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Authorisation Number: 1011779647507

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Advice

Subject: Employee Share Scheme

Question 1

Will the irretrievable cash contributions to the Trustee of the Employee Share Trust (Trust) be assessable income of the Trust under Division 6 of Part 1-3 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer: No.

Question 2

Will section 130-90 of the ITAA 1997 apply to disregard any capital gain or a capital loss which might otherwise arise for the Trustee of the Trust at the time when eligible employees become absolutely entitled to the Company shares under section 104-75 of the ITAA 1997?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme proposed to commenced on

During the year ended 30 June 2011

Relevant facts

The Company is an ASX listed company with diverse businesses.

The Company has established an employee share plan to allow employees to share in the ownership of the company and to promote the long term success of the company as a goal share by all employees.

The Company's Equity Plans presently consist of an Option Plan, however the Company is considering introducing a Rights Plan in the near future:

· Option Plan - eligible employees identified by the Board may be granted Options, pursuant to the Rules, which can be used to subscribe for, acquire or be allocated shares once the exercise date has been reached.

· Rights Plan (Intends on being introduced in the near future) - under which eligible employees identified by the Board may be granted performance rights, which will vest subject to meeting pre-determined conditions set by the Board.

Option Plan

The Company has an Option Plan which was introduced for the benefit of selected full-time or part-time employees (Participant) of the Company group.

Under this Plan, the Board may determine which employees are entitled to participate in the Option Plan and may offer such number of Options in accordance with these Rules as it sees fit. The Board will take into consideration the Employee's grade level and, where applicable, market data regarding the quantum of long term incentive plans.

Each Option entitles the Participant on exercise of the Option to subscribe for and be allotted one Share at the Exercise Price.

An Option not exercised during the Exercise Period will lapse on the date that is the earlier of:

· The Last Exercise Date;

· A date determined by the Board;

· When a Participant ceases employment subject to rules in the Plan Rules; and

· At any other time as specified in the Offer or acceptance of the Offer of Options.

Rights Plan

Company A is considering establishing a Rights Plan in the near future to assist in the attraction, retention and motivation of Company employees. The purpose of the Rights plan will be as follows:

· to provide Participants with an incentive plan which recognises ongoing contribution to the achievement by the Company of long term strategic goals;

· to align the interests of Participants and Security Holders through the sharing of a personal interest in the future growth and development of the Company as represented in the price of the Company securities; and

· to provide a means of attracting and retaining skilled and experienced employees.

Subject to the determination by the Board as to the satisfaction of Performance Conditions, Performance Rights will automatically be converted into Company Shares on a one-for-one basis (at no cost to the Eligible Employee) and registered in the Eligible Employee's name on the Vesting Date. The Company will instruct the Trustee to notify that Participant that the Trustee holds Securities on that Participant's behalf.

The Performance Rights issued under the Performance Rights plan will have a nil exercise price.

Operation of the Trust

The Trust is a sole purpose trust to subscribe for, acquire, allocate, hold and deliver shares under the Company Option or Rights Plan for the benefit of Company employees.

In respect of any shares to be provided under the Company Option or Rights Plan, the Company may direct the Trustee to purchase shares to be held on behalf of the participant, or subscribe for shares and the Company must issue shares to be held on behalf of the participant. The Trustee will allocate shares under an Option or Rights Plan on behalf of the relevant participant or participants.

The Trust Deed provides that the subscription price for each of the must be the market value of the Shares on the date on which the Shares are issued to the Trustee.

Shares acquired by the Trustee will be transferred to the relevant participant, where required to do so, or permitted, by the relevant Plan Rules and/or relevant Terms of Participation as soon as reasonably practicable.

The Trustee can sell shares on behalf of a participant where permitted under the relevant Plan Rules and/or relevant Terms of Participation at the direction of the participant.

By way of example, the Trust is intended to facilitate the provision of equity based incentives via the following steps:

1. The Company grants a Performance Right or Option to Eligible Employees.

2. The Company will, following validation that the vesting criteria have been satisfied and the relevant Options/Rights have been exercised (see step 4 below):

· Contribute the required funds to the Trust to enable the Trust to either purchase Shares on-market, or subscribe for Shares, at market value in the Company; and

· Send a written notice to the Trustee giving directions as to how shares are to be acquired (i.e. on-market or new subscription).

3. The Trustee will then use the cash and act upon the written instructions to acquire the Shares. Where the Trustee subscribes for new Shares, the Company will receive cash consideration equal to the market value of the Shares. Where the Trustee acquires Shares on-market, the Trustee will disperse the funds for the Shares acquired to the vendor shareholder, such that the Company will not receive any cash.

4. On exercise of an Option or vesting date of the Performance Right, the Eligible Employees contribute the exercise price, if any, to the Company

5. The shares acquired will be allocated to the Participant concerned. The Shares can continue to be held in the name of the Trustee albeit that the Participant will have a beneficial interest in the Shares with rights to vote and receive dividends, etc. At the same time, restrictions can be imposed on sale of the shares through the requirements of the participant to provide the Company with a withdrawal notice.

The receipt of the subscription price will be accounted for as an addition to the share capital of the Company in its books and records.

In summary, commercial benefits of using the Trust include:

· Greater flexibility for the Company to accommodate the long term incentive arrangements both now and into the future as the group continues to expand operations and therefore employee numbers.

· Capital management flexibility for the Company, in that the Trust can use the contributions made by the Company either to acquire shares in the Company on market, or alternatively to subscribe for new shares in the Company.

· Providing an arm's-length vehicle through which shares in the Company can be acquired and held in the company on behalf of the relevant employee. This assists the Company to satisfy corporate law requirements relating to a company dealing in their own shares.

Contributions made to the Trust by the Company

The amount of the cash contributions made by the Company to the Trust is equal to the fair market value of Shares to be acquired by the Trust. In addition, where the employees are required to pay an exercise price for the Shares in accordance with the Option Plan Rules, the employees will contribute the amount that is required to be paid to the Company.

It is noted that Company A proposes to use the Trust to allocate shares under all employee share schemes that it operates at the present time or may offer in the future.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Subsection 6-5(1).

Income Tax Assessment Act 1997 Section 6-10.

Income Tax Assessment Act 1997 Division 83-A.

Income Tax Assessment Act 1997 Subdivision 83A-B.

Income Tax Assessment Act 1997 Division 83A.

Income Tax Assessment Act 1997 Subsection 83A-10(2)

Income Tax Assessment Act 1997 Section 104-75.

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

Income Tax Assessment Act 1997 Paragraphs 130-85(4)(a)

Income Tax Assessment Act 1997 Paragraphs 130-85(4)(b)

Income Tax Assessment Act 1997 Section 130-90.

Income Tax Assessment Act 1997 Paragraph 130-90(1)(a)

Income Tax Assessment Act 1997 Paragraph 130-90(1)(b)

Income Tax Assessment Act 1997 Paragraph 130-90(1)(c)

Income Tax Assessment Act 1997 Paragraph 130-90(1)(d)

Income Tax Assessment Act 1997 Subsection 130-90(2).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax (Transitional Provisions) Act 1997 Subsection 83A-5(1).

Income Tax (Transitional Provisions) Act 1997 Subsection 83A-5(2).

Reasons for decision

Question 1

Summary

The irretrievable cash contributions to the Trustee of the Trust will not be assessable income of Trust under Division 6 of Part 1-3 of the ITAA 1997.

Detailed reasoning

The net income of a trust estate is defined by section 95 of the ITAA 1936 and means the total assessable income of the trust estate calculated as if the trustee was a taxpayer in respect of that income and was a resident, less all allowable deductions.

Subsection 6-5(1) of the ITAA 1997 provides that assessable income includes income according to ordinary concepts.

The Trustee will not acquire beneficial ownership of the irretrievable cash contributions of funds as the funds can only be used for a specific purpose, namely the acquisition of shares for Participants in the Equity Plans. Consequently, in receiving these amounts, the Trustee will not have derived anything in the nature of income or profit and therefore the funds will not constitute assessable income in the hands of the Trustee under either section 6-5 or section 6-10 of the ITAA 1997. The contributions will not constitute assessable income of the Trustee under Division 6 of Part 1-3 of the ITAA 1997.

Question 2

Summary

Section 130-90 of the ITAA 1997 will apply to disregard any capital gain or a capital loss which might otherwise arise for the Trustee of the Trust at the time when eligible employees become absolutely entitled to the Company shares under section 104-75 of the ITAA 1997.

Detailed reasoning

Application of Division 83A of the ITAA 1997

Division 83A of the ITAA 1997 applies to employee share scheme (ESS) interests issued on or after 1 July 2009 and also, in certain circumstances, to ESS interests that were provided under an ESS established prior to 1 July 2009.

Division 83-A of the ITAA 1997 will apply to Rights issued on or after 1 July 2009 as they will have been acquired on or after 1 July 2009 thereby satisfying subsection 83A-5(1) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997).

Division 83A of the ITAA 1997 will apply to Rights issued before 1 July 2009, that satisfy subsection 83A-5(2) of the IT(TP)A 1997.

Under section 104-75 of the ITAA 1997 a capital gain or capital loss may arise for a trustee of an employee share trust when the latter allocates shares to an employee, unless an exception applies, namely Subdivision 130-D of the ITAA 1997.

Subdivision 130-D of the ITAA 1997

Section 130-90 of the ITAA 1997 (Shares held by employee share trusts) states:

130-90(1)

Disregard any *capital gain or *capital loss made by an *employee share trust, or a Participant of the trust, to the extent that it results from a *CGT event, if:

(a) the CGT event is CGT event E5 or E7; and

(b) the CGT event happens in relation to a *share; and

(c) the Participant had acquired a beneficial interest in the share by exercising a right; and

(d) the Participant's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied.

130-90(2)

Subsection (1) does not apply if the Participant acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens.

Employee Share Trust (EST)

The term 'employee share trust' referred to in subsection 130-90(1) of the ITAA 1997 is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by subsection 130-85(4) of the ITAA 1997.

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

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

(b) ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS 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 term 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997 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.

In this case the Plan is a scheme that includes the Trust obtaining shares, being fully paid ordinary shares in the capital of the Company and providing them to Participants being Australian residents for taxation purposes in respect of their employment.

Therefore the Plan is an ESS and the Performance Rights are ESS interests.

The beneficial interest in the Performance Shares is itself provided under the ESS because they are provided under the same scheme.

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

· the EST acquires shares in the company,

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

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

The Trust will satisfy the sole activities test where the activities of the trustee of the Trust are limited to managing an employee share plan and the general administration of the trust.

For the purposes of paragraph 130-85(4)(c) of the ITAA 1997, merely incidental activities of managing an ESS and administering a trust include:

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

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

· the receipt of dividends in respect of unallocated shares and using those dividends to acquire additional shares for the purposes of the ESS;

· dealing with shares forfeited under an ESS including the sale of forfeited shares and using the proceeds of sale for the purposes of the ESS;

· the transfer of shares to employee beneficiaries or the sale of shares on behalf of an employee Participant 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 Participant on the winding up of the trust where there are no employee beneficiaries; and

· receiving and immediately distributing shares under a demerger.

Activities that will not satisfy the sole activities test include:

· any activities that are not a necessary function of managing an ESS or administering a trust; and

· any activities which result in employees being provided with additional benefits (such as the provision of financial assistance, including a loan to acquire the shares).

The provisions of the Trust Deed effectively read down the general powers given to the Trustee so as to ensure that the Trustee can only use the contributions received exclusively for the acquisition of shares for persons who fall within the meaning of 'Participant' in accordance with the Plan. To this end, all other duties/general powers listed in the Trust Deed are considered to be merely incidental to the functions of the Trustee in relation to its dealing with the shares to be acquired for the Participants.

Additionally, the draft Trust Deed provides that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" for the purposes of subsection 130-85(4) of the ITAA 1997.

Therefore, the Trust is an employee share trust, as defined in subsection 995-1(1) of the ITAA 1997, as the activities of the Trust in acquiring and allocating ESS interests meet the requirements of paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 and its other activities (general powers) are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997.

Paragraph 130-90(1)(a) of the ITAA 1997

When a Participant becomes absolutely entitled to a share as against the trustee, CGT Event E5 will occur and under section 104-75 of the ITAA 1997, the trustee will make a capital gain or a capital loss.

On the allocation of a Share to a Participant the relevant Participant becomes absolutely entitled to the share and therefore CGT event E5 will occur. Shares are ordinary shares in the capital of the Company.

Paragraph 130-90(1)(b) of the ITAA 1997

In this case a relevant Participant acquires the beneficial interest in the shares of Company A by exercising a Performance Right and being allocated a share.

Subsection 995-1(1) of the ITAA 1997 defines a share in a company to mean a share in the capital of the company. A share held by the Trustee and to which a Trust Participant is entitled upon exercise of a Right and/or Future Right is a share in the capital of the Company. Accordingly, paragraph 130-90(1)(b) is satisfied as CGT event E5 happens in relation to a share for the purposes of that paragraph.

Paragraph 130-90(1)(c) of the ITAA 1997

Paragraph 130-90(1)(c) of the ITAA 1997 is satisfied as a Trust Participant will have acquired a beneficial interest in a share in the Company by exercising a Performance Right granted under the Plan.

Paragraph 130-90(1)(d) of the ITAA 1997

Subsection 83A-20(1) of the ITAA 1997 provides that Subdivision 83A-B of the ITAA 1997 applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. It has been concluded above that the Plan is an ESS and the Performance Rights are ESS interests. The Performance Rights are acquired by Participants at no cost.

Prima facie Subdivision 83A-B of the ITAA 1997 will apply to Performance Rights acquired under the ESS as pursuant to subsection 83A-20(1) of the ITAA 1997 the ESS interest (i.e. Performance Rights issued under the Plan) will be acquired under an ESS at a discount.

It should be noted however that whether a Participant is ultimately taxed upfront on some or all of any discount received (under Subdivision 83A-B of the ITAA 1997) or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C of the ITAA 1997), will depend on which of the additional requirements in Subdivision 83A-B of the ITAA 1997 or Subdivision 83A-C of the ITAA 1997 have been satisfied. Under either circumstance paragraph 130-90(1)(d) of the ITAA 1997 will be satisfied.

Conclusion

The conditions of section 130-90 of the ITAA 1997 are satisfied by the Plan: the Trust has been established as an EST within the meaning of subsection 130-85(4); the shares acquired meet the conditions of subsections 130-90(1) and 130-90(2). Accordingly, when a Participant becomes absolutely entitled to a share any Trustee capital gain or capital loss arising under section 104-75, will be disregarded pursuant to section 130-90 of the ITAA 1997.

Provided that the Participant does not acquire the beneficial interest in the share for more than its cost base in the hands of the EST at the time that CGT event E5 happens, subsection 130-90(2) of the ITAA 1997 will also have been satisfied.

Under these circumstances, section 130-90 of the ITAA 1997 operates to disregard any capital gain or loss made by the Trustee on any share when a Participant becomes absolutely entitled to that share under section 104-75 of the ITAA 1997.