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Ruling

Subject: Employee Share Trust

Question 1

Will the irretrievable cash contributions made by the Company to the Trustee of the Trust be assessable income of the Trust under section 6-5 or 6-10 of the ITAA 1997?

Answer

No.

Question 2

Will the capital gain or capital loss that arises for the Trustee of the Trust at the time employees become absolutely entitled to the Company's shares upon exercise of options and performance rights under the Option Plan and the Employee Incentive Plan (EIP) be disregarded under section 130-90 of the ITAA 1997 if the employee acquires the shares for the same cost base or less than the cost base of the shares in the hands of Trustee?

Answer

Yes.

Question 3

Will a capital gain or capital loss that arises for the Trustee of the Trust at the time the employees become absolutely entitled to the Company's shares under the exempt share awards of the EIP be disregarded under section 130-90 of the ITAA 1997 if the employee acquires the shares for the same cost base or less than the cost base of the shares in the hands of Trustee?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commences on:

During 2011

Relevant facts and circumstances

The scheme the subject of this Ruling has been ascertained from the following documents:

· Application for Private Ruling

· The Trust Deed of the Trust

· The EIP Rules

· The Option Plan Rules

· Annual report of the Company

· Example Offer of Performance Rights

· Example Offer of Exempt Share Awards

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 83A-10

Income Tax Assessment Act 1997 Section 83A-20

Income Tax Assessment Act 1997 Section 104-75

Income Tax Assessment Act 1997 Section 109-10

Income Tax Assessment Act 1997 Section 130-85

Income Tax Assessment Act 1997 Section 130-90

Reasons for decision

Question 1

The basic trust income assessing provisions are contained in Division 6 in Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 95(1) of the ITAA 1936 defines net income of a trust as the total assessable income of the trust calculated as if the trustee were the resident taxpayer in respect of that income, less all allowable deductions.

Subsection 6-5(1) of the ITAA 1997 states: 'Your assessable income includes income according to ordinary concepts, which is also called ordinary income.'

Subsection 6-10(1) of the ITAA 1997 states: 'Your assessable income also includes some amounts that are not ordinary income.'

Subsection 6-10)2) of the ITAA 1997 states: 'Amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income.'

'Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5.'

An employee share trust is defined in subsection 130-85(4) of the ITAA 1997 as follows:

Meaning of employee share trust

130-85(4) 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).

An 'employee share scheme' is defined in subsection 83A-10(1) 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.

A trust will satisfy the sole activities test for the purposes of subsection 130-85(4) of the ITAA 1997, and be an 'employee share trust' as defined, where the activities of the trustee of the trust are limited to managing an employee share plan and the general administration of the trust.

The Trust Deed was executed.

The irretrievable cash contributions made by the Company to the Trust are not particular kinds of assessable income contained in the list of provisions in section 10-5.

Accordingly, the irretrievable cash contributions made by the Company to the Trust are used in accordance with the Trust Deed and Plan rules for the sole purpose of and under the employee share scheme. The contributions constitute capital receipts to the Trust, and are not assessable under section 6-5 of the ITAA 1997 (ordinary income) or section 6-10 of the ITAA 1997 (statutory income) (ATO ID 2002/965).

Question 2

Where a participant becomes absolutely entitled to the shares as against the Trustee, CGT event E5 will occur and therefore under section 104-75 of the ITAA 1997, the Trustee will make a capital gain or loss. However, section 130-90 of the ITAA 1997 operates to disregard that gain or loss where the specified conditions are satisfied.

130-90(1)

Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary 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 beneficiary had acquired a beneficial interest in the share by exercising a right; and

(d) the beneficiary'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 beneficiary 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.

All the conditions in subsection 130-90(1) of the ITAA 1997 have been satisfied.

Provided (as stipulated in the Question) that the beneficiary does not acquire the beneficial interest in the share for more than its cost base in the hands of the employee share trust 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.

Question 3

Where a participant becomes absolutely entitled to the shares as against the Trustee, CGT event E5 will occur and therefore under section 104-75 of the ITAA 1997, the Trustee will make a capital gain or loss. However, section 130-90 of the ITAA 1997 operates to disregard that gain or loss where specified conditions are satisfied.

130-90(1A)

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

(a) immediately before the event happens, an *ESS interest is a *CGT asset of the trust; and

(b) either of the following subparagraphs applies:

(i) the event is CGT event E5, and the event happens because a beneficiary of the trust becomes absolutely entitled to the ESS interest as against the trustee;

(ii) the event is CGT event E7, and the event happens because the trustee* disposes of the ESS interest to a beneficiary of the trust; and

(c) Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest.

130-90(2)

Subsection (1) or (1A) does not apply if the beneficiary 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.

All the conditions in subsection 130-90(1A) of the ITAA 1997 have been satisfied.

Provided (as stipulated in the Question) that the beneficiary does not acquire the beneficial interest in the share for more than its cost base in the hands of the employee share trust 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.