Edited version of private advice

Authorisation Number: 1051533638504

Date of advice: 28 June 2019

Ruling

Subject: Employee share scheme

Question 1

Will Company A obtain a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable cash contributions made by Company A to the Trustee of the Employee Share Plan Trust (Trust) to fund the subscription for, or acquisition on-market of, Company A shares in respect of Company A employees?

Answer

Yes

Question 2

If the answer to question 1 is yes, will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to the arrangement where irretrievable cash contributions are made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares in respect of Company A employees?

Answer

No

Question 3

If the answer to question 1 is no, is the amount deductible under section 40-880 of the ITAA 1997?

Answer

Not required to be answered

Question 4

Is any amount required to be withheld from the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares in respect of Company A employees under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Answer

No

The rulings for questions 1 to 4 inclusive each apply for the following periods:

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Question 5

Will the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares in respect of Company A employees, be a fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 6

Is the provision of shares in Company A to employees of Company A under the Deferred Share Plan a fringe benefit within the meaning of subsection 136(1) of the FBTAA?

Answer

No.

The rulings for questions 5 and 6 each apply for the following periods:

Fringe benefits tax year ended 31 March 20XX

Fringe benefits tax year ended 31 March 20XX

Fringe benefits tax year ended 31 March 20XX

Fringe benefits tax year ended 31 March 20XX

Fringe benefits tax year ended 31 March 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Company A is a publicly listed company.

The Board of Company A resolved to establish the Company A Employee Deferred Share Plan (Deferred Share Plan).

The Deferred Share Plan is designed to simplify the remuneration structure of Company A, improve employee retention, improve alignment of employee effort with reward, foster a better culture of employee participation and motivation, align shareholder interests and build long term employee ownership in the company in accordance with the principles of the constitution and charter of Company A.

The Deferred Share Plan is subject to rules that are outlined in the Company A Policy.

Deferred Shares

Deferred Shares are fully paid ordinary shares in Company A (Shares) which will be held by the Trustee of the Employee Share Plan Trust under the terms of the Deferred Share Plan and the Employee Share Plan Trust Deed.

Deferred Shares may be granted under the Deferred Share Plan to employees that meet the following conditions at the time of grant, namely that the employee must:

·         be permanently employed on the specified grant date in the given year (including employees on probation).

·         be employed as at the date Company A makes a payment to the Employee Share Trust in respect of the Trustee acquiring the Shares to hold for the benefit of the employee.

·         not have tendered their notice of termination of employment or be under disciplinary action.

·         have met performance expectations.

The amount of Deferred Shares granted to an employee is based on market remuneration data for the year of grant. Deferred Shares are provided to an employee for nil consideration.

Deferred Shares are subject to the following vesting conditions:

·         continuation of employment for three years from the grant date; and

·         meeting the performance hurdle over the performance calculation period. The performance hurdle is achieving a three-year compound annual growth rate of diluted earnings per share (EPS) as per the vesting schedule below:

EPS vesting schedule:

·         The performance calculation period is the three financial years starting immediately before a grant date.

Generally, any Deferred Shares will be forfeited on resignation. Should an employee's employment with the Company cease due to gross misconduct then all Deferred Shares will be forfeited.

A participant can vote in respect of the Deferred Shares and will receive a distribution from the Trustee in respect of any dividends paid on the Shares held by the Trustee of the Company A Employee Share Plan Trust on their behalf, commensurate to the dividend.

If the vesting conditions are met on the third anniversary date of the grant date (the vesting date), the grant of Deferred Shares will vest and the Shares will be transferred to the participant by the Trustee as soon as practicable. The participant may then deal with the Shares as they wish subject to the Company A group share trading policy.

Trust Deed

The Company A Employee Share Plan Trust (Trust) was established by the execution of the Trust Deed.

Under the Trust Deed the Trustee of the Trust can acquire fully paid ordinary shares in Company A (Shares) and hold those Shares in accordance with the Trust Deed and the Plan Rules.

'Plan Rules' is defined in the Trust Deed to mean the terms and conditions and other rules relating to an Employee Share Plan. For the purposes of this Ruling, the relevant plan is the Deferred Share Plan described herein.

'Plan Shares' are defined in the Trust Deed as Shares held by the Trustee on behalf of a Participant in accordance with the requirements of the Trust Deed and the relevant Plan Rules.

The Fund of the Trust consists of the settlement sum ($1) and the Shares acquired and accepted for the purposes of the Trust and the Plan Shares and any other money, property and assets acquired or accepted by the Trustee on the terms and conditions of the Trust Deed. The Trustee holds the Fund for the benefit of the Eligible Participants on the terms and conditions of the Trust Deed.

Pursuant to the Trust Deed, the Trustee may acquire Shares, upon direction by a Director or Company Secretary of Company A, or a delegate of either, from time to time. Company A does not have and shall not have any beneficial interest in any Shares acquired under this provision.

Pursuant to the Trust Deed, the Trustee must allocate Shares as Plan Shares to the Account established for a Participant in accordance with the Plan Rules provided the Trustee received sufficient payment from Company A to buy the relevant Shares or otherwise holds sufficient Shares in the Fund.

A Participant is relevantly defined under the Trust Deed as being an Eligible Participant who accepts an invitation to participate in the Deferred Share Plan. An Eligible Participant is defined as a person who is a:

(a)  full time, part time or casual employee of Company A;

(b)  consultant or contractor to Company A; or

(c)  person that the Board considers in its absolute discretion to be appropriate for participation in an Employee Share Plan; and

who receives an invitation from Company A to participate in an Employee Share Plan.

Despite the definition of Eligible Participant in the Trust Deed, the only persons eligible to participate in the Deferred Share Plan are permanent employees of Company A as per the Company A Policy. As a result, the Trustee of the Trust will only ever hold Company A shares for the benefit of permanent employees of Company A.

The Trust Deed provides that the Trustee must transfer or dispose of Plan Shares in accordance with the Plan Rules.

The Trust Deed provides that Plan Shares allocated in accordance with the Trust Deed to Participants must be held on the terms of this deed by the Trustee on behalf of the relevant Participant who is the beneficial owner of the Plan Shares until such time as the Plan Shares are transferred or disposed of as provided under the deed or forfeited by the Participant in accordance with the Plan Rules. On forfeiture by a Participant in accordance with the Plan Rules, Plan Shares will cease to be Plan Shares and will be held by the Trustee as trust property. Whilst the Plan Shares are held by the Trustee on behalf of a Participant, that Participant's entitlement to the same rights in respect of the Plan Shares (including the right to receive dividends paid, participate in any bonus or right issue and vote on any resolution put to security holders of Company A) is governed by the Plan Rules.

The Trust Deed provides that nothing in the deed confers on Company A any charge, lien or any proprietary right or interest in the Shares acquired under the Trust Deed.

The Trust Deed provides that where Plan Shares are allocated to a Participant, the Trustee must open and maintain an Account in respect of that Participant in respect of those Plan Shares.

The Trust Deed provides that, subject to the terms of the deed and the Plan Rules, the Trustee may apply any income received by the Trustee (including but not limited to dividends and returns of capital) in relation to any Plan Shares it holds on behalf of a Participant in the manner directed by the Participant or otherwise provided in the Plan Rules.

The Trust Deed provides that, subject to the Plan Rules, a Participant is presently entitled to so much of the Net Income of the Trust for a Year of Income which is attributable to:

(a)  the Plan Shares held by the Trustee on behalf of the Participant;

(b)  the proceeds of sale arising from any sale of Plan Shares by the Trustee on behalf of the Participant; and

(c)  any transactions or events relating to the Plan Shares or properly related to or arising from Plan Shares held by the Trustee on behalf of the Participant.

Prior to termination of the Trust, the balance of any Net Income of the Trust to which no Participant is presently entitled may be applied to meet any reasonable costs incurred in relation to the establishment and administration of the trust or be accumulated as an accretion to the trust. Although the Trust Deed provides a power for interim distributions of capital of the trust, no distributions of capital have ever been made to beneficiaries under that power and the Trustee will not exercise its power in the future to make any distributions of capital to beneficiaries, except on termination of the Trust.

In the event that the Trust is terminated, the Trustee must transfer to each Participant the Plan Shares standing to the credit of the Account of the Participant. The Trustee must dispose of all Shares and the balance of the capital and income of the Trust to which no Participant is entitled will be distributed according to the Trust Deed. That means the balance of the capital and income of the Trust may be applied, in whole or in part, for the benefit of one or more of the following beneficiaries:

·         an Eligible Participant;

·         a Participant;

·         a provident, benefit, superannuation or retirement fund established and maintained by Company A for its employees or past employees; or

·         any other trust established and maintained for the benefit of all or any employees of the Company A.

The Trust Deed provides that the Trustee of the Trust agrees to administer the Trust at all times in accordance with the definition of "employee share trust" in section 995-1 of the Income Tax Assessment Act 1997.

Implementation of the Deferred Share Plan in the relevant period

This year Company A invited all of its eligible permanent employees to participate in this year's tranche of the Deferred Share Plan. Further tranches of Deferred Shares are expected to be offered in subsequent years.

For all tranches of Deferred Shares, Company A will pay a cash contribution to the Trustee in order to fund the acquisition of Shares for the purposes of allocating those Shares as Plan Shares for the Participants in accordance with the Trust Deed and the Plan Rules.

The amount contributed to the Trustee of the Trust by Company A will be based on an agreed percentage of the salary of each Participant as at the grant date. Contributions are based on the amount required to fund the acquisition of Shares to be allocated as Plan Shares to Participants in that tranche of the Deferred Share Plan (taking into account any Shares that were acquired in earlier years that were forfeited or failed to vest and held by the Trustee under the Trust Deed). No amounts will be contributed in excess of the amount required by the Trustee for the purpose of acquiring the relevant amount of Shares. Accordingly, no amount of excess contributions is being accumulated as capital in the Trust.

The aggregate number of shares to be allocated under the Share Plan will not exceed 5% of the total number of shares on issue at any given time, and no single employee will hold a legal or beneficial interest of more than 5% in Company A nor be in a position to cast, or control the casting of, more than 5% of the votes at a general meeting of Company A.

When contributions are made, the Trustee may be given an instruction to subscribe for new Shares or acquire Shares on market. It is expected that going forward the Trustee will be acquiring Shares on market rather than subscribing for Shares.

The Trustee is also given a direction as to the number of Shares which are to be allocated to a Participant's Account.

Ordinarily, Company A will cover the administration expenses of the Trust.

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997, unless stated otherwise.

Question 1

The general deduction provision is section 8-1 which states:

(1)   You can deduct from your assessable income any loss or outgoing to the extent that:

(a)  it is incurred in gaining or producing your assessable income; or

(b)  it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

(2)   However, you cannot deduct a loss or outgoing under this section to the extent that:

(a)  it is a loss or outgoing of capital, or of a capital nature; or

(b)  it is a loss or outgoing of a private or domestic nature; or

(c)  it is incurred in relation to gaining or producing your * exempt income or your * non-assessable non-exempt income; or

(d)  a provision of this Act prevents you from deducting it.

Contribution to the trustee of an employee share trust

To claim a deduction under subsection 8-1(1) contributions made to a trustee of an employee share trust by the employer company must be irretrievable and non-refundable.

A contribution made to the trustee of an employee share trust is incurred only when the ownership of that contribution passes from an employer to the trustee of the employee share trust and there is no circumstance in which the employer can retrieve any of the contribution - Pridecraft Pty Ltd v. Federal Commissioner of Taxation [2004] FCAFC 339; Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650.

Pursuant to the Trust Deed the Trustee of the Trust may upon direction from a Director or Company Secretary of Company A acquire ordinary shares in Company A. The Trustee of the Trust must allocate ordinary shares in Company A that it acquires to the Account of a Participant in accordance with the Plan Rules. Nothing in the Trust Deed requires the Trustee of the Trust to acquire Shares if it does not receive sufficient contributions from Company A or have sufficient property in the Trust.

Pursuant to the Trust Deed, the Trustee holds the Fund for the benefit of the Eligible Participants on the terms and conditions of the Trust Deed. Company A does not have any beneficial interest in the Fund. The Trust Deed expressly provides that Company A does not have any beneficial interest in any Shares that are acquired in accordance with the Trust Deed and nothing in the Trust Deed confers, or is intended to confer, on Company A any charge, lien, or any other proprietary right or interest in the Shares acquired under the Trust Deed. In the event that the Trust is terminated, any surplus property in the Trust to which no Participant is entitled will be distributed according to the terms of the Trust Deed and will be applied for the benefit of all or any of the classes of specified beneficiaries.

It is considered that the contributions made to the Trustee of the Trust by Company A will be irretrievable and, therefore, Company A will have incurred a loss or outgoing for the purpose of subsection 8-1(1) at the time the contribution is made.

Sufficient nexus

In order for a loss or outgoing to be deductible under subsection 8-1(1), it must be either incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

A line of authorities has established that there will be a link between a loss or outgoing and the derivation of income where there is a sufficient nexus: 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, Ronpibon Tin No Liability v The Federal Commissioner of Taxation (1949) 78 CLR 47; 4 AITR 236; (1949) 8 ATD 431, Charles Moore & Co (W.A.) Pty Ltd v Federal Commissioner of Taxation (1956) 95 CLR 344;(1956) 6 AITR 379; (1956) 11 ATD 147.

The contributions made by Company A to the Trustee of the Trust are part of the overall employee remuneration costs of Company A. The benefits provided to permanent employees under the Deferred Share Plan are designed to improve employee retention, improve alignment of employee effort with reward, foster a better culture of employee participation and motivation, and build long term employee ownership in Company A.

A sufficient nexus exists between the outgoings (being the irretrievable contributions made by Company A to the Trustee of the Trust) and the derivation of assessable income for the purposes of subsection 8-1(1).

Capital or revenue?

A company will be entitled to a general deduction for irretrievable contributions made to the trustee of its employee share scheme under section 8-1.

In Spotlight Stores Pty Ltd v Federal Commissioner of Taxation (2004) 55 ATR 745 and Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) 58 ATR 210 it was determined that payments by an employer company to an employee share trust established for the purpose of providing incentive payments to employees were on revenue account and were not capital or of a capital nature.

Apportionment

The combined operation of subsections 8-1(1) and 8-1(2) may require apportionment of a loss or outgoing into deductible and non-deductible components, where a single loss or outgoing is incurred for more than one purpose or on items of a different nature.

A contribution to the trustee of an employee share trust is capital or of a capital nature where the contribution secures for the employer an asset or advantage of an enduring or lasting nature that is independent of year to year benefits that the employer derives from a loyal and contented workforce.

Where a contribution from an employer is ultimately, and in substance, used by the trustee of an employee share trust to subscribe for equity interests in the employer (for example shares), the employer has also acquired an asset or advantage of an enduring nature.

Where a contribution secures for the employer advantages of both a revenue and capital nature, but the expected advantages of a capital nature are very small or trifling by comparison, apportionment may not be required.

Company A will make contributions to the Trustee of the Trust as and when Shares are to be subscribed for or acquired pursuant to the Deferred Share Plan. All the components of the scheme operate together to achieve the intended purpose of attracting, motivating, rewarding and aligning the interests of employees with that of Company A. The amount of the contribution made by Company A is intended to closely correspond with the amount needed to fund the acquisition of Shares to be allocated as Plan Shares to Participants under the Deferred Share Plan.

In this case, the outgoings incurred by Company A by way of contributions to the Trustee in order to carry on its business are either not capital in nature or any capital component is sufficiently small or trifling such that the Commissioner would not seek to apportion the deduction.

Private or domestic in nature and other negative limbs

Finally, nothing in the facts suggests that the contributions made by Company A to the Trustee are private or domestic in nature, or are incurred in gaining or 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.

Conclusion

Therefore, when Company A makes irretrievable contributions to the Trustee to fund the acquisition of Shares in accordance with the Trust Deed and the Plan Rules, those contributions will be an allowable deduction to Company A under section 8-1.

Note: The irretrievable contributions made by Company A to the Trustee of the Trustto fund the subscription for, or acquisition of, Shares will be deductible at a time determined by section 83A-210 1997 if the contributions are made before the acquisition of the ESS interests.

Question 2

Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules (PS LA 2005/24) deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936. Before the Commissioner can exercise the discretion in respect of Part IVA under subsection 177F(1) of the ITAA 1936, three requirements must be met:

1. there must be a scheme within the meaning of section 177A of the ITAA 1936
2. 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
3. having regard to the matters in subsection 177D(2) of the ITAA 1936, the scheme is one to which Part IVA of the ITAA 1936 applies (dominant purpose).

On the basis of an analysis of these requirements, the Commissioner will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or in full, any deduction claimed by Company A in respect of irretrievable contributions to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, ordinary shares in Company A.

Question 3

Not required to be answered.

Question 4

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) provides that an entity making a payment of salary or wages, or a bonus to an individual as an employee (that is not exempt income or non-assessable non-exempt income of that employee) is required to withhold an amount from that payment.

Section 11-5 of Schedule 1 to the TAA 1953 states that in working out whether an entity (the 'first entity') has paid an amount to another entity (the 'other entity'), and when the amount is paid, the amount is taken to have been paid to the other entity when the first entity applies or deals with the amount in any way on behalf of or as directed by the other entity.

Accordingly, as no payment is made directly to an employee of Company A, the irretrievable cash contributions will only be taken to have been paid to an employee if the amount is paid to the Trustee of the Trust for or on behalf of an employee or at the direction of an employee. The employee has no interest in the contributions paid to the Trustee of the Trust by Company A, nor is it able to direct Company A to make the contributions to the Trustee of the Trust. As such the contributions do not constitute a payment of salary, wages, commission, bonuses or allowances and the contributions do not satisfy the constructive payment provision in section 11-5 of Schedule 1 to the TAA 1953.

Therefore, no amount will be required to be withheld from the irretrievable cash contributions made by Company A to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company A shares in respect of the employees of Company A under section 12-35 of Schedule 1 to the TAA 1953.

Question 5

The liability of an employer to fringe benefits tax (FBT) arises under section 66 of the Fringe Benefits Tax Assessment Act 1986 (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.

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.

However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA.

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

(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) states that the expression an 'employee share trust' has the meaning given by subsection 130-85(4).

Subsection 130-85(4) states:

An employee share trust, for an employee share scheme, 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).

Paragraphs 130-85(4)(a) and (b) of the ITAA 1997

The beneficial interest in a Share received by a Participant when an ordinary share in Company A is granted to them (an allocation of Plan Shares) under the terms of the Trust Deed is an ESS interest within the meaning of subsection 83A-10(1).

Subsection 83A-10(2) defines an employee share scheme as being 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 Deferred Share Plan is an employee share scheme within the meaning of subsection 83A-10(2) because it is a scheme under which ESS interests in Company A are provided to employees in relation to the employee's employment.

The Trust Deed was entered into so that the Trustee of the Trust could acquire ordinary shares in Company A and allocate those shares as Plan Shares to employees who would have a beneficial interest in those shares subject to meeting the vesting conditions under the Deferred Share Plan.

Paragraphs 130-85(4)(a) and (b) are therefore satisfied.

Paragraph 130-85(4)(c) of the ITAA 1997

Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) will also require the Trustee of the Trust to undertake incidental activities that are a function of managing the Deferred Share Plan.

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 sets out a number of activities which are merely incidental for the purposes of paragraph 130-85(4)(c):

• 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; and
• 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 to be merely incidental.

Under the Trust Deed, the Trustee of the Trust must administer the Trust at all times so as to satisfy the definition of employee share trust in section 995-1.

Under the Trust Deed the Trustee of the Trust can acquire Shares and hold those Shares in accordance with the Trust Deed and the Plan Rules for the benefit of each Participant. Under the Trust Deed any shares in Company A that are acquired must be allocated to an account established for a Participant. The Trustee of the Trust has no beneficial interest in any shares it acquires in Company A and it does not participate in any activities which are not considered to be merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) as discussed in ATO ID 2010/108.

Conclusion

The Trust satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997 as the sole activities of the trust are:

• acquiring shares in a company, namely Company A;
• ensuring that ESS interests (as defined in subsection 83A-10(1), being beneficial interests in the shares of Company A), are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those shares as Plan Shares to the Participants in accordance with the Trust Deed and Plan Rules; and
• other activities that are merely incidental to those activities.

As paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA excludes the contributions to the Trustee of the Trust from being a fringe benefit, Company A will not be required to pay fringe benefits tax (FBT) in respect of irretrievable contributions made to the Trustee of the Trust to fund the acquisition of ordinary shares in Company A.

Question 6

As discussed above, certain benefits are excluded from the definition of 'fringe benefit' by virtue of paragraphs (f) to (s) of the definition in subsection 136(1) of the FBTAA.

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

(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.

As detailed above in question 5:

• each Share allocated to a Participant by the Trustee under the terms of the Trust Deed is an ESS Interest within the meaning of subsection 83A-10(1).
• the Deferred Share Plan is an employee share scheme within the meaning of subsection 83A-10(2) as it is a scheme under which ordinary shares in Company A are provided to employees in relation to the employee's employment.

The provision of a share in Company A to a Participant by the Trustee of the Trust under the terms of the Trust Deed and in accordance with the Deferred Share Plan will not be subject to FBT on the basis that it is the provision of a benefit constituted by the acquisition of an ESS interest under an employee share scheme to which Subdivision 83A-B or 83A-C will apply. The benefit is thereby excluded from the definition of 'fringe benefit' by virtue of paragraph (h) of that definition in subsection 136(1) of the FBTAA.

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