Edited version of your written advice

Authorisation Number: 1013057549433

Date of advice: 22 July 2016

Ruling

Subject: Employee Share Scheme

Question 1

Will the Company obtain 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 or any of the subsidiary members of the Company's tax consolidated group to the Trustee of the Company's Employee Share Trust (the EST) to fund the subscription for the Company shares (Shares) or acquisition of Shares on-market by the EST?

Answer

Yes.

Question 2

Will the Company obtain income tax deductions, pursuant to sections 8-1 or 25-5 of the ITAA 1997, in respect of costs incurred in relation to the on-going administration of the EST?

Answer

Yes.

Question 3

Will the irretrievable cash contribution made by the Company (or any subsidiary member of the Company tax consolidated group) to the Trustee of the EST to fund the subscription for Shares or acquisition of Shares on-market by the EST 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?

Answer

Yes.

Question 4

If the EST satisfies the relevant the Company Plans obligations by subscribing for new Shares, will the subscription proceeds be included in the assessable income of the Company under section 6-5 or 20-20 of the ITAA 1997 or trigger a capital gains tax (CGT) event under Division 104 of the ITAA 1997?

Answer

No.

Question 5

Will the Commissioner make a determination that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) introduced for schemes that commenced on or after 16 November 2012 applies to any aspect of the arrangement(s) described in the 'relevant facts and circumstances' section below to deny, in part or in full, any deduction claimed by the Company in respect of the irretrievable cash contributions made by the Company or any of the subsidiary members of the Company tax consolidated group to the Trustee of the EST to fund the subscription for Shares or acquisition of Shares on-market by the EST?

Answer

No.

Question 6

Is the provision of rights and or Shares to employees of the Company or any other subsidiary member of the Company tax consolidated group under the Company Plans a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 7

Will the irretrievable cash contributions made by the Company or any of the subsidiary members of the Company tax consolidated group to the Trustee of the EST to fund the subscription for Shares or acquisition of Shares on-market be a fringe benefit within the meaning of subsection 136(1) of the FBTAA?

Answer

No.

Question 8

Will the Commissioner seek to apply section 67 of the FBTAA to the Company Plans or EST arrangement(s)?

Answer

No.

This ruling applies for the following periods:

Income Tax Years: 1 July 20xx - 30 June 20xx

Fringe Benefits Tax Years: 1 April 20xx to 31 March 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The Company's shares are quoted and traded on the 'Unlisted' trading platform in the overseas. Its shares may be traded on the exchange or directly transferred between investors (both being referred to as 'on-market' transactions for the purposes of this private ruling).

The Company is the head company of a tax consolidated group.

The Company has implemented two equity based compensation plans (Plans).

The Plans have been administered under the Company's Employee Share Plan Trust Deed (Trust Deed).

Operation of the Plans

The Company, at the sole discretion of the board of the Company (Board), may issue invitations to an eligible Participant to participate in the Plan.

On acceptance of the invitation by the eligible Participant, the Board, at its sole discretion, may issue Rights to eligible Participants.

The Rights will vest to the extent that "Performance Hurdles" are met during the "Measurement Period" at which point all or a portion of the Rights will be convertible into Company shares (Shares).

Rights are granted to eligible Participants for nil consideration.

Operation of the Trust

An employee share trust (EST) has been established as a separate vehicle for the sole purpose of acquiring ordinary shares in the Company for the benefit of eligible Participants under the Company's employee equity plans.

The Company's Employee Performance Rights Plan Trust (Trust) was established during the financial year ended 30 June 20xx.

The Trust has been established with the sole purpose to acquire and hold Plan Shares pursuant to the Plan Rules for the benefit of Beneficiaries (Participants) of the Trust.

Contributions made to the Trust by the Company

Shares are acquired by the Trustee through contributions made by the Company to the Trustee. Shares acquired are held by the Trustee absolutely on behalf of the Participants. This arrangement is referred to as the Company Plan.

It is the Company's intention to continue making contributions to the Trust on an annual basis.

The cash contributions made by the Company to the Trustee of the Trust to fund the subscription for or acquisition of Shares by the Trust are irretrievable and non-refundable under the Trust Deed.

The Company will also incur costs associated with the services provided by the Trustee of the EST and various implementation costs.

Use of a Share Trust to facilitate the Plan

It is increasingly common for Australian companies to use a share trust to facilitate the provision of shares to employees as part of equity based employee incentive and retention strategies.

The applicant has provided the following commercial benefits of using a trust

The ability to attract, retain and motivate high quality employees is one driver behind the Company's success. In particular, the Company needs to provide rewards and incentives to encourage the right people to join and stay committed to the company to ensure its future success.

The Company's remuneration policy is designed to be competitive and equitable and, with the Company's current and planned growth, the company intends to provide employees with an opportunity to share in any future growth in the value of the company. This aligns the economic interests of employees with those of the Company's shareholders as employees will be given the opportunity to earn significant rewards by potentially acquiring an equity interest in the Company based on creating shareholder value.

The EST will provide the Company with greater flexibility to accommodate the long term incentive arrangements of the Company whilst the business continues to expand in terms of operation and employee numbers in future years. The EST will also accommodate capital management flexibility for the Company in that the EST can use the contributions from the Company to either acquire Shares on-market or alternatively subscribe for new Shares.

Similarly, it will allow for a streamlined approach to the administration of the Plans. The EST will also provide a range of incentives involving Shares as circumstances change in the labour market and can be used in conjunction with different incentives required to be provided in order to attract, reward and retain key employees.

The use of an EST for the Company has a range of commercial benefits in addition to being a vehicle for the delivery of Shares to employees. In particular the EST can:

• provide an arm's length vehicle for acquiring and holding Shares, either by way of new issue or acquiring on-market, and provide the Company with a convenient and efficient way to undertake on-market acquisitions as compared to if no trust is used;

• assist the Company with meeting its Corporations Law requirements in relation to dealing in its own Shares. The Corporations Act generally prohibits a company from acquiring its own Shares. The EST can provide a mechanism to allow for the acquisition of Shares through the EST and the EST is not prohibited from doing so because the Company will have no beneficial interest in any Shares held by the EST or the EST itself;

• allow for Shares to be acquired and warehoused in the EST prior to vesting to effectively allow for a price hedge. That is, Shares can be acquired up-front at today's price and held until they are needed to be allocated to a particular employee;

• assist the Company with managing any insider trading issues as the Trustee, an independent party, will be acquiring Shares in accordance with a set policy. This is in part because the Corporations Regulations specifically exempt certain activities from some of the insider trading prohibitions in the Corporations Act. In particular, the regulations provide an exemption where there is an acquisition of the financial products of a company by, or by a trustee for, employees of that company or its related companies, under a scheme established solely or primarily for the benefit of employees. In addition, the ability of the EST to acquire Shares in advance may allow the EST to hold those Shares on behalf of employees at a time when the Company would be otherwise prevented from issuing Shares to its employees in order to satisfy obligations under the Company's Plans;

• provide the Company with capital management flexibility, i.e. by allowing for on-market purchases of Shares using cash or a new issue of Shares by the Company where cash is retained;

• allow for the Company to give effect to disposal restrictions after vesting. As the Trustee is the legal owner of the Shares, employees as beneficial owners have no ability to deal in the Shares;

• provide a single vehicle for the administration of the Company's Plans, and for the convenient and efficient outsourcing of the administration to a third party administrator;

• provide the Company with an efficient mechanism for the administration and operation of any new employee equity plans which it introduces in the future.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1,

Income Tax Assessment Act 1997 subsection 83A-10(1),

Income Tax Assessment Act 1997 section 83A-20,

Income Tax Assessment Act 1997 section 83A-210,

Income Tax Assessment Act 1997 subsection 130-84(4),

Income Tax Assessment Act 1997 subsection 995-1(1),

Income Tax Assessment Act 1936 section 177A,

Income Tax Assessment Act 1936 section 177C,

Income Tax Assessment Act 1936 section 177D,

Income Tax Assessment Act 1936 section 177F,

Fringe Benefits Tax Assessment Act 1986 section 67 and

Fringe Benefits Tax Assessment Act 1986 subsection 136(1).

Reasons for decision

Question 1

Summary

The Company will obtain an income tax deduction under section 8-1 in respect of the irretrievable cash contributions made by the Company or any of the subsidiary members of the Company's tax consolidated group to the Trustee of the Company Employee Share Trust (the EST) to fund the subscription for Shares or acquisition of Shares on-market by the EST.

Detailed reasoning

An employer is entitled to a deduction under section 8-1 of the ITAA 1997 for a contribution paid to the trustee of an employee share trust that is either:

• incurred in gaining or producing assessable income ('first limb') or

• necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income ('second limb')

to the extent the contribution is not private or domestic in nature, is not of capital or of a capital nature, does not relate to the earning of exempt income or non-assessable non-exempt income and deductibility is not precluded by another provision of the ITAA 1997 or ITAA 1936.

Contribution to the trustee of an employee share trust

To qualify for a deduction under section 8-1 of the ITAA 1997 a contribution to the trustee of an employee share trust must be incurred.

As a broad guide, a taxpayer incurs an outgoing at the time the taxpayer owes a present money debt that they cannot escape. This must be read subject to the propositions developed by the courts, which are discussed in more detail in Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions (TR 97/7) and Taxation Ruling TR 94/26 Income tax: subsection 51(1) - meaning of incurred - implications of the High Court decision in Coles Myer Finance (TR 94/26).

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 (Pridecraft); Spotlight Stores Pty Ltd v. Commissioner of Taxation [2004] FCA 650 (Spotlight).

The Company has established an employee share trust (the EST) under the terms of the Trust Deed. The EST is being established for the purposes of acquiring and holding Shares in accordance with the Company Plans.

The Company will make contributions to the EST to allow the Trustee to purchase Shares on market or to subscribe for new Shares to allow Rights under the Company's Plans to be satisfied. The Trust Deed does not confer on the Company any security interest, proprietary right or proprietary interest (whether legal or beneficial) in Shares acquired by the Trustee under the Trust Deed. There is no clause in the Trust Deed and the Plan Rules that will allow the Company to retrieve any of the contributions it makes to the EST.

Given these facts, it is considered that the contributions made to the Trustee of the EST by the Company will be incurred at the time the contributions are made.

For the purpose of gaining or producing assessable income

Further, to be deductible under section 8-1 of the ITAA 1997, a contribution must have been incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

In order to satisfy the second limb of section 8-1 of the ITAA 1997, there must be a relevant connection between the outgoing and the business. An expense will have the relevant connection to the business when it is 'desirable or appropriate in the pursuit of the business ends of the business' (Ronpibon Tin NL and Tongkah Compound NL v. FC of T (1949) 78 CLR 47 (Ronpibon); Magna Alloys & Research Pty Ltd v. Federal Commission of Taxation (1980) 49 FLR 183 (Magna Alloys)).

Draft Taxation Ruing TR 2014/D1 Income tax: employee remuneration trust arrangements provides the Commissioner's current view on a broad scope of taxation consequences for employers, trustees and employees who participate in an employee remuneration trust arrangement (ERT).

The way in which the Company's Trust has been established and operates is in line with the elements of an ERT stated in paragraph 9 of TR 2014/D1 applies.

Paragraph 14 of TR 2014/D1 provides where an employer:

• carries on a business for the purpose of gaining or producing assessable income and engages employees in the ordinary course of carrying on that business,

• makes a contribution to the trustee of an employee share trust, and

• at the time the contribution is made, the primary purpose of the contribution is for it to be applied, within a relatively short period of time, to the direct provision of remuneration of employees (who are employed in that business),

then, such a contribution would ordinarily satisfy the nexus of being necessarily incurred in carrying on that business.

The Company is carrying on a business and when the Company makes a contribution to the Trustee of the EST, its primary purpose is for the contribution to be applied to the direct provision of remuneration of its employees in the form of Shares. The advantage sought by the Company relates to the efficient ongoing performance of business. The contribution to the EST is an employee remuneration cost incurred in carrying on the business for the purpose of deriving assessable income.

Paragraph 178 of TR 2014/D1 provides that the Commissioner will generally accept a relatively short period of time for the trustee of an ERT to diminish a contribution for the direct provision of remuneration to employees to be up to five years from the date the contribution was made by an employer to the trustee of an ERT. However, where the contribution has been made to facilitate an employee having an interest in the ERT corresponding to a particular number of shares (or rights to acquire shares) in the employer or in its subsidiaries to which Subdivision 83A-C of the ITAA 1997 applies, the statutory scheme is such that a relatively short period of time for these arrangements will generally be accepted as being up to seven years from the date the contribution is made.

It is considered that the contribution made under the Company's Plan will satisfy the condition that it is to be applied, within a relatively short period of time, to the direct provision of remuneration of employees.

Consequently, we consider that the contributions to the Trustee of the EST by the Company for remunerating its employees under the Plans is an outgoing in carrying on the Company's business for the purpose of gaining or producing assessable income.

Not of a capital nature

Where a contribution satisfies either limb of subsection 8 1(1) of the ITAA 1997, it may still be capital or of a capital nature. Pursuant to subsection 8-1(2) of the ITAA 1997, the contribution will not be deductible to an employer under section 8-1 to the extent to which it is capital or of a capital nature.

Whether an outgoing is capital or revenue in nature can generally be determined by reference to the test articulated by Dixon J in Sun Newspapers Ltd and Associated Newspapers Ltd. v. Federal Commissioner of Taxation (1938) 61 CLR 337; [1938] HCA 73 (Sun Newspapers):

There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay...

A contribution to the trustee of an employee share trust is of capital or of a capital nature, where the contribution secures for an 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.

Other advantages obtained by the Company could, however, include that which flows to the Company from enlarging its own equity structure when the Trustee of the EST acquires the equity interests in the form of shares in the Company (by subscription, rather than on market). The advantage obtained by the Company, in effect, is a movement of value out of profit or capitalised profit to share capital and therefore a maintenance or enhancement of the capital value of the Company. As this advantage is structural and enduring, it would be of a capital nature.

The combined operation of subsections 8-1(1) and 8 1(2) of the ITAA 1997 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 differing nature.

However, where a contribution is made for the purposes of securing advantages of both capital and revenue nature, no apportionment is required where the advantages of a capital nature are only expected to be very small or trifling by comparison.

Where the primary purpose of the employer in making the contribution is to remunerate employees within a relatively short period of the contribution being made, it is considered that any amount of the contribution attributable to securing a capital structure advantage will only be very small or trifling where the employer:

• intends that any direct interest in the employer acquired by the trustee of the employee share trust (for example shares) will be transferred to employees within that relatively short period, and

• such shares will not be on-sold to third parties at that time or shortly thereafter.

In relation to what is accepted as a 'relatively short time period', paragraph 178 of TR 2014/D1 provides:

The Commissioner will generally accept a relatively short period of time for the trustee of an ERT to diminish a contribution for the direct provision of remuneration to employees to be up to five years from the date the contribution was made by an employer to the trustee of an ERT. However, where the contribution has been made to facilitate an employee having an interest in the ERT corresponding to a particular number of shares (or rights to acquire shares) in the employer or in its subsidiaries to which Subdivision 83A C of the ITAA 1997 applies, the statutory scheme is such that a relatively short period of time for these arrangements will generally be accepted as being up to seven years from the date the contribution is made.

On weighing up the facts in this case we consider:

• the contributions made by the Company to the Trustee of the EST are for the purposes of procuring Shares to satisfy the Company's commitments arising under the Plans. They are primarily outgoings incurred in the ordinary course of carrying on its business;

• the contribution is quickly dissipated in providing Shares (or an interest in Shares) to Participants after the vesting period and performance hurdles are met and the Participant has exercised the Rights as vesting generally occurs between one to five years

• the amount of the contribution corresponds closely with the amounts needed to fund the ESS interests and are likely be applied within a one to five year vesting period;

• eligible Participants will receive absolute entitlement to Shares (direct interest in the employer) post the vesting and exercise period, and

• the Plans provide eligible Participants with an opportunity to participate in the future growth and profit of the employer as vesting conditions are linked to performance and retention of eligible employees.

Therefore, the contributions made by the Company are not considered capital in nature, or any capital component is sufficiently small or trifling such that the Commissioner would not seek to apportion the deduction.

Accordingly, the non-refundable cash contributions made by the Company to the Trustee of the EST to fund the subscription for or acquisition of Shares by the Company will be deductible by the Company under section 8-1 of the ITAA 1997.

Question 2

Summary

The Company will obtain income tax deductions, pursuant to sections 8-1 or 25-5, in respect of costs incurred in relation to the on-going administration of the EST.

Detailed reasoning

The Company will incur various costs in relation to the on-going administration of the EST. For example, the Company will incur costs associated with:

• Employee plan record keeping

• Production and dispatch of holdings statements to employees

• Provision of annual income tax return information

• Acquisition of shares and allocation to participants; and

• Management of employee termination.

Section 8-1

In accordance with the Trust Deed, the Company must pay all Trust expenses.

The costs incurred by the Company in relation to the on-going administration of the EST are deductible under section 8-1 of the ITAA 1997 as either:

• costs incurred in gaining or producing the assessable income of the Company; or alternatively

• costs necessarily incurred in carrying on the Company's business for the purpose of gaining or producing its assessable income.

The view that the costs incurred by the Company are deductible under section 8-1 of the ITAA 1997 is consistent with ATO Interpretative Decision ATO ID 2002/961 Income Tax: employer costs for the purpose of administering its employee share scheme are deductible (ATO ID 2002/961) in which it was decided that such costs are part of the ordinary employee remuneration costs of a taxpayer. Also, consistent with the analysis in Question 1 (above), the costs are revenue and not capital in nature, on the basis that they are regular and recurrent employment expenses, and are deductible under section 8-1 of the ITAA 1997.

Section 25-5

However, to the extent that the relevant costs are also deductible under section 25-5 (see below), they will only be deductible under that provision and not section 8-1 (section 8-10).

Subsection 25-5(1) states:

25–5 Tax–related expenses

(1) You can deduct expenditure you incur to the extent that it is for:

(a) managing your tax affairs; or

(b) complying with an obligation imposed on you by a Commonwealth law, insofar as that obligation relates to the tax affairs of an entity; or

(c) the general interest charge or the shortfall interest charge; or

(ca) a penalty under Subdivision 162–D of the GST Act; or

(d) obtaining a valuation in accordance with section 30–212 or 31–15.

Certain costs incurred by the Company in relation to the on-going administration of the EST may be incurred for:

• managing the Company's tax affairs, or

• complying with obligations imposed on the Company by a Commonwealth law relating to the tax affairs of other entities (e.g. the EST or employees that are beneficiaries of the EST).

Costs incurred for these purposes will be deductible under subsection 25-5(1) rather than section 8-1.

Conclusion

The Company will obtain income tax deductions, pursuant to sections 8-1 or 25-5, in respect of costs incurred in relation to the on-going administration of the EST.

Question 3

Summary

The irretrievable cash contribution made by the Company (or any subsidiary member of the Company's tax consolidated group) to the Trustee of the EST to fund the subscription for Shares or acquisition of Shares on-market by the EST will 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.

Detailed reasoning

As discussed under question 1, the provision of money to the Trustee of the EST by the Company for the purpose of remunerating its employees under an ESS is an outgoing in carrying on the employer's business and is deductible under section 8-1 of the ITAA 1997.

The deduction under section 8-1 of the ITAA 1997 would generally be allowable in the income year in which the employer incurred the outgoing but under certain circumstances, the timing of the deduction is specifically determined under section 83A-210 of the ITAA 1997.

Section 83A-210

If:

(a) at a particular time, you provide another entity with money or other property:

(i) under an arrangement; and

(ii) for the purposes of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and

(b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest;

then, for the purposes of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time.

Section 83A-210 of the ITAA 1997 will only apply if there is a relevant connection between the money provided to the Trustee, and the acquisition of ESS interests (directly or indirectly) by a Participant under the Plans, in relation to the Participant's employment.

The Rights are ESS interests for the purposes of subsection 83A-10(1) of the ITAA 1997.

Under the Plans, participation by eligible employees (Participants) is upon acceptance of an offer to participate in the employee share scheme that is given to the Participant by the Company.

It is the Commissioner's view that at the time that Participants accept the offer to participate in the employee share scheme, the Participants (as ultimate beneficiaries of the EST) actually acquire Rights to acquire beneficial interests in the taxpayer's shares. This concurs with the view expressed 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 (ATO ID 2010/103).

The granting of the rights to acquire beneficial interests in the taxpayer's shares, the provision of the money to the trustee under the arrangement, the acquisition and holding of the shares by the trustee and the allocation of shares to the participating employees are all interrelated components of the employee share scheme. All the components of the scheme must be carried out so that the scheme can operate as intended.

As one of those components, the provision of money to the trustee necessarily allows the scheme to proceed.

The Company will provide money to the Trustee of the EST to enable the Trustee to acquire the Company shares for the purposes of satisfying the grant of Rights under the Plans.

As noted above, the Rights are ESS interests which the Participants will acquire upon being granted them by the Company. The acquisition time for the purposes of section 83A-210 of the ITAA 1997 occurs when the Rights to the Shares are granted to the Participants.

Accordingly, under section 83A-210 of the ITAA 1997, the cash contributions that the Company makes to the Trustee will be deductible in the income year in which the acquisition time arises for the Rights. This concurs with the view expressed in ATO ID 2010/103.

Therefore, when the Company makes a cash contribution to the Trustee in an income year before the income year in which the acquisition time for the Rights occurs, it will be allowed a deduction under section 83A-210 of the ITAA 1997 in the income year in which the ESS interests (Rights) are granted (acquired).

However, section 83A-210 of the ITAA 1997 will not apply if the Company makes a cash contribution in an income year that is later than the income year in which the Rights are granted. In this case, the cash contribution will be deductible under section 8-1 of the ITAA 1997 in the income year in which the loss or outgoing is incurred i.e. in the later income year.

Finally, it should be noted that if any amount of money is used by the Trustee to purchase excess Shares intended to meet a future obligation arising from a future grant of Rights, the excess payment will occur before the employees acquire the relevant Rights (ESS interests) under the scheme. Section 83A-210 of the ITAA 1997 will apply in that case and the excess payment will only be deductible to the Company in the year of income when the relevant Rights are subsequently granted to Plan Participants.

Question 4

Summary

Where the EST satisfies the relevant Company Plans obligations by subscribing for new shares in the Company, the subscription proceeds will not be included in the assessable income of the Company under section 6-5 or 20-20 nor trigger a capital gains tax (CGT) event under Division 104.

Detailed reasoning

Section 6-5

Section 6-5 provides that assessable income includes income according to ordinary concepts which is called ordinary income.

The classic definition of 'income' in Australian law was given by Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219; 3 ATD 142 at 144-145 where his Honour said:

The word "income" is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts…

The leading case on ordinary income is Eisner v Macomber 252 US 189 (1919). It was said in that case that:

The fundamental relation of "capital" to "income" has been much discussed by economists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time. …Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being "derived" that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; …that is income derived from property. Nothing else answers the description.

In GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 the High Court of Australia held that whether a receipt is income or capital depends on its objective character in the hands of the recipient. The court further stated at page 138 that:

To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business.

Importantly, receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business.

In accordance with the Trust Deed, if the Trustee subscribes for an issue of the Company shares, it will pay the market value for the shares as determined by the Board on the date the shares are issued to the Trustee. As the receipt relates to issuing ordinary shares, the Company will also credit its share capital account in respect of the funds received from the issue of the Company shares to the Trustee.

The character of the contribution of share capital received by the Company from the Trustee of the EST can be determined by the character of the right or thing disposed of in exchange for the receipt. The Company is issuing the Trustee with new shares in itself. The character of the newly issued share is one of capital. Therefore, it can be concluded that the receipt, being the subscription proceeds, takes the character of share capital, and accordingly, is also of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax: Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee.

Accordingly, when the Company receives subscription proceeds from the Trustee of the EST for new Shares in the Company to satisfy obligations to the participating employees under the Plans, the subscription proceeds received are a capital receipt and therefore not ordinary income under section 6-5.

Section 20-20

Under Subdivision 20-A, certain amounts received by way of insurance, indemnity or other recoupment are assessable income if the amounts are not income under ordinary concepts or otherwise assessable. Specifically, subsection 20-20(2) states:

Insurance or indemnity

(2) An amount you have received as *recoupment of a loss or outgoing is an assessable recoupment if:

(a) you received the amount by way of insurance or indemnity; and

(b) you can deduct an amount for the loss or outgoing for the *current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act.

The subscription proceeds received by the Company from the Trustee of the EST are for the issuing of new Company shares in accordance with the Plans. The character of the subscriptions paid to the Company for shares is not one of insurance, indemnity or other recoupment of a previously deducted loss or outgoing.

In addition, subsection 20-20(3) does not apply in these circumstances as none of the items listed in the tables in section 20-30 are relevant.

Therefore, the subscription proceeds will not be an assessable recoupment under section 20-20.

Capital gains tax

Pursuant to section 102-20, a capital gain or capital loss will only be made if a CGT event under Division 104 happens. The only CGT events that may be applicable when the subscription proceeds are received by the Company are:

• D1 pursuant to section 104-35 (creating contractual or other rights), and

• H2 pursuant to section 104-150 (receipt for event relating to a CGT asset).

In relation to CGT event D1, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots 'equity interests' in the company. In this case, the Company will issue shares, being 'equity interests' as defined in Subdivision 974 C, to the Trustee of the EST such that CGT event D1 does not happen.

In relation to CGT event H2, paragraph 104-155(5)(c) states that CGT event H2 does not happen if a company issues or allots equity interests in the company. Therefore, CGT event H2 will also not occur.

Since no CGT event occurs, there will be no amount that will be assessable as a capital gain to the Company.

Conclusion

Where the EST satisfies the relevant Company Plans obligations by subscribing for new shares in the Company, the subscription proceeds will not be included in the assessable income of the Company under section 6-5 or 20-20, nor trigger a CGT event under Division 104.

Question 5

Summary

The Commissioner will not 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 or any of the subsidiary members of the Company tax consolidated group to the Trustee of the EST to fund the subscription for the Company shares or acquisition of the Company shares on-market by the EST.

Detailed reasoning

Law Administration Practice Statement PS LA 2005/24 Application of General Anti-avoidance Rules (PSLA 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. These are:

• there must be a scheme within the meaning of section 177A of the ITAA 1936;

• a tax benefit arises that was obtained or would be obtained in connection with the scheme but for Part IVA; and

• having regard to the matters in paragraph 177D(b) of the ITAA 1936, the scheme is one to which Part IVA applies.

The Scheme

A scheme is defined in subsection 177A(1) of the ITAA 1936 which states:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct

It is considered that this definition is sufficiently wide to cover the proposed employee arrangement under the Plans, which consists of the creation of the EST, including the Trust Deed, and the payment of the irretrievable contributions to the Trustee.

Tax Benefit

'Tax benefit' is defined in subsection 177C(1) of which the relevant paragraph is:

Subject to this section, a reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to:

(b) a deduction being allowable to the taxpayer in relation to a year of income where the whole or a part of that deduction would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out;

In order to determine the tax benefit that would be derived by the Company from this scheme, it is necessary to examine alternative hypotheses or counterfactuals, that is, other schemes the company might reasonably have been expected to enter into to achieve its aims in relation to employee remuneration.

If the Company did not enter the scheme and use an EST the alternative to these grants could be payments of salary, bonuses or superannuation contributions to employees. The payments of these additional cash amounts would be deductible under section 8-1 of the ITAA 1997.

However, another alternative postulate, it is considered that if the Company issued new shares directly to employees (rather than via the EST), they may not receive a deduction for the amount incurred in issuing the Shares.

Therefore, by using an EST, a tax benefit is created through the deduction they will receive under section 8-1 of the ITAA 1997 for the irretrievable cash contributions they make to the Trustee.

Dominant purpose

Paragraph 177D(b) of the ITAA 1936 sets out the following factors that must be considered in deciding whether a scheme was entered into for the purpose of obtaining a tax benefit:

(i) the manner in which the scheme was entered into or carried out

(ii) the form and substance of the scheme

(iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out

(iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme

(v) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme

(vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme

(vii) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out

(viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi).

Subsection 177A(5) of the ITAA 1936 requires the purpose to be the dominant purpose.

Therefore in considering whether Part IVA applies or not, the necessary comparison to be made in relation to the factors listed in paragraph 177D(b) is between the scheme as proposed and the relevant counterfactual.

(i) The Manner of the Scheme

The inclusion of the EST in the scheme does give rise to a tax benefit, but the company contends that the presence of the EST provides other commercial benefits.

In particular, the ruling application states that those commercial benefits include:

• provide an arm's length vehicle for acquiring and holding Shares, either by way of new issue or acquiring on-market, and provide the Company with a convenient and efficient way to undertake on-market acquisitions as compared to if no trust is used;

• assist the Company with meeting its Corporations Law requirements in relation to dealing in its own Shares. The Corporations Act generally prohibits a company from acquiring its own Shares. The EST can provide a mechanism to allow for the acquisition of Shares through the EST and the EST is not prohibited from doing so because the Company will have no beneficial interest in any Shares held by the EST or the EST itself;

• allow for Shares to be acquired and warehoused in the EST prior to vesting to effectively allow for a price hedge. That is, Shares can be acquired up-front at today's price and held until they are needed to be allocated to a particular employee ;

• assist the Company with managing any insider trading issues as the Trustee, an independent party, will be acquiring Shares in accordance with a set policy. This is in part because the Corporations Regulations specifically exempt certain activities from some of the insider trading prohibitions in the Corporations Act. In particular, the regulations provide an exemption where there is an acquisition of the financial products of a company by, or by a trustee for, employees of that company or its related companies, under a scheme established solely or primarily for the benefit of employees. In addition, the ability of the EST to acquire Shares in advance may allow the EST to hold those Shares on behalf of employees at a time when the Company would be otherwise prevented from issuing Shares to its employees in order to satisfy obligations under the Company Plans;

• provide the Company with capital management flexibility, i.e. by allowing for on-market purchases of Shares using cash or a new issue of Shares by the Company where cash is retained;

• allow for the Company to give effect to disposal restrictions after vesting. As the Trustee is the legal owner of the Shares, employees as beneficial owners have no ability to deal in the Shares;

• provide a single vehicle for the administration of the Company Plans, and for the efficient outsourcing of the administration to a third party administrator;

• provide the Company with an efficient mechanism for the administration and operation of any new employee equity plans which it introduces in the future.

Further, it is noted that the arrangement that is being contemplated will be undertaken on an ongoing basis as the applicant states in its private ruling application dated 23 May 2016, "The EST will also provide a range of incentives involving Shares as circumstances change in the labour market and can be used in conjunction with the different incentives required to be provided in order to attract, reward and retain key employees".

It is accepted that the EST provides benefits to the operation of the scheme that would not be available if the shares were provided directly by the company as in the relevant counterfactual.

(ii) The Form and Substance

The substance of the scheme is the provision of remuneration in the form of Shares to eligible employees who participate in the Plans (as well as any employees who participate in future employee share equity plans). It takes the form of payments by the Company to the Trustee who acquires the Shares and transfers them to employees.

While existence of the EST confers a tax benefit, it cannot be concluded that it is the only benefit provided as outlined above. The Company has argued that the form of the arrangement with the EST provides the scheme with multiple non-tax benefits and this is accepted.

(iii) The Timing of the Scheme

The scheme has been established for the purpose of incentivising, motivating and remunerating staff and increasing the efficiency of the Company on an ongoing basis. This view is supported by the fact that the scheme operates to offer Rights to Eligible Employees, with vesting over a one to five year period and then only on the basis that performance criteria are met over the performance period.

The performance period is one to five financial years.

Thus, the contributions will be made progressively over the future years, as and when Eligible Employees as Participants, under the terms of the Plans, become eligible to the Shares.

Furthermore, the length of the scheme is not intended for a short period. The scheme is intended to remain in place into the future provided that the commercial benefits are met.

There is nothing in this factor to suggest a dominant purpose of seeking to obtain a tax benefit in relation to the scheme.

(iv) The Result of the Scheme

The result of the scheme is to provide the Company with allowable deductions for the contributions it makes to the EST. However, it is noted that the contributions are irretrievable and reflect a genuine non-capital outgoing on the part of the company to achieve a business outcome. It is to be expected that a deduction would normally be allowable in these circumstances.

(v) Any Change in the Financial Position of the Company

As noted above, the Company makes irretrievable contributions to the EST and those contributions constitute a real expense with the result that the company's financial position is changed to that extent.

(vi) Any Change in the Financial Position of other Entities or Persons

The contributions by the Company to the EST will form part of the corpus of the EST and must be dealt with by the Trustee in accordance with the terms of the Trust Deed i.e. for the acquisition of Shares to provide to Participants in employee share schemes.

The company is not a beneficiary of the EST and its contributions cannot be returned to it in any form except where the Trustee acquires shares from the company by subscribing for new issues at market value.

Therefore, the contributions made by the company amount to a real change to the financial position of the Trustee. The financial position of Participants in the schemes will also undergo a real change.

(vii) Any Other Consequence

Not relevant to this scheme.

(viii) The Nature of any Connection between the Company and any Other Persons

The relationship between the Company and the Participants in the scheme is one of employer/employee. The Trustee is independent of the company and is under a fiduciary obligation to act in the interests of the Beneficiaries (Participants) who participate in the employee share scheme and in particular, in this case, the Plans.

The contributions made by the company to the Trustee are commensurate with the company's stated aim of encouraging employees to share in the ownership and the long-term success of the company.

There is nothing to suggest that the parties to the employee share schemes are not acting at arm's length to one another. Accordingly, there is nothing in relation to this factor to indicate a dominant purpose of obtaining a tax benefit.

Conclusion

A consideration of all the factors referred to in paragraph 177D(b) of the ITAA 1936 leads to the conclusion that the dominant purpose of the scheme is to provide remuneration to the company's eligible employees who participate in the scheme in a form that promotes the company's business objectives, rather than to obtain a tax benefit.

Accordingly, the Commissioner will not make a determination that Part IVA of the ITAA 1936 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 acquire Shares or the costs incurred by the Company in relation to the implementation and on-going administration of the Plans and the EST.

Question 6

Summary

The provision of rights and the Company shares to employees of the Company or other subsidiary member of the Company tax consolidated group under the Company Plans are not fringe benefits within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

A 'fringe benefit' will only arise under subsection 136(1) of the FBTAA where benefits are provided by employers to employees or associates of employees.

Under the definition of 'fringe benefit', a benefit must also be provided 'in respect of the employment of the employee'.

No amount will be subject to FBT unless a 'fringe benefit' is provided.

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

• 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.

The Commissioner accepts that the Plans described in the applicant's private ruling application is an employee share scheme under which relevant ESS interests (being Rights to acquire Shares) are acquired by employees of the Company, and the acquisition of those ESS interests are in relation to those employees' employment.

The Shares acquired by the Trustee under the Plan to satisfy Rights to acquire Shares are also provided to employees under that same employee share scheme.

The Commissioner also accepts that the Plans is an employee share scheme under which the relevant ESS interests (being the beneficial interests in the Shares) are acquired by employees of the Company, and the acquisition of those ESS interests is in relation to those employees' employment.

Therefore, the granting of Rights to acquire Shares under the Plans and the granting of Shares under the Plans to employees will not be subject to FBT because they are specifically excluded from being a 'fringe benefit'.

However, Shares granted to employees under the Plans to satisfy Rights to acquire Shares are not ESS interests acquired under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies pursuant to subsection 83A-20(2).

Subsection 83A - 20(2) of the ITAA 1997 states:

83A-20(2) However, this subdivision does not apply if the ESS interest is a beneficial interest in a share that you acquire as a result of exercising a right, if you acquired a beneficial interest in the right under an employee share scheme.

Therefore, the providing of these Shares will not be specifically excluded from the definition of 'fringe benefit' under paragraph (h) of the definition in subsection 136(1) of the FBTAA.

Essentially, this means that Shares granted under the Plans, to satisfy Rights, are not ESS interests acquired under an employee share scheme.

Consequently, the acquisition of the Shares (as a result of exercising Rights), is not excluded from being a fringe benefit by virtue of the definition of fringe benefit in subsection 136(1) of the FBTAA.

However, for a benefit to be a fringe benefit, it must be provided in respect of the employment of the employee.

The meaning of the phrase 'in respect of' was considered by the Full Federal Court in J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22. The court at ATC 4158 said:

Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, casual connection or relationship between the benefit and the employment.

The situation is similar to that which existed in FC of T v. McArdle 89 ATC 4051; (1988) 19 ATR 1901 where an employee was granted valuable rights in respect of his employment which he subsequently surrendered in return for a lump sum payment. The full Federal Court noted that what had occurred under the surrender agreement was not the granting of a valuable benefit, but the exploitation of rights received from the employer in previous years.

When an employee accepts to participate in the Plans, they obtain a Right to acquire a beneficial interest in a Share in the Company and this Right constitutes an ESS interest. When this Right is subsequently exercised, any benefit received would be in respect of the exercise of the Right, and not in respect of employment.

Therefore, the benefit that arises to an employee upon the exercise of a Right under the incentive plan will not give rise to a fringe benefit as a benefit has not been provided in respect of the employment of the employee.

Question 7

Summary

The irretrievable cash contributions made by the Company (and other subsidiary members of the Company tax consolidated group) to the Trustee of the EST to fund the subscription for the Company shares or acquisition of the Company shares on-market are not fringe benefits within the meaning of subsection 136(1) of the FBTAA.

Detailed reasoning

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

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 (EST) 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 employee share scheme (having the meaning given by subsection 83A -10(2) of the 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 employee share scheme to employees, or to associates of employees, of:

(i) the company; or

(ii) a subsidiary of the company; and

(iii) other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b).

A payment of money by the Company to the EST is therefore not subject to FBT provided that the sole activities of the EST are obtaining Shares or Rights to acquire Shares in the Company.

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

For the purposes of paragraph 130-85(4)(c) of the ITAA 1997, ATO Interpretative Decision 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 (ATO ID 2010/108) sets out the Commissioner's views on an EST that acquires shares to satisfy rights provided under an employee share scheme and engages in other incidental activities.

In particular, the Commissioner considers that activities that are a necessary function of managing an employee share scheme and administering a trust will satisfy the incidental activities test. Such activities include:

• the opening and operating of a bank account to facilitate the receipt and payment of money;

• the receipt of dividends in respect of shares held by the EST on behalf of an employee, and their distribution to an 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 purpose 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;

• 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 merely incidental.

The EST has been established to be an employee share trust with the sole purpose to manage and administer Plan Shares pursuant to the Plan Rules for the benefit of Beneficiaries.

Based on the above, it is accepted that the EST is an employee share trust, as defined in subsection 995-1(1) of the ITAA 1997.

The functions of the Trustee of the EST (acquiring, holding and allocating ESS interests) are limited to those activities mentioned in paragraphs 130-85(4)(a) and (b) of the ITAA 1997, or are merely incidental activities as referred to in paragraph 130-85(4)(c) of the ITAA 1997.

As paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA excludes the contributions to the Trustee of the EST from being a fringe benefit, the Company 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 8

Summary

The Commissioner will not seek to apply section 67 of the FBTAA to the Company Plans or EST arrangement(s).

Detailed reasoning

Law Administration Practice Statement PS LA 2005/24 Application of General Anti-avoidance Rules (PSLA 2005/24) has been written to assist those who are contemplating the application of Part IVA or other general anti-avoidance rules to an arrangement, including in a private ruling. It succinctly explains how section 67 of the FBTAA operates. Most notably, paragraphs 145-148 provide as follows:

145. Section 67 is the general anti-avoidance provision in the FBTAA. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA is virtually identical to the definition of 'scheme' in section 177A of Part IVA.

146. 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(s) to obtain a tax benefit.

147. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 differs from paragraph 177D(b) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose.

148. Subsection 67(2) of the FBTAA provides that a tax benefit arises in respect of a year of tax in connection with an arrangement if under the arrangement:

(i) a benefit is provided to a person;

(ii) an amount is not included in the aggregate fringe benefits amount of the employer; and

(iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into.

It is clear, therefore, that the Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less FBT than would be payable but for entering into the arrangement. The point is made effectively in Miscellaneous Taxation Ruling MT 2021 under the heading "Appendix, Question 18" where, on the application of section 67, the Commissioner states:

…As mentioned in the explanatory memorandum to the FBT law, section 67 may only apply where there is an arrangement under which a benefit is provided to a person and the fringe benefits taxable amount in respect of that benefit is either nil or less than it would have been but for the arrangement...

Further, paragraph 151 of PS LA 2005/24 provides:

151. The approach outlined in this practice statement (refer to paragraphs 69 to 113) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA.

In this case, benefits provided to the Trustee of the EST by way of irretrievable contributions to the EST, and to eligible employees by way of Rights and Shares under the Plans are excluded from the definition of a 'fringe benefit' for the reasons given in the response to questions (4) and (5) above. Therefore, as these benefits have been excluded from the definition of a 'fringe benefit' and there is also no FBT currently payable under the Plans, nor likely to be payable, 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 Plans from irretrievable cash contributions made by the Company to the Trustee of the EST to fund the acquisition of Shares in accordance with the Trust Deed.