Edited version of private advice

Authorisation Number: 5010067611256

Date of advice: 09 October 2020

Ruling

Subject: Employee share scheme

Question 1

Will the Company be entitled to 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 to the Trustee of the Trust to fund the subscription for or acquisition on market of Company Shares in respect of employees based in Australia?

Answer

Yes

Question 2

Will the Company be entitled to an income tax deduction, pursuant to section 8-1 of the ITAA 1997, in respect of costs incurred by the Company in relation to the operation and ongoing administration of the Trust?

Answer

Yes

Question 3

Will irretrievable cash contributions made by the Company to the Trustee of the Trust, to fund the subscription for or acquisition on-market of Shares by the Trust, be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the acquisition of the relevant ESS interests by the ultimate beneficiaries?

Answer

Yes

Question 4

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 in full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the subscription for, or acquisition on-market of Company shares by the Trustee pursuant to the Plans?

Answer

No

Question 5

Is the provision of Performance Rights and/or Shares by the Company to employees under the Plans be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 6

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

Answer

No

Question 7

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

Answer

No

The rulings for questions 1 to 4 applies for the following periods:

Income tax year ended 30 June 2020

Income tax year ended 30 June 2021

Income tax year ended 30 June 2022

Income tax year ended 30 June 2023

Income tax year ended 30 June 2024

The rulings for questions 5 to 7 apply for the following periods:

Fringe benefits tax year ended 31 March 2020

Fringe benefits tax year ended 31 March 2021

Fringe benefits tax year ended 31 March 2022

Fringe benefits tax year ended 31 March 2023

Fringe benefits tax year ended 31 March 2024

Relevant facts and circumstances

The Company develops, manufactures and markets products.

It has two Plans which are currently in use. Plan A and Plan B.

Plan A

The Plan provides all Eligible Participants with the opportunity to subscribe for Shares at a discount to the applicable market price.

A Participant can withdraw from the Plan at any time before the end of the Offering Period. All Contributions not yet used to subscribe for Shares will be refunded to the Participant if they withdraw.

An Offer Document may include terms or conditions that may be determined by the Board in respect of the rights or obligations of the Participants under the Plan including whether and how the arrangements under the Trust Deed will apply to the Shares issued or acquired pursuant to the Offer Document.

The Board may approve an Application Form for the purposes of the Plan. An Application Form must contain an authorisation for Contributions to be deducted from the Applicant's Remuneration.

Contributions must be made by the Participant.

All Contributions made by a Participant will be held by the Company on trust for that Participant.

Where the arrangements under the Trust Deed apply to Shares to be issued, purchased or allocated for the benefit of a Participant:

·         the Board will instruct the Trustee to either subscribe for or purchase the Shares for the benefit of the Participant, or allocate Shares to the Participant

·         the amount to be paid to the Trustee out of a Participant's Contributions will equal the Share Acquisition Price multiplied by the number of Shares to be issued or acquired on behalf of the Participant

·         if the contribution is less than the costs and expenses of acquiring those Shares on behalf of that Participant, the Company must pay to the Trustee the Shortfall.

Shares will be either issued by the Company to each Participant or to the Trustee for the benefit of the relevant Participant or purchased or allocated by the Trustee for the benefit of the relevant Participant under the Plan.

The Board may prescribe a minimum number of Shares which may be issued to a Participant or issued to or purchased or allocated by the Trustee for the benefit of a Participant. If a Participant's Contribution Balance on an Offering Period End Date is not sufficient to pay the aggregate Share Acquisition Price for the minimum number of Shares, no Shares will be issued to or, purchased or allocated by the Trustee for the benefit of that Participant and the entire Contribution Balance will continue to be held on trust for that Participant subject to the Plan.

Unless otherwise determined by the Board, Participants may only acquire Shares under the Plan by way of either:

(i)            the allotment and issue of new Shares by the Company to the Participants or to the Trustee for the benefit of the Participants

(ii)           the purchase or allocation by the Trustee of Shares for the benefit of the Participants

(iii)          a combination of paragraphs (i) and (ii).

The Board may by prior notice to the Participant and the Trustee, prevent dealings with some or all of the shares for such period as may be determined by the Board.

While subject to a restriction, Shares acquired and held under the Plan by or for the benefit of a Participant cannot be transferred by the Participant or by the Trustee other than to the Participant, and the Participant and the Trustee must not grant any Security Interest in or over or otherwise dispose of or deal with any such Shares acquired under the Plan or any interest in any such Shares acquired under the Plan held by or for the benefit of the Participant.

A Participant is entitled to receive any dividend or other distributions paid or made in respect of Shares acquired by or for the benefit of that Participant.

A Participant may exercise any voting rights attaching to the Shares acquired by or for the benefit of that Participant or may appoint a proxy to represent and vote for the Participant.

If a Participant ceases to be either a full-time or part-time employee of the Company or otherwise ceases to be an Eligible Participant for the purposes of the Plan, the Participant will cease to be a Participant with effect on and from the cessation. After a Participant ceases to be a Participant that Participant's entire Contribution Balance at that time must be repaid to that Participant.

The Board will manage and administer the Plan for the Company, including exercising any discretion or power conferred on the Company or the Board under the Plan and the Trust Deed.

Plan B

The Board may issue an invitation to an Eligible Employee of the Company who the Board determines is to receive a grant under the Plan, to acquire Performance Rights.

Subject to the Plan, the Board may grant, on behalf of the Company, Performance Rights to Eligible Employees. In addition, the Board may develop and amend any policies in relation to:

·         to whether Performance Rights will be granted to Eligible Employees

·         determining the number of Performance Rights to be the subject of individual grants of Performance Rights, and, the Board may determine that those grants be made on a differential basis.

Performance Rights granted by the Company under the Plan will be granted for no consideration payable by Participants, unless otherwise determined by the Board.

Unvested Performance Rights cannot be exercised. Vested Performance Rights (excluding any Cash Settlement Rights) can be exercised at any time from the date the Performance Rights become Vested Performance Rights until such Performance Rights lapse. Vested Performance Rights which are Cash Settlement Rights cannot be exercised.

A Participant may exercise any of his or her Vested Performance Rights (excluding any Cash Settlement Rights) by lodging a Notice of Exercise and a cheque payable to the Company for the Total Exercise Price (if any) applicable to those Performance Rights.

The Board may specify the Performance Periods and Performance Hurdles that will apply to Performance Rights comprised in an Award. The Board may determine and specify the number and frequency of the Test Dates applicable and the extent to which Performance Rights comprised in an Award will become Vested Performance Rights on any Test Date upon the satisfaction of the Performance Hurdles during a Performance Period.

As soon as practicable after a Test Date or Early Test Date applicable to any Performance Rights comprised in an Award, the Board shall determine whether and to what extent the Performance Hurdles have been satisfied by the Company during the Performance Period and if so, the proportion of the Performance Rights that became Vested Performance Rights on the Test Date or Early Test Date.

Performance Rights that have become Vested Performance Rights will remain Vested Performance Rights, irrespective of whether, on any subsequent Test Date, the Performance Hurdles are satisfied in relation to a Performance Period.

A Participant may continue as a Participant under the Plan where cessation of employment with the Company occurred due to Good Leaver Reasons.

The Board may determine to waive any or all of the Performance Hurdles that apply to a particular Award and may do so on such terms or conditions as they think fit.

The Company must within 28 days after receipt of a Notice of Exercise and the Total Exercise Price in respect of Performance Rights (excluding Cash Settlement Rights) allot and issue to the Participant, or to the Trustee for the benefit of the Participant, that number of Shares nominated by the Participant in the Notice of Exercise under the Plan.

The Board may appoint an entity (other than the Trustee) that is unrelated to the Company (Entity) for the sole purpose of purchasing the relevant number of Shares and, for that purpose, the Company shall pay to that Entity an amount equal to the costs and expenses of the acquisition of those Shares. The Entity appointed shall acquire the number of Shares as directed by the Board and immediately allocate those Shares to and ensure those Shares to be registered in the name of, the relevant Participant or in the name of, the Trustee for the benefit of the Participant.

In acquiring those Shares, the Entity acts as trustee for the relevant Participant, or for the Trustee for the benefit of the Participant until such time as those Shares have been acquired, allocated and registered in the name of that Participant, or in the name of the Trustee for the benefit of the Participant.

Shares issued as a consequence of the exercise of Performance Rights will, from the date of allotment, rank equally with all other issued Shares, and will be entitled in full to those dividends which have a record date for determining entitlements after the date of issue.

A Participant has no interest in any Share unless and until the related Performance Right (excluding a Cash Settlement Right) is exercised and Shares are either allotted and issued to, or purchased in the name of, that Participant or in the name of the Trustee for the benefit of the Participant, as a result of that exercise.

The Board may apply restrictions on dealing with some, or all Shares acquired by a Participant, or by the Trustee. While subject to restrictions, Shares cannot be transferred by the Participant, or by the Trustee other than to the relevant Participant. The Participant or the Trustee must not grant any Security Interest in or over or otherwise dispose of or deal with any such Shares acquired under the Plan or any interest in any such Shares acquired under the Plan held by the Participant or the Trustee.

The Board will manage and administer the Plan for the Company, including exercising any discretion or power conferred on the Company or the Board under the Plan and the Trust.

The Board will have power to determine appropriate procedures and regulations for administration of the Plan consistent with the provisions of Plan and resolve conclusively all questions of fact or interpretation and all calculations arising in connection with the Plan.

The Company will pay all expenses, costs and charges in relation to the establishment, implementation and administration of the Plan, including all costs incurred in or associated with the allotment and issue or purchase of Shares for the purposes of the Plan.

Employee Share Trust

The Trustee declares that in respect of each Participant the following will be held by the Trustee on trust for and on behalf of that Participant on the terms of the Trust Deed and subject to the relevant Rules:

·         the Trust Shares held by the Trustee on behalf of the Participant

·         prior to their distribution the proceeds of sale arising from the sale by the Trustee on rights under a Rights Issue on behalf of that Participant

·         Trust Assets related to or arising from Trust Shares held by the Trustee on behalf of that Participant.

Each participant is absolutely entitled to the Trust Shares held by the Trust on their behalf, all Trust Assets in respect of those Trust Shares and all other Accretions attached to those Trust Shares.

The Trustee will acquire, deliver and allocate Shares for the benefit of a Participant provided the Trustee receives sufficient payment to subscribe for or purchase Shares, or has sufficient Unallocated Trust Shares available.

The Trust will be managed and administered so that it satisfies the sole activities test for the purpose of subsection 130-85(4) of the ITAA 1997.

The Trustee is not entitled to receive any fees, commission or remuneration in respect of its performance of its obligations as Trustee of the Trust. The Company will pay to the Trustee or will procure the payment of any reasonable fees, commissions or remuneration and reimburse any Trust Expenses incurred by the Trustee. The Trustee is entitled to retain any such remuneration or reimbursement.

Where the terms of the relevant Rules and relevant Terms of Participation for a Participant include that Shares may be held by a trustee for a Participant, the Board may instruct the Trustee to subscribe for, purchase or allocate Shares to be held by the Trustee as Trust Shares in respect of that Participant.

The Board must in a notice:

·         offer to the Trustee to have the Company or its related body corporate or the relevant Participant provide funds for the purpose of acquiring Trust Shares

·         request the Trustee to apply some of the capital of the Trust for the purpose of acquiring Trust Shares.

Once the Trustee has received sufficient payment or has sufficient capital, the Trustee agrees at the election of the Board to:

·         be issued the required number of Trust Shares

·         purchase the requisite number of Trust Shares on market or off market on behalf of the Participant

·         subscribe for the required number of Trust Shares on behalf of the relevant Participant

·         allocate Shares that are Trust Assets to be held on behalf of the relevant Participant

·         effect a combination of the above.

The subscription price for each of the Trust Shares must be market value of the Shares as determined by the Board on the date on which the Trust Shares are issued to the Trustee.

The Trust Deed provides the following regarding funding:

·         The Company must provide the Trustee, or cause the provision to the Trustee of, any funds required by the Trustee in order to comply with its obligations.

·         All funds received by the Trustee from the Company will constitute Accretions to the corpus of the Trust and, will not be repaid to the Company and no Participant will be entitled to receive such funds.

·         Funds received by the Trustee from the Company may be paid to the Company where the Trustee subscribes for Shares in accordance with this Deed, the relevant Scheme Rules or relevant Terms of Participation.

·         Where an amount paid by the Company to the Trustee in respect of the acquisition of Shares for the benefit of a Participant is in excess of the amount required by the Trustee to acquire, deliver or allocate those Shares, the Board may require the Trustee to

-               apply such amount to acquire, deliver or allocate Shares in accordance with this Deed, the relevant Scheme Rules or the relevant Terms of Participation or

-               deposit the funds into any account opened and operated by the Trustee.

On direction of the Board, the Trustee must allocate to any Participant named by the Board the number of Trust Shares specified by the Board on the date specified by the Board. Plan Shares acquired in accordance with the Trust Deed must be held by the Trustee and stand to the account of the Participant who will be the beneficial owner of the Shares.

A Participant will have an absolutely vested and indefeasible entitlement to receive from the Trustee all dividends actually paid by the Company on all Trust Shares held by the Trustee in respect of the Participant. The Trustee may make any arrangement it consider appropriate to enable participation of any Trust Shares in any dividend reinvestment plan of the Company.

Subject to the relevant Rules, the Trustee will send notice to a Participant of any Rights Issue in respect of Trust Shares held by the Trustee.

The Board my direct the Trustee to hold or reallocate any Forfeited Shares for the benefit of one or more Participants or for the benefit of any other Employee Share Scheme.

The Trustee in respect of an Unallocated Trust Share:

·         must not exercise any voting rights in relation to that Share

·         may apply any capital receipts, dividends or other distributions received in respect of any Unallocated Trust Shares to purchase further Shares to be held on trust

·         must not participate in any Rights Issues in respect of Unallocated Trust Shares

·         must hold any bonus shares issued in respect of Unallocated Trust Shares

·         must keep an account of all Unallocated Trust Shares acquired by the Trustee.

The Company may direct the Trustee to allocate Unallocated Trust Shares to a Participant Following the allocation to a Participant, the Company may direct the Trustee to continue to hold those Trust Shares on behalf of the Participant and on the terms of the Trust Deed.

Subject to the relevant Rules and the relevant Terms of Participation, a Participant is presently entitled to so much of the Net Income of the Trust for a year of Income which is attributable to the following on behalf of the Participant:

·         the Trust Share held by the Trustee

·         the proceeds of sales arising from the sale by the Trustee of rights under a Rights issue

·         transactions or events related to the Trust Share.

The balance of the Net Income of the Trust to which no Participant is entitled may be accumulated by the Trustee as an addition to the Trust Assets.

Before the end of each Year of Income, the Trustee may decide whether any amount received or held is to be treated as being on income or capital account and any actual or deemed capital gains arising in that year of income under the ITAA 1936 or ITAA 1997 is to be included as income of the Trust.

If the Trust is terminated and there are Trust Assets remaining in the Trust following the distribution to Participants of any Trust Shares and any Net Income attributable to those Participants, those Trust Assets remaining must be transferred or gifted by the Trustee at the direction of the Board to one or more Discretionary Beneficiaries.

The Trustee must not pay any balance of the Trust to the Company.

The Trustee may cease to be the trustee of the Trust under the terms of the Trust Deed.

When a party ceases to be the Trustee of the Trust, the Company will appoint a new trustee. The retiring trustee must exercise all share transfers and sign all documents to transfer the Trust Assets into the name of the new trustee and will be liable for all its acts in its capacity as trustee. The new trustee must execute all share transfers and sign all other documents necessary to transfer the Trust Assets into the name of the new trustee and will be liable for all of its acts in its capacity as the trustee.

Reasons for decision

All legislative references in this Ruling are to provisions of the ITAA 1936, or to provisions of the ITAA 1997, unless otherwise indicated.

Question 1

Summary

The Company is entitled to deduct an amount under section 8-1 for the irretrievable cash contributions made to the Trustee of the Trust to fund the subscription for, or acquisition on-market of, Company shares to satisfy ESS interests issued pursuant to the Plans.

Detailed reasoning

Subsection 8-1(1) allows you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature.

The Company carries on a business of development, manufacture and marketing of products which produces assessable income. The Company operates an ESS as part of its remuneration strategy.

Under the Plans, the Company grants Performance Rights and Shares to employees or an employee's legal personal representatives and makes irretrievable cash contributions to the Trust which the Trustee will use to acquire Shares (either on-market or by subscription) for allocation to Participants.

Incurred in carrying on a business

The Company must provide the Trustee with all the funds required to enable the Trustee to subscribe for or acquire those Shares.

The contributions made by the Company are irretrievable and non-refundable in accordance with the Trust Deed.

Not capital or of a capital nature

The costs will be an outgoing incurred for periodic funding of a bona fide ESS for employees of the Company. Costs incurred are likely to be in relation to more than one grant of Performance Rights or Shares (rather than being one-off), and the Company intends to continue satisfying outstanding Performance Rights and entitlements to Shares using Shares acquired by the Trust. This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure.

While the contributions may secure an enduring or lasting benefit for the employer that is independent of the year to year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature.

Question 2

Summary

The Company will obtain an income tax deduction pursuant to section 8-1 in respect of the costs incurred in relation to the on-going administration of the Trust.

Detailed reasoning

Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction.

The Company carries on a business of development, manufacture and marketing of products which produces assessable income. The Company operates an ESS as part of its remuneration strategy.

These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income.

Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company. (ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible).

Question 3

Summary

Irretrievable cash contributions made by the Company to the Trustee to fund subscription for, or acquisition on-market of Shares by the Trust will be deductible under section 8-1 at a time determined by section 83A-210 if the contributions are made before the acquisition of the relevant ESS interests.

Detailed reasoning

Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contribution provided to the Trust to purchase Shares in excess of the number required in the year of income, under an ESS. Further information is available in ATO Interpretative Decision ATO ID 2010/103 Income Tax- Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust.

The Plans are ESS for the purposes of subsection 83A-10(2) as they are schemes under which ESS interests (i.e. a beneficial interest in a share or a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees in relation to their employment.

The Plans contain a number of interrelated components which includes the provision of irretrievable cash contributions by the Company to the Trustee of the Trust. These irretrievable cash contributions enable the Trustee to acquire Shares in the Company for allocation to Participants, who have a beneficial interest in a Share or a beneficial interest in a Performance Right to acquire a beneficial interest in a Share.

The provision of irretrievable cash contributions by the Company to the Trustee of the Trust is for the purpose of enabling the Participants (each an 'ultimate beneficiary', as defined in paragraph 83A-210(a)), to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiaries' employment.

The deduction for the irretrievable cash contribution can only be deducted from the assessable income in the income year when the relevant beneficial interest in a share, or beneficial interest in a Performance Right to a beneficial interest in a Share, is acquired by a Participant under the Plans.

Question 4

Summary

The Commissioner will not make a determination that Part IVA applies to deny, in part or full, any deduction claimed by the Company in respect of the irretrievable cash contributions made to the Trustee to fund the subscription for, or acquisition on-market of shares by the Trustee

Detailed reasoning

Part IVA is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained (or would, but for section 177F) by a taxpayer in connection with a scheme to which Part IVA applies.

The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A are met.

In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement.

Therefore, having regard to the eight factors set out in subsection 177D(2), the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Company to obtain a tax benefit.

Question 5

Summary

The provision of Performance Rights and / or Shares, by the Company to employees under the Plans, will not constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA.

Detailed reasoning

An employer's liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA, which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax.

In general terms, a '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 particular, paragraph (h) of subsection 136(1) of the FBTAA excludes the following from being a 'fringe benefit':

(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;

The Commissioner accepts that the Plans are ESS, the Performance Rights and Shares provided under the Plans are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests.

Accordingly, the provision of ESS interests for shares under the Plans will not be subject to FBT on the basis that they are acquired by Participants under an ESS (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.

In addition, when a Performance Right is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the Performance 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).

Question 6

Summary

The irretrievable cash contribution made by the Company to the Trustee in order to subscribe for, or acquire on-market Shares, will not be a fringe benefit within the meaning of that term in subsection 136(1) of the FBTAA.

Detailed reasoning

One benefit excluded from being a 'fringe benefit', pursuant to paragraph (ha) of subsection 136(1) of the FBTAA, is a benefit constituted by the acquisition of money or property by an EST within the meaning of the Income Tax Assessment Act 1997.

In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that is relevant. To qualify as an EST, a trustee's activities must be limited to those described in paragraphs 130-85(4)(a), (b) and (c).

Paragraph 130-85(4)(a) and (b) are satisfied because:

·         the Trust acquires shares in a company, and

·         the Trust ensures that ESS interests as defined in subsection 83A-10(1) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those shares to the employees in accordance with the Trust and the Plans.

Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'.

The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'?

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.

Question 7

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 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 shares.

Detailed reasoning

Section 67 of the FBTAA is a general anti-avoidance provision in the FBTAA. Subsection 67(1) of the FBTAA 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, to obtain a tax benefit.

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 benefits provided to the Trustee by the way of irretrievable contributions to the Trust and to Participants as Performance Rights and Shares under the Plans are excluded from the definition of a fringe benefit. As these benefits have been excluded from the definition of a fringe benefit, the FBT liability is not any less than it would have been but for the arrangement.

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 shares.

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