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Authorisation Number: 1012070948953

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Subject: Employee share plan

Question 1

Is the provision of Options by the Company to Participants under the ESOP a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessments Act 1986 (FBTAA)?

Advice/Answers

No

Question 2

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

Advice/Answers

No

Question 3

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

Advice/Answers

No

This ruling applies for the following period

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

Year ending 31 March 2016

The scheme commenced on

Year ending 31 March 2012

Relevant facts

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

· Application for Private Ruling

· The ESOP Rules

· The Trust Deed of the EST

· Annual Report of the Company

Relevant legislative provisions

Section 67 of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Question 1

Summary

The provision of options by the Company to its employees under the ESOP are not fringe benefits within the meaning of subsection 136(1) of the FBTAA.

Detailed reasoning

A fringe benefit is defined in subsection 136(1) of the FBTAA as follows:

"fringe benefit", in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, of the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:…

Paragraphs (f) to (r) of the definition of fringe benefit contain a number of exclusions from this definition. Paragraph (h) of the definition of a fringe benefit contained in subsection 136(1) of the FBTAA specifically excludes from the definition of a fringe benefit:

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 terms 'ESS interest' and 'employee share scheme' are defined in section 83A-10 of the ITAA 1997.

A Participant's beneficial interest in an option will constitute an ESS interest as it constitutes a right to acquire a beneficial interest in an Employer Share to be held on their behalf by the Trustee.

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) of:

a) the company; or

b) *subsidiaries ….

in relation to the employees' employment.

For the purposes of subsection 83A-10(2) of the ITAA 1997, subsection 995-1(1) of the ITAA 1997 defines the term 'scheme' as follows:

(a)  any ^*arrangement; or

(b)  any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

The ESOP is an employee share scheme as it constitutes an arrangement that is operated in accordance with the ESOP Rules and incorporates the use of the EST operated in accordance with the Trust Deed.

Under the ESOP, an ESS interest (being a beneficial interest in an option) is provided to Participants - being employees of the Company in relation to their employment.

The ESS interests will be acquired at a discount as the Participants will acquire the options for no consideration.

An ESS interest in a company is a beneficial interest in a share in the company, or a right to acquire a beneficial interest in a share in the company (subsection 83A-10(1) of the ITAA 1997). An employee share scheme is a scheme under which ESS interests in the company are provided to employees (or associates of the employees) of the company or subsidiaries of the company, in relation to the employee's employment.

The Commissioner accepts that the ESOP described in the private ruling application is an employee share scheme under which relevant ESS interests (being options) are acquired by employees of the Employer (or 'associates of those employees'), and the acquisition of those ESS interests are in relation to those employees' employment. The shares acquired by the Trustee under the ESOP to satisfy options to acquire shares are also provided to employees under that same employee share scheme.

Therefore, the granting of options under the ESOP to Participants will not be subject to FBT because they are specifically excluded from the definition of fringe benefits.

Question 2

Summary

The EST 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 are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997. As such, paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA 1986 excludes the contributions to the Trustee of the EST from being a fringe benefit.

Accordingly, the Employer will not be required to pay FBT in respect of the irretrievable cash contributions it makes to the Trustee of the EST to fund the acquisition of the Company shares.

Detailed reasoning

Subsection 136(1) of the FBTAA 1986 defines a 'fringe benefit', in relation to an employee, as a benefit in respect of the employment of the employee, and paragraph (ha) of that definition excludes:

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);

An 'employee share trust' 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:

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).

The right to acquire a beneficial interest in an Employer Share is an ESS interest within the meaning of subsection 83A-10(1) of the ITAA 1997.

An 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.

The ESOP is an employee share scheme within the meaning of subsection 83A-10(2) of the ITAA 1997 because it is a scheme under which either rights to acquire beneficial interests in shares in the Company are provided to employees in relation to the employee's employment or beneficial interests in shares in the Company are provided to employees in relation to the employee's employment.

Under the ESOP, the Company has also established the EST to acquire shares in the Company and to allocate those shares to employees. Therefore, paragraphs 130-85(4)(a) and (b) of the ITAA 1997 are satisfied because:

· the EST acquires shares in the Company; and

· the EST ensures that the ESS interests, being beneficial interests in those shares, are provided under an employee share scheme, to the employees in accordance with the Trust Deed and relevant Rules of the ESOP.

Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) of the ITAA 1997 will require that the Trustee undertake incidental activities that are a function of managing the ESOP and administering the EST. The trust deed does not provide for any additional benefits to be made available to employees (such as the provision of financial assistance to acquire the shares). The incidental activities are covered by paragraph 130-85(4)(c) of ITAA 1997.

The EST 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 are merely incidental to those activities in accordance with paragraph 130-85(4)(c) of the ITAA 1997. As such, paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA 1986 excludes the contributions to the Trustee of the EST from being a fringe benefit.

Accordingly, the Employer will not be required to pay FBT in respect of the irretrievable cash contributions it makes to the Trustee of the EST to fund the acquisition of the Company shares in accordance with the Trust Deed.

Question 3

The benefits provided to the Trustee by way of irretrievable contributions to the EST, and to Participants by way of the provision of options and shares under the ESOP are excluded from the definition of a fringe benefit as explained in questions 1 and 2. Therefore, as these benefits have been excluded from the definition of a fringe benefit and as there is also no FBT currently payable under the ESOP, the FBT liability is not any less than it would have been but for the arrangement.

Accordingly, the Commissioner will not make a determination that section 67 of the FBTAA applies to include an amount in the aggregate fringe benefits amount of the Company in relation to a tax benefit obtained under the ESOP from irretrievable cash contributions made by the Company to the Trustee of the EST to fund the acquisition of the Company's shares under this scheme.