning

Law Administration Practice Statement PS LA 2005/24 deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936.

Part IVA gives the Commissioner the discretion to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. This discretion is found in subsection 177F(1) of the ITAA 1936.

Before the Commissioner can exercise his discretion to make a determination in respect of Part IVA under subsection 177F(1) of the ITAA 1936, three requirements must be met. These are:

● there must be a scheme within the meaning of section 177A of the ITAA 1936;

● a tax benefit must arise based on whether a tax effect would have occurred, or might reasonably be expected to have occurred, if the scheme had not been entered into or carried out, and

● having regard to the matters in paragraph 177D(b) of the ITAA 1936, the scheme is one to which Part IVA of the ITAA 1936 applies (dominant purpose)

The Scheme

Subsection 177A(1) of the ITAA 1936 (subsection 995-1(1)) provides that ‘scheme’ means:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct;

It is considered that this definition is sufficiently wide to cover the proposed arrangement under the Option Plan which utilises contributions made by the Company to the Trustee (in accordance with the Trust Deed), to fund the acquisition of the Company shares on behalf of participating employees by the Trustee.

Tax Benefit

'Tax benefit' is defined in paragraph 177C(1)(b) of the ITAA 1936 as including:

(b) a deduction being allowable to the taxpayer in relation to a year of income where the whole or a part of that deduction would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out; or…

In order to determine the tax benefit that would be derived by the Company or its subsidiary from this scheme, it is necessary to examine other alternative schemes the Company might reasonably have been expected to enter into to achieve its aims in relation to employee remuneration. For example,

● the Company could remunerate employees by way of increased salary, bonuses or deductible superannuation payments. Under these alternatives, identical or similar level of deductible expenses would arise to that which will arise under the proposed arrangement; or

● the Company could issue shares directly to employees for no consideration.

Having considered the tax advantages of the above alternative remuneration scheme, it suggests that there is no tax benefit for the first alternative. As payments of the additional cash amounts would be deductible to the Company, the same or similar deductible expenses would arise, compared to the current ESS Plan arrangement.

If the Company were to issue new shares directly to its employees, it would not be entitled to any deduction for the shares (except the costs incurred when issuing and transferring any shares) unless section 83A-205 was satisfied. This provision requires that:

● the Company must have provided an ESS interest to an individual under an employee share scheme; and

● the Company did this as the individual’s employer (or as the holding company of the employer); and

● with the exception of paragraph 83A-35(2)(b), section 83A-35 must have applied to reduce the amount included in that individual’s assessable income under subsection 83A-25(1).

If the shares did meet these conditions, the Company would be entitled to a deduction equal to the amount of the reduction allowable to the individual under section 83A-35 to a total amount of $1,000.

By contrast the use of the Trust arrangement permits the Company, subject to the requirements of sections 8-1 and 83A-210, to claim a deduction for the full amount of the contributions it makes to the Trust. It is probable that this amount would exceed that which would be allowable under section 83A-205 in the alternative scheme above. Therefore, to the extent of any increased deductions because of the Trust arrangement, the Company obtains a tax benefit.

While, for the reasons noted above by the applicant, it is unlikely that it would choose any other incentive plan that did not give rise to an allowable deduction (and therefore there would not be the necessary tax benefit), the analysis below proceeds on the assumption that the Commissioner would in fact be able to identify a relevant tax benefit.

Section 177D of the ITAA 1936 provides that Part IVA only applies if, after having regard to certain factors specified in subsection 177D(2) of the ITAA 1936, it would be concluded that a person who entered into the scheme did so for the sole or dominant purpose of enabling the tax payer to obtain the tax benefit.

Subsection 177D(2) of the ITAA 1936

Subsection 177D(2) of the ITAA 1936 sets out the following factors that must be considered in deciding whether a scheme was entered into for the purpose of obtaining a tax benefit:

(a) the manner in which the scheme was entered into or carried out;

(b) the form and substance of the scheme;

(c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

(d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme;

(e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;

(f) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme;

(g) any other consequence for the relevant taxpayer, or for any person referred to in paragraph (f), of the scheme having been entered into or carried out;

(h) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in paragraph (f).

(a) The manner of the scheme

In considering whether Part IVA applies, the necessary comparison to be made in relation to the factors listed in paragraph 177D(b) of the ITAA 1936 is between the scheme as proposed and the relevant alternative.

The inclusion of the Trust in the scheme does give rise to a tax benefit, but the Company has provided the following reasons for the operation of the Trust:

● Administering the employee incentive plans through an Trust provides for flexibility when meeting grants, in that the Company can direct the Trustee of the Trust to acquire the shares either through share issue or on-market;

● The Trust provides an arms-length operation through which shares in the Company can be acquired and held on behalf of the relevant employees, which enables the Company to satisfy various corporate law requirements relating to a company dealing in their own shares; and

● The Trust provides further comfort to employees as the Trustee of the Trust is external to the Company acting on behalf of the beneficiaries.

It is accepted that the Trust provides benefits to the operation of the scheme that would not be available if the shares were provided directly by the Company.

(b) The Form and Substance of the scheme

The substance of the scheme is the provision of remuneration in the form of shares to employees who participate in the Option Plan. It takes the form of payments by the Company to the trustee which acquires the shares and transfers them to employees.

While existence of the Trust may confer a tax benefit, it cannot be concluded that it is the only benefit provided, as outlined above. The applicant has argued that the form of the arrangement with the Trust provides the scheme with non-tax benefits and this is accepted.

(c) The timing of the scheme

The irretrievable cash contributions made by the Company to the trustee enable the trustee to acquire shares in the Company in satisfaction of employee rights and to use market conditions advantageously to meet potential employee share requirements in advance.

The application of section 83A-210 to cash contributions made before the employee receives the right, prevents any timing advantage for the deductibility of those contributions.

(d) The result of the scheme

The result of the scheme is to provide the Company with allowable deductions for the contributions they make to the Trust. However, it is noted that the contributions are irretrievable and reflect a genuine non-capital outgoing on the part of the Company to achieve a business outcome. It is to be expected that a deduction would normally be allowable in these circumstances.

(e) Any change in the financial position of the Company

As noted above, the Company makes irretrievable cash contributions to the Trust and those contributions constitute a real expense with the result that the Company’s financial position is changed to that extent. While it is arguable that the quantum of the deductions is higher with a trust as part of the scheme, in contrast to the Company providing shares to employees directly, there is nothing artificial, contrived or notional about the Company’s expenditure.

(f) Any change in the financial position of other entities or persons

The contributions by the Company to the Trustee will form the corpus of the Trust and must be dealt with by the Trustee in accordance with the terms of the Trust deed, that is, for the acquisition of shares to ultimately be provided to participants in the Plan. The Company is not a beneficiary of the Trust and its contributions cannot be returned to it in any form except where the trustee acquires shares from the Company by subscribing for new shares at market value. Therefore, the contributions made by the Company amount to a real change to the financial position of the trustee.

The financial position of employee participants and their associates in the scheme will also undergo a real change. This will be the case whether the shares are acquired through the Trust or provided directly by the Company. There is nothing artificial, contrived or notional about these changes.

(g) Any other consequence

There are no other consequences for the Company, their employees and or their associates that would be relevant as evidence of a dominant purpose of obtaining a tax benefit.

(h) The nature of any connection between the Company and any other persons

The relationship between the Company and the participants in the Plan is one of employer/employee. The parties are unrelated.

The contributions made by the Company to the trustee are commensurate with the Company’s aim of providing the participants with remuneration in a form that aligns their personal financial rewards with the risks and returns of the Company’s shareholders. There is nothing to suggest that the parties to the employee share scheme are not acting at arm's length to one another. Accordingly, there is nothing in relation to this factor to indicate a dominant purpose of obtaining a tax benefit.

Conclusion – the purpose of the scheme

A consideration of all the factors referred to in subsection 177D(2) of the ITAA 1936 leads to the conclusion that the dominant purpose of the scheme is to provide remuneration to the Company Group’s employees who participate in the scheme in a form that promotes the Company’s business objectives, rather than to obtain a tax benefit.

Accordingly, the Commissioner will not make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by the Company in relation to irretrievable contributions made by the Company to the Trust to fund the acquisition of employer shares in accordance with the scheme as outlined above.

Issue 2 – Fringe Benefits Tax

Question 1

Summary

The provision of rights or shares to participants under the Option Plan will not be a fringe benefit within the meaning of subsection 136(1) of the FBTAA.

Detailed reasoning

A fringe benefit will only arise under subsection 136(1) of the FBTAA where benefits are provided to employees or associates of employees. Under the definition of fringe benefit, a benefit must also be provided 'in respect of’ the employment of the employee.

Paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA states that a fringe benefit does not include:

a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997) to which Subdivision 83A-B or 83A-C of that Act applies;

The Commissioner accepts that the Option Plan is an employee share scheme for the purposes of Division 83A and that the rights are ESS interests.

Accordingly, the acquisition of rights pursuant to the Option 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 will apply) and are 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.

The provision of the Company shares on exercise of Rights

As stated above, in general terms, 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee 'in respect of' the employment of the employee.

The meaning of the phrase 'in respect of' was considered by the Full Federal Court in J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22. Heerey, Merkel and Finkelstein JJ at page 410 stated:

Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment.

The situation is similar to that which existed in Federal Commissioner of Taxation v. McArdle 89 ATC 4051; (1988) 19 ATR 1901 where an employee was granted valuable rights in respect of his employment which he subsequently surrendered in return for a lump sum payment. Davies, Gummow and Lee JJ 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 an employee of the Company or its subsidiaries accepts an offer to participate in the Option Plan, they obtain a right to acquire a beneficial interest in a share in the Company and this right constitutes an ESS interest. When this right is subsequently exercised, any benefit received would be in respect of the exercise of the right, and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme).

Therefore, the benefit that arises to an employee upon the exercise of a vested right (being the provision of a share) will not give rise to a fringe benefit as a benefit has not been provided in respect of the employment of the employee.

Question 2

Summary

The irretrievable cash contributions made by the Company to The Trustee are not treated as a fringe benefit within the meaning of section 136(1) of the FBTAA.

Detailed reasoning

The term ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA to mean benefits provided by an employer, an associate of the employer or an arranger with the employer, to employees, in respect of the employment of the employee.

Pursuant to subsection 136(1) of the FBTAA, a fringe benefit is defined to exclude:

…

(h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997) to which Subdivision 83A-B or 83A-C of that Act applies; or

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

Subsection 995-1(1) provides that the meaning of ‘employee share trust’ is defined as having the meaning given by subsection 130-85(4).

Subsection 130-85(4) provides that an employee share trust for an ‘employee share scheme’ (having the meaning given by subsection 83A-10(2) 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).

The terms ‘ESS interest’ and ‘employee share scheme’ which are defined in section 83A-10 of the ITAA 1997, were considered previously in relation to the first issue. It is accepted the Option Plan is an employee share scheme under which ESS interests being rights are provided to employees, or associates, or employees of the Company.

The Trust is an employee share trust as defined in subsection 995-1(1), as the activities of the Trust in acquiring and allocating ESS interests meet the requirements of paragraph 130-85(4)(a) and paragraph 130(4)(b) and its other activities are merely incidental to those activities in accordance with paragraph 130-85(4)(c). As such paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA excludes the contributions to the Trustee from being a fringe benefit.

Therefore, the irretrievable contributions the Company makes to the Trustee, to fund the on market acquisition of, or subscription for the Company’s shares are not fringe benefits within the meaning of subsection 136(1) of the FBTAA 1986.

Question 3

Summary

The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of the Company, by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition on-market of the Company shares?

Detailed reasoning

As mentioned previously, PS LA 2005/24 has been written to assist those who are contemplating the application of Part IVA or other general anti-avoidance rules to an arrangement, including in a private ruling. It succinctly explains how section 67 of the FBTAA operates. Most notably, paragraph 145 to paragraph 148 provide as follows:

145. Section 67 is the general anti-avoidance provision in the FBTAA 1986. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA 1986 is virtually identical to the definition of 'scheme' in section 177A of Part IVA.

146. Subsection 67(1) of the FBTAA 1986 is satisfied where a person or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer or the eligible employer and another employer(s) to obtain a tax benefit.

147. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 differs from paragraph 177D(b) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose.

148. Subsection 67(2) of the FBTAA 1986 provides that a tax benefit arises in respect of a year of tax in connection with an arrangement if under the arrangement:

(i) a benefit is provided to a person;

(ii) an amount is not included in the aggregate fringe benefits amount of the employer; and

(iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into.

Therefore, the Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. The point is made effectively in Miscellaneous Taxation Ruling MT 2021 Fringe Benefits Tax-Response to questions by major rural organisation under the heading “Appendix, Question 18” where, on the application of section 67, the Commissioner states:

…As mentioned in the explanatory memorandum to the FBT law, section 67 may only apply where there is an arrangement under which a benefit is provided to a person and the fringe benefits taxable amount in respect of that benefit is either nil or less than it would have been but for the arrangement...

Further, paragraph 151 of Practice Statement 2005/24 provides:

151. The approach outlined in this practice statement (refer to paragraphs 69 to 113) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA 1986.

In the present case, the benefits provided to the Trustee by way of irretrievable contributions to the Trust, and to Participants by way of the provision of Options (and the Company shares received on their vesting) under the Option Plan are excluded from the definition of a fringe benefit by virtue of the operation of paragraph 136(1)(h) and paragraph 136(1)(ha) of the FBTAA 1986. Therefore, as these benefits have been excluded from the definition of a fringe benefit and as there is also no fringe benefits tax currently payable under the Plan (without the use of an Trust) and nor likely would fringe benefits tax be payable under alternative remuneration plans, the fringe benefits tax liability is not any less than it would have been but for the arrangement.

Accordingly, the Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of the Company by the amount of the tax benefit gained from the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition on-market of the Company shares.

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