Edited version of your written advice

Authorisation Number: 1013063303272

Date of advice: 2 August 2016

Ruling

Subject: Employee Share Scheme

Question 1

Will the irretrievable contributions made pursuant to the Company A Long Term Incentive Plan (LTIP) or the Company A General Employee Salary Sacrifice Share Plan (GESS) to Company B (Trustee), as trustee of the Company A Employee Share Trust (Trust), to fund the acquisition of Company A shares by the Trustee in accordance with the Company A Employee Share Trust Deed, be assessable income of the Trust under section 6-5 or 6-10 of Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Will a capital gain or capital loss that arises for the Trustee of the Trust at the time the Participants become absolutely entitled to Company A shares under the LTIP, the GESS or when the Trustee disposes of the shares to the employees be disregarded under section 130-90 of ITAA 1997 if the Participants acquire the Company A shares for the same or less than the cost base of the Company A shares in the hands of the Trustee?

Answer

Yes.

This ruling applies for the following periods:

Income tax year ended 30 June 2016

Income tax year ended 30 June 2017

Income tax year ended 30 June 2018

Income tax year ended 30 June 2019

Income tax year ended 30 June 2020

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Background

Company A is an Australian listed company that operates stores across Australia, focussing on servicing the automotive aftermarket trade and retail customers with their product needs.

As part of its overall remuneration strategy and in addition to fixed remuneration, Company A offers its employees cash bonuses and long-term equity based incentives to encourage loyalty and increased employee performance.

Company A operates a Long Term Incentive Plan (LTIP) and a General Employee Salary Sacrifice Share Plan as part of the Company A remuneration strategy.

General Employee Salary Sacrifice Share Plan (GESS)

The General Employee Salary Sacrifice Share Plan Rules (GESS Rules) governs the General Employee Salary Sacrifice Share Plan (GESS).

Schedule 1 of the GESS Rules defines the following relevant terms:

ASX means ASX Limited ACN 008 624 691, trading as the Australian Securities Exchange.

Board means all or some of the directors of the Company acting as the board of directors or a person or committee delegated by the board of directors in accordance with rule 10.2.

Company means Company A Group Limited.

Constitution means the constitution of the Company.

Corporations Act means the Corporations Act 2001 (Cth).

Discount means the discount in respect of Shares that are offered for acquisition by a Participant under this Plan, calculated as the Market Value of a Share at the time when it is acquired by the Participant less any consideration paid by the Participant for acquisition of that Share. For the removal of doubt, Salary Sacrifice contributions do not constitute consideration paid under the Plan.

Disposal Restrictions means any conditions or restrictions determined in accordance with rule 6 that must be satisfied before an Eligible Employee is entitled to dispose of the Share or any interest in the Share.

Eligible Employee means Australian resident full time and part time employees of the Company or a subsidiary of the Company.

Grant Date means the date the Board resolves to grant Shares pursuant to the Company receiving a properly executed acceptance from an Eligible Employee.

Holding Lock means a "holding lock" as defined in the Listing Rules.

Listed means a company that has been admitted to the official list of ASX.

Listing Rules means the official listing rules of ASX.

Market Value means the market value of Shares, calculated as the issue price of the Shares under the initial public offering ("IPO") or post IPO, the weighted average of the prices at which Shares were traded on the ASX during the one week up to and including the day the market value is calculated, unless determined otherwise by the Board.

Offer means an offer of Shares made by the Company to an Eligible Employee under this Plan.

Participant means an Eligible Employee who has accepted an Offer to acquire Restricted Shares under this Plan.

Plan means this plan known as the Company A General Employee Salary Sacrifice Share Plan as constituted by the Rules.

Remuneration means the payment, emoluments and other benefits that the Eligible Employee may become entitled to receive from time to time as remuneration for services to be provided or work to be performed by the Eligible Employee in the course of, or in connection with, the Eligible Employee's employment as an employee of the Company or a Subsidiary or position as a director including, but not limited to, salary, wages, fees or bonuses.

Restricted Shares means Shares that are subject to a current Disposal Restriction.

Rules means the rules contained in this document known as the Company A General Employee Salary Sacrifice Share Plan.

Salary Sacrifice means where the Eligible Employee agrees to contractually forgo part of his or her pre-tax remuneration in return for Shares.

Security Trading Policies means the Company's security trading policies (if any).

Share means an ordinary share in the capital of the Company.

Subsidiary has the same meaning as in Division 6 of Part 1.2 of the Corporations Act 2001 (Cth).

Tax Act 1997 means the Income Tax Assessment Act 1997 (Cth).

Rule 2.1 of the GESS Rules states that the purpose of the plan is to:

(a) enable Eligible Employees to acquire Shares in a cost and tax effective manner; and

(b) to align the interests of Eligible Employees with those of the Company's shareholders.

Rule 2.3 of the GESS Rules states:

(a) The Plan continues in operation until the Board determines the Plan is terminated, suspended or discontinued. The Board may decide to terminate or suspend the operation of the Plan either for a fixed period or indefinitely and may also decide to end any period of suspension.

(b) If the Plan terminates, is suspended or is discontinued for any reason, the accrued rights of the Participants will not be prejudiced.

Rule 3.1 of the GESS Rules states Shares acquired under this Plan:

(a) May be issued or transferred to the Participant at the Board's discretion;

(b) are subject to the genuine Disposal Restrictions in rule 6; and

(c) are not subject to any conditions that result in a risk that a Participant will forfeit or lose the Shares( other than by disposing of them)

Rule 3.2 of the GESS Rules states that a Participant must not hold a beneficial interest in more than 5% of the Shares and be in a position to cast or control more than 5% of the number of votes that might be cast at a general meeting of the company.

Rule 3.3 of the GESS Rules states that in respect of a grant of Shares under the Plan, the Discount must not exceed $1,000 per Participant per Year or such other amount set out in section 83A-35(2) of the Tax Act 1997.

Rule 4.1 of the GESS Rules states that the Board determines whether or not an employee is an Eligible Employee for the purposes of the Plan.

Rule 4.2 of the GESS Rules states the Plan will be operated by the Board on a non-discriminatory basis in relation to at least 75% of employees who have completed at least 3 years of service and are Australian residents.

Rule 4.3 of the GESS Rules states an offer may only be made if approved by the Board. It must be in writing and must be made in accordance with the GESS Rules and that offers are not transferrable.

Rule 4.4 of the GESS Rules states that the terms of any Offer must include:

(a) the name of the Eligible Employee;

(b) the terms and conditions that satisfy rule 5;

(c) the number of shares that may be acquired by the Participant or the method of calculating the number of Shares that may be acquired by the Participant;

(d) the terms and conditions of the Salary Sacrifice arrangement;

(e) the Disposal Restrictions in accordance with Rule 6;

(f) the closing date for accepting the Offer; and

(g) any other terms the Board considers appropriate.

Under Rule 4.5 of the GESS Rules an Eligible Employee who wishes to accept the Offer must on or before the closing date do what is specified in the Offer to accept the Shares.

Under Rule 4.6 of the GESS Rules where the Eligible Employee has complied with Rule 4.5 the Company will grant the relevant Shares to the Participant.

Rule 5 of the GESS Rules states that the Company will take reasonable steps to ensure that no Participant is given an Offer that would cause them to hold more than 5% of the issued shares in that class of the Company as at the time of the Offer.

Rule 6.1 of the GESS Rules states the disposal restrictions places on Shares offered pursuant to the GESS. Shares may not be disposed of or dealt with in any way for a period that is the earlier of 3 years from acquisition by a Participant and the time when Participant cease to be employed by the Company.

Rule 6.3 of the GESS Rules states Shares subject to Disposal Restrictions will be known as Restricted Shares.

Rule 6.4 of the GESS Rules states once the Shares are no longer Restricted Shares the Company will, within a reasonable time, take all actions necessary to ensure that the Participant can deal with those Shares, subject to the Security Trading Policies.

Rule 7.1 of the GESS Rules states that a Participant must not sell, assign, transfer, encumber or otherwise deal with Restricted Shares unless otherwise permitted under this Plan or with the written approval of the Board on terms and conditions determined by the Board.

Rule 8.1 of the GESS Rules states that a Participant is entitled to any rights which accrue to Shares held by the Participant and may deal with those rights in accordance with the terms of these Rules and the Offer in respect of those Shares.

Rule 8.2 of the GESS Rules states Shares acquired under the Plan rank equally with all existing Shares from the date of acquisition in respect of any capital reconstructions and all rights issues, bonus issues, dividends and other distributions to, or entitlements of, holders of existing Shares made or declared after acquisition.

Rule 10.3 of the GESS Rules states that the Company may appoint a Trustee to undertake all necessary functions to implement the Plan including the exercise of all necessary power under the GESS Rules and that the Trustee may be used as a conduit in the transfer of shares to Participants.

Company A Long Term Incentive Plan (LTIP)

The Long Term Incentive Plan Rules (LTIP Rules) govern the Company A Long Term Incentive Plan (LTIP).

Schedule 1 of the LTIP Rules defines the following relevant terms:

5% Limit has the meaning given in clause 5(a)

Acquisition Date for an Option held by an Employee means the first date on which the Option was issued to that Employee.

Application means an application for Performance Rights made by an Employee under the terms of an Offer.

Application Form means an application form (if any) attached to an Offer in the form determined by the Board from time to time.

ASX means the ASX Limited.

Bad Leaver has the meaning in clause 12.1.

Board means the board of directors of the Company.

Business Day means a day on which banks are open for business excluding Saturdays, Sundays and public holidays in the relevant City.

Change of Control mean:

(a) a takeover bid is announced for all of the Shares and the bidder has acquired voting power in more than 50% of the Shares;

(b) a court sanctions a compromise or arrangement for the purposes of, or in connection with, a scheme for the amalgamation of the Company with any other company or companies under Part 5.1 of the Corporations Act; or

(c) any other transaction which, in the reasonable opinion of the Board, would constitute a change of control in the Company.

Claim means any allegation, debt, cause of action, liability, claim, proceeding, suit or demand of any nature howsoever arising and whether present or future, fixed or unascertained, actual or contingent whether at law, in equity, under statute or otherwise.

Company means Company A Group Limited.

Corporations Act means Corporations Act 2001 (Cth).

Disposal Restrictions means, in relation to a Performance Right or Option, each restriction specified as such in the Offer for the Performance Right or Option.

Employee means a person who is in the full-time or part-time permanent employment of a Group Member.

Employer means any Group Member and in relation to any particular Participant means the Group Member by which that Participant is employed.

Encumbrance means any mortgage, lien, charge, pledge, assignment by way of option, option interest, title retention, preferential right or trust arraignment, Claim, covenant, profit a prendre, easement or any other option arrangement or any other arrangement having the same effect or any agreement to create any of them and "Encumber" has a corresponding meaning.

Good Leaver has the meaning given in clause 12.2.

Government Agency includes any governmental, semi-governmental, administrative, fiscal, judicial or quasi-judicial body, department, commission, authority, tribunal, agency or entity.

Group means the Company and its subsidiaries and Group Member has a corresponding meaning.

GST means a goods and services tax, or a similar value added tax, levied or imposed under the GST Law.

GST Law has the meaning given to it in the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

Holding Lock means a "holding lock" as defined in the Listing Rules.

Interest means in relation to a person, all legal or equitable interests in the subject matter held or acquired by that person whether direct or indirect, and includes any economic interest in the subject matter arising under any transaction entered into by the person in respect of the subject matter.

Invitation means the invitation containing the Offer to participate in the Plan.

Law includes:

(a) any law, regulation, authorisation, ruling, judgment, order or decree of any Government Agency; and

(b) any statute, regulation, proclamation, ordinance or by-law in:

(i) Australia; or

(ii) Any other jurisdiction.

Listing Rules means the listing rules of the ASX.

Market Value means the value of Shares as determined by the volume weighted average trading price of Shares sold on the ASX over the last 5 trading days immediately before the relevant date, or any other valuation methodology approved by the Board.

Notice of Exercise means a notice provided to the Company within the relevant exercise period (if any) as described in the Offer notifying the Company that the Participant wishes to exercise their Vested Options.

Offer means an offer of Performance Rights and/or Options to an Employee under the Plan and made in accordance with clause 3.

Option means the option to acquire a fully paid Share subject to the terms of the Offer and these Rules.

Participant means an Employee who is participating in the Plan.

Performance Period means the performance period specified in an Offer.

Performance Right means the right to acquire a fully paid Share subject to the terms of the Offer and these Rules.

Plan means the Company A Long Term Incentive Plan constituted by these Rules.

Rights Issue means the granting by the Company to its members in that capacity a pro rate right to acquire securities, whether or not that right is renounceable.

Share means an ordinary share in the Company.

Tax Acts means the Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth), as the context requires.

Transfer means sell, transfer, assign, swap or otherwise dispose of or deal with any Interest, and includes taking any steps or attempting to dispose of or deal in any Interest.

Unvested Option means an Option that is not a Vested Option.

Unvested Performance Right means a Performance Right that is not a Vested Performance Right.

Vested Option means an Option in respect of which all of the Vesting Conditions have been satisfied or waived.

Vested Performance Right means a Performance Right in respect of which all of the Vesting Conditions have been satisfied or waived.

Vested Condition means, in relation to a Performance Right or an Option, any condition which as set out in the Offer that must be satisfied or waived before that Performance Right or Option becomes vested in its holder for the purposes of these Rules.

Vesting Date means the date specified as such in the Offer, being the date of issue of a Vesting Notice.

Vesting Notice has the meaning given to it in clause 7.1(b).

Rule 2.1 of the LTIP Rules states that the purpose of the LTIP plan is to:

(a) Assist in the reward, retention and motivation of eligible Employees; and

(b) Align the interests of eligible Employees more closely with the interests of the Company's shareholders by providing an opportunity for the eligible Employees to acquire an ownership interest in the Company.

Rule 3.3 of the LTIP Rules states the terms of Offer, including:

(a) The number of Performance Rights and/or Options for which that Employee may apply

(b) The amount payable (if any) for the acquisition of a Performance Right and/or Option or how it is calculated

(c) The amount payable (if any) for the exercise of a Performance Right and/or Option or how it is calculated

(d) The Performance Period

(e) The Vesting Date

(f) Any Vesting Condition

(g) Any Disposal Restriction

(h) The method of acceptance of the Offer

(i) Any other terms and conditions determined by the Board from time to time.

Rule 4 of the LTIP Rules states that unless otherwise determined by the Board and set out in the Offer, no consideration will be payable for the grant of a Performance Right or Option.

Rule 5 of the LTIP Rules states that the number of Shares to be held by a Participant upon exercise of their Rights and Options must not exceed 5% of the total number of issued Shares at the time of the Invitation.

Rule 6 of the LTIP Rule states that upon vesting each Performance Right or Option gives the Participant the right to receive one Share subject to the terms of the Rules and the Offer. Additionally, no Performance Right or Option will give a Participant any interest in Shares until those Performance Rights or Options have vested and the relevant Shares issued or transferred to the Participant.

Rule 7.1 of the LTIP Rules states that Performance Rights and Options will vest on the Vesting Date to the extent that the Vesting Conditions are satisfied or waived subject to the Rules and Offer. Notification of vesting must be via written notice to the Participant.

Rule 7.3 of the LTIP Rules states that if Vesting Conditions are not satisfied or waived by the Vesting Date then the applicable Performance Rights or Options will lapse.

Rule 8.1 of the LTIP Rules states that exercise of any Option is dependent upon the applicable Vesting Condition being satisfied or waived and the Participant has received a Vesting Notice. An option may only be exercised by following particular procedures, including payment of the Exercise Price (if any).

Rule 8.3 of the LTIP Rules contains a cashless exercise formula that the Board may allow a Participant to use for the determination of the ultimate number of shares to be allocated to that Participant. A cashless exercise arises when the Board allows a Participant to exercise an option without paying a cash Exercise Price.

Rule 10 of the LTIP Rules states that if the Board become aware of a material misstatement in the Company's financial statements or any other event occurs resulting in Vested Option or Performance Rights should not have been determined to be satisfied then the Participant will cease to be entitled to those Vested Performance Rights or Options. The Board may either cancel the relevant affected Options for no consideration, require the Participant pay to the Company the after tax value of the Affected Options or Performance Rights that have been converted to shares, or adjust fixed remuneration, incentive or participation in this Plan to reflect the Affected Options or Rights.

Rule 12.1 of the LTIP Rules states that if a Participant ceases employment due to resignation, dismissal or any other circumstance the Board determines to constitute a Bad Leaver, then any Unvested Performance Rights or Options will immediately lapse.

Rule 12.2 of the LTIP Rules states that in any other circumstances other than those defined as a Bad Leaver the Participant will be a Good Leaver and will be entitled to a pro-rata amount of their Unvested Performance Rights or Options with all remaining Unvested Performance Rights and Options lapsing.

Rule 14 of the LTIP Rules states that the Company may appoint a Trustee to administer the Plan in accordance with the relevant trust deed and in accordance with the Plan Rules.

Rule 17.8 of the LTIP Rules states that the costs and expenses of establishing, managing and administering the Plan must be borne by the Company.

Company A Employee Share Trust (the Trust)

Company A has established a trust (Trust) under the Company A Employee Share Trust Deed dated 27 May 2016 (Trust Deed) which will be used to administer the Plans. Company B has been appointed under the Trust Deed as the Initial Trustee (Trustee). Company A will incur various costs in relation to the implementation and on-going administration of the Trust including, but not limited to:

• employee plan record keeping;

• production and dispatch of holding statements to employees;

• provision of annual income tax return information to employees;

• management of employee termination; and

• costs incurred in the acquisition of shares on-market (e.g. brokerage costs and the allocation of shares to Participants);

• other Trustee expenses, including the annual audit of the financial statements and annual income tax return of the Trust.

Schedule 1 of the Trust Deed defines the following relevant terms:

Account means an account established by the Trustee in respect of a Participant in accordance with clause 6.

Accretion means any accretion, dividend, distribution, entitlement, benefit or right of whatever kind whether cash or otherwise which is issued, declared, paid, made, arises or accrues directly or indirectly to or in respect of a Share including, without limitation, any rights issue, bonus issue, entitlements offer, or distribution from any reserve of Company A and any reduction of capital.

Applicable Law means any one or more or all, as the context requires of:

(a) the laws of the State or Territory referred to in clause 18;

(b) the Corporations Act;

(c) the Listing Rules;

(d) the Tax Act;

(e) any practice note, policy statement, class order, declaration, guideline, policy, procedure, ruling, judicial interpretation or other guidance note made to clarify, expand or amend (a), (b), (c) or (d) above; and

(f) the constitution of Company A; and

(g) any other legal requirement that applies to a Company A Employee Share Ownership Plan or the Trust.

Auditor means any person who is a registered company auditor (as that term is defined) in the Corporations Act).

Authorisation includes:

(a) an authorisation, consent, agreement, notice of non-objection, notarisation, certificate, licence, approval, permit, authority, permission, notification, application, filing, registration, lodgement, resolution, direction, declaration or exemption from, by or with a Government Agency; and

(b) in relation to anything which a Government Agency may prohibit or restrict within a specific period, the expiry of that period without intervention or action

Board means the board of directors of the Company or any committee of the board appointed by the board to administer any Company A Employee Share Ownership Plan.

Bonus Shares means Shares to which a holder of Shares is entitled in any pro rata issue by the Company to holders of Shares for which no consideration is payable by the holder.

Company A means Company A Group Limited.

Company A Employee Share Ownership Plan means an employee incentive plan (including a share purchase plan) established by Company A for the benefit of employees and/or executive directors of the Group from time to time, and for the avoidance of doubt includes each of:

(h) Company A Long Term Incentive Plan; and

(i) Company A General Employee Salary Sacrifice Share Plan.

Company A General Employee Salary Sacrifice Share Plan means the share plan entitled "Company A General Employee Salary Sacrifice Share Plan" for the acquisition of shares in Company A by Eligible Employees by means of a salary sacrifice scheme as detailed in the Company A Employee Salary Sacrifice Share Plan Rules.

Company A Long Term Incentive Plan means the share plan entitled "Company A Long Term Incentive Plan" for the acquisition of options or rights in respect of shares in the Company, with vesting dates as set out in the Company A Long Term Incentive Plan Rules.

Business Day means a day on which banks are open for business excluding Saturdays, Sundays or public holidays in the relevant City.

Commencement Date has the meaning given in clause 2.2.

Corporations Act means the Corporations Act 2001 (Cth) as amended from time to time.

Director means a director of Company A.

Eligible Employee means an employee or Director of Company A who receives an invitation from Company A to participate in a Company A Employee Share Ownership Plan.

Fund means:

(a) the Settlement Sum;

(b) the Shares acquired or accepted by the Trustee for the purposes of the Trust;

(c) the Incentive Shares;

(d) all other money, property and assets acquired or accepted by the Trustee which

become subject to the terms and conditions of this deed; and

(e) all income of the Trust.

Government Agency means a government or governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity whether foreign, federal, state, territorial or local.

Group means Company A and its Related Bodies Corporate.

Incentive Shares means Shares held by the Trustee on behalf of the Participant in accordance with the requirements of this deed and the relevant Plan Rules.

Listing Rules means the listing rules of the Australian Securities Exchange, as amended from time to time.

Net Income means in respect of a Year of Income of the Trust, "net income" as defined in section 95 of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (as relevant) but excluding any franking credits attaching to dividends received by the Trust during that Year of Income.

Participant means a person participating in a Company A Employee Share Ownership Plan who has been allocated Incentive Shares in accordance with the relevant Plan Rules and the terms of this deed.

Plan Rules means the terms and conditions and other rules relating to the Company A Employee Share Ownership Plans.

Related Body Corporate has the meaning given in the Corporations Act.

Rights means any rights or options (not being by way of a pro rata bonus issue of Shares or other securities) to acquire Shares or other securities issued or to be issued by the Company.

Security Interest means a mortgage, charge, pledge, lien, encumbrance or other third party interest of any nature (including the registration and/or perfection of that security interest under the Personal Property Securities Act 2009 (Cth)).

Settlement Sum means AU$10.

Shares means fully paid ordinary shares in the capital of the Company.

Subsidiary has the same meaning as in Division 6 of Part 1.2 of the Corporations Act.

Tax means any tax, levy, charge, impost, duty, fee, deduction, compulsory loan or withholding of any nature, including stamp and transaction duty or any goods and services tax, value added tax or consumption tax, which is assessed, levied, imposed or collected by any government agency and includes any interest, fine, penalty, charge, fee or any other amount imposed on or in respect of any of the above.

Tax Act means the Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth), as the context requires.

Trust means the trust established by this deed.

Trust Expenses means all expenses, outgoings, costs and charges incurred in establishing and operating a Company A Employee Share Ownership Plan and includes any amount of income or other Tax payable by Company A and/or the Trustee in relation to a Company A Employee Share Ownership Plan but excludes any costs directly related to selling and transferring Shares or Incentive Shares.

Trustee means initially Company B Pty Limited and thereafter means the trustee from time to time of the Trust.

Year of Income means a period of 12 months corresponding with the financial year of Company A and includes the period commencing on the date of this deed and terminating on the next financial year end for Company A and the period ending on the date of termination of the Trust and commencing on the start of the preceding financial year for Company A.

Clause 2 of the Trust Deed establishes the Trust on the terms of the Deed. Further, in administering the Trust, the Trustee must act in accordance with an applicable Company A Employee Share Ownership Plan. The Trustee, on behalf of the Participants, holds the Fund on the terms and conditions of the deed.

Clause 3.8 of the Trust Deed states that the Trustee is not entitled to receive from the Trust any fees, commission or other remuneration in respect of its office. However, the Trust Deed recognises that Company A must pay to the Trustee from Company A's own resources any such fees, and reimburse such expenses incurred by the Trustee as agreed from time to time by Company A and the Trustee. The Trustee is entitled to retain for its own benefit any such fee or reimbursement.

Clause 4.1 of the Trust Deed states that the Trustee can buy Shares, or sell any Shares (including Incentive Shares) (as the case maybe) and apply the proceeds of sale in accordance with this deed and the applicable Company A Employee Share Ownership Plan. The trustee also has the power to transfer Incentive Shares to Eligible Employees in satisfaction of obligations under any Company A Employee Share Ownership Plan.

Clause 4.2 of the Trust Deed states that in respect of Incentive Shares held by the Trustee that have been allocated to a Participant the Trustee will hold the Incentive Shares on behalf of the Participant. Upon instruction in writing by a Participant must vote those shares in accordance with instructions as contemplated by Clause 15.1(a). Additionally, the Trustee, when instructed by the company in writing, and in accordance with the relevant Employee Share Ownership Plan and the other provisions of the deed must transfer legal and beneficial title to the Participant. The Trustee must also remit any cash proceeds in respect of the relevant allocated incentive share to the Participant and conduct any other actions as may be required by the Company in regards to those Allocated Shares.

Clause 4.3 of the Trust Deed states that Company A and the Trustee agree 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.

Clause 5.1 of the Trust Deed states from the Commencement Date Company A may contribute money to the Trustee to fund the acquisition or subscription of Shares for the purpose of a Company A Employee Share Ownership Plan.

Clause 5.2 of the Trust Deed states that Company A may instruct the Trustee in writing from time to time to acquire Shares in accordance with the instructions, to be held by the Trustee for the purpose of granting Incentive Shares to Participants from time to time, including at some future point in time.

Clause 5.3 of the Trust Deed states that The Trustee must allocate incentive Shares to the Account established for a Participant in accordance with the written direction from Company A provided that it holds or will be provided with sufficient shares or funds to carry out the written instructions.

Clause 5.4(b) of the Trust Deed states that Company A must provide the Trustee, or cause the Trustee to be provided with, any funds required by the Trustee to comply with its obligations under Clause 5.2(a) and 5.4(a) of the Trust Deed.

Clause 5.4(c) of the Trust Deed states that, subject to clause 5.4(d) all funds provided to the Trustee by Company A will constitute accretions to the corpus of the Trust and will not be repaid to Company A and no Participant shall be entitled to receive such funds.

Clause 5.4(d) of the Trust Deed states that funds may be paid to Company A or a third party as consideration for the subscription or acquisition of Shares provided such is in accordance with the terms of the Trust Deed or relevant Terms of Participation.

Clause 7.1(a) of the Trust Deed states that the Trustee must, on receipt of written direction from Company A and in accordance with the rules of the relevant Company A Employee Share Ownership Plan, transfer to the relevant Participant the number of Shares specified in the written direction.

Clause 7.1(c) of the Trust Deed states that upon Incentive Shares allocated to and held on behalf of a Participant being transferred to a Participant in accordance with clause 7.1(a), Company A will register the Participant as the holder of those Shares and the Participant will be absolutely legally and beneficially entitled to those Shares.

Clause 7.2 of the Trust Deed states that upon the sale of any Incentive Shares the Trustee must pay the proceeds of sale to the Participant after deducting the reasonable costs of the sale.

Clause 12.1 of the Trust Deed states that Company A indemnifies the Trustee in respect of all liabilities, costs and expenses incurred by the Trustee in the execution or purported execution of powers, authorities or discretions vested in the Trustee under the Trust Deed.

Clause 12.4 of the Trust Deed also states that if the Trustee is entitled to be indemnified by the Participants in respect of any tax payable by the Trustee in respect of Incentive Shares held for the benefit of that Participant.

Clause 16 of the Trust Deed states that Shares not allocated to a Participant will be held on trust for the benefit of Participants generally in accordance with the terms of this deed. The Trustee:

(a) Must not exercise any voting rights in relation to those Shares;

(b) Hold all dividends and cash return from those Shares as property of the Fund to which no Participant is presently entitled;

(c) May elect to waive any dividend entitlement in respect of such shares, with that waiver lapsing upon allocation to a Participant;

(d) Participate in dividend reinvestment if directed by Company A;

(e) Hold any bonus issues or other benefits received in respect of those Shares as property of the fund to which no Participant is presently entitled

(f) May participate in any other corporate action of Company A including but not limited to a Rights or Bonus issue, in its absolute discretion; and

(g) May allocate those Shares to identified Participants in accordance with any direction given by Company A in accordance with any Company A Employee Share Ownership Plan and this deed.

Clause 17.3 of the Trust Deed states that, in the event that the Trust is terminated then any surplus assets of the Trust must be applied, in accordance with clause 9.4, which are:

(a) Payment of any costs and expenses incurred by the Trustee in execution or purported execution of the Trust or

(b) For the benefit of any of the following beneficiaries as the Trustee thinks fit:

i. a Company A Employee Share Ownership Plan;

ii. a provident, benefit, superannuation or retirement fund established and maintained by Company A; or

iii. a charity nominated by the Trustee.

Clause 17.3 (b) of the Trust Deed states that the Trustee must not pay any of the surplus assets to a member of the Group.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 95

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 subsection 6-10(1)

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 Division 83A

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

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 paragraph 130-85(4)(a)

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

Income Tax Assessment Act 1997 paragraph 130-85(4)(c)

Income Tax Assessment Act 1997 section 130-90

Income Tax Assessment Act 1997 subsection 130-90(1A)

Income Tax Assessment Act 1997 subsection 130-90(1)

Income Tax Assessment Act 1997 subsection 130-90(2)

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

Reasons for decision

These reasons for decision accompany the Notice of private ruling for THE TRUSTEE FOR COMPANY A EMPLOYEE SHARE TRUST.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

All references are to the Income Tax Assessment Act 1997 unless otherwise stated.

Question 1

Section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) defines net income in relation to a trust as follows, insofar as it is relevant:

net income, in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions

Subsection 6-5(1) states:

Your assessable income includes income according to ordinary concepts, which is called ordinary income.

Further, subsection 6-10(1) states:

Your assessable income also includes some amounts that are not ordinary income.

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

None of the provisions listed in section 10-5 are relevant in the present circumstances. Therefore, non-refundable contributions made by Company A to the Trustee will not be assessable income under section 6-10. They will only be included in the calculation of the net income of the Trust under section 95 of the ITAA 1936 if they are assessable as income according to ordinary concepts under section 6-5.

Section 6-5 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. Chief Justice Jordan in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 gave the classic definition of "income" in Australian law. Chief Justice Jordan considered that:

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). The decision states 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 G.P. International Pipecoaters Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (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. Brennan, Dawson, Toohey, Gaudron and McHugh JJ 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.

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

The contributions provided by Company A to the Trustee of the Trust are used in accordance with the terms of the Deed and the Rules of the LTIP and GESS. Clause 4.2 of the Deed states that the Trustee will hold on Trust all allocated Incentive Shares and any cash proceeds arising from allocated Incentive Shares for the benefit of Participants on the terms and conditions set out in the Deed. Clause 5.4(c) of the Deed states that all funds received by the Trustee from Company A or a subsidiary of Company A will constitute accretions to the Trust and will not be repaid to Company A nor will any Participant be entitled to receive such funds. Therefore, the contributions will not be assessable as ordinary income under section 6-5 as they constitute receipts of a capital nature to the Trustee.

Question 2

When a Participant in the LTIP or GESS becomes absolutely entitled to the Company A shares as against the Trustee, CGT Event E5 will occur and under section 104-75, the Trustee will make a capital gain or loss. However, section 130-90 may operate to disregard that gain or loss where specified conditions are satisfied.

Preliminary - application of Division 83A

Division 83A will apply to ESS Interests issued on or after 1 July 2009 and also, in certain circumstances, to ESS Interests that were provided under an employee share scheme prior to 1 July 2009.

Division 83A will apply to rights provided when an offer is made under the ESIRP 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).

Section 130-90

Section 130-90 relevantly states:

Shares held to satisfy the future exercise of rights acquired under employee share schemes

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 (1A) or (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.

Employee share trust

Subsection 130-85(4) states:

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).

Paragraphs 130-85(4)(a) and (b)

The beneficial interest in a share received by a Participant when an ordinary share in Company A is granted to them under the terms of the Deed is an ESS interest within the meaning of subsection 83A-10(1).

Subsection 83A-10(2) defines an employee share scheme as being 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 LTIP and GESS are employee share schemes within the meaning of subsection 83A-10(2) because they are schemes that provide either a share in Company A or a right to acquire beneficial interests (the Rights) in ordinary shares in Company A to employees in relation to the employee's employment.

Company A has established the Trust to acquire ordinary shares in Company A and to allocate those shares to employees in order to satisfy ESS interests (the Shares and Rights) acquired by those employees under either the LTIP or GESS.

Under the LTIP, the beneficial interest in the Company A share is itself provided under an employee share scheme because it is provided under the same scheme under which the Rights are provided to the Participant in relation to the Participant's employment, being an employee share scheme as defined in subsection 83A-10(2).

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

• the Trust acquires shares in a company, namely Company A; and

• the Trust ensures that ESS interests (as defined in subsection 83A-10(1), being beneficial interests in the shares of Company A), are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those Company A shares to the Participants in accordance with the Deed and either the LTIP or GESS.

Paragraph 130-85(4)(c)

Undertaking the activities mentioned in paragraphs 130-85(4)(a) and 130-85(4)(b) will also require that the Trustee undertake incidental activities that are a function of managing the LTIP and GESS.

ATO Interpretative Decision ATO ID 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 sets out a number of activities which are merely incidental for the purposes of paragraph 130-85(4)(c):

• 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 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 purposes 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; and

• 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 to be merely incidental.

Clause 2 of the Deed states that the Trustee will hold on Trust all allocated Incentive Shares and all other benefits and privileges arising from allocated Incentive Shares for the benefit of Participants on the terms and conditions set out in the Deed.

Clause 4.1 of the Deed sets out the powers the Trustee has in respect of the Trust and they include the power to open bank accounts and operate bank accounts.

Clause 4.3 of the Deed states that Company A and the Trustee agree that the Trust will be managed and administered in a way that satisfies section 130-85(4).

Clause 5.7 allows the Trustee to deal with shares forfeited under an employee share scheme.

Paragraph 130-85(4)(c) is satisfied as any activities undertaken by the Trustee other than the acquisition of Company A shares and the allocation of those shares to the employees in accordance with the Deed and Rules of the LTIP and GESS are merely incidental to operation of the LTIP and GESS.

The Trust satisfies the definition of an employee share trust in subsection 130-85(4) as:

• the Trust acquires shares in a company (being Company A);

• the Trust ensures that ESS interests (as defined in subsection 83A-10(1), as being shares in Company A or beneficial interests in the shares of Company A), are provided under an employee share scheme (as defined in subsection 83A-10(2)) by allocating those Company A shares to the employees in accordance with the Deed and Rules of the LTIP or GESS; and

• the Deed does not provide for the Trustee to participate in any activities which are not considered to be merely incidental to the function of administering the Trust.

Paragraph 130-90(1)(a)

CGT event E5 is the CGT event that will apply under the terms of the LTIP or GESS at the time the Participant becomes absolutely entitled to the Company A shares as against the Trustee. Therefore paragraph 130-90(1)(a) will be satisfied.

Paragraph 130-90(1)(b)

Subsection 995-1(1) defines a share in a company to mean a share in the capital of a company. An ordinary share in Company A held by the Trustee and to which a Participant is entitled upon vesting or exercise of a Right is a share in the capital of a company (i.e. Company A). 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)

Paragraph 130-90(1)(c) is satisfied as a participant will have acquired a beneficial interest in a share (in Company A) by vesting or exercising of a Right provided under the LTIP or GESS.

Paragraph 130-90(1)(d)

Subsection 83A-20(1) of Subdivision 83A-B states:

This Subdivision applies to an ESS interest if you acquire the interest under an employee share scheme at a discount.

Subsection 83A-10(2) defines an employee share scheme as being 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 LTIP and GESS are employee share schemes within the meaning of subsection 83A-10(2) because they are schemes that provide rights to acquire beneficial interests (the Rights) in ordinary shares in Company A to employees in relation to the employee's employment. Under Rule 3.3 of the LTIP Rules and Rule 3.3 of the GESS Rules, Participants acquire beneficial interests for no cost or at a discount.

Subdivision 83A-B will apply to the Rights provided under the LTIP and GESS as pursuant to subsection 83A-20(1) the ESS interests (i.e. Rights issued under the LTIP or GESS) will be acquired under an employee share scheme (for the reasons stated in the immediately preceding paragraph) 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) or is able to defer the timing of the inclusion of an amount in their assessable income (under Subdivision 83A-C), will depend on which of the additional requirements in Subdivision 83A-B or Subdivision 83A-C have been satisfied. Under either circumstance paragraph 130-90(1)(d) will be satisfied.

Accordingly, all the conditions in subsection 130-90(1) have been satisfied.

Provided a Participant does not acquire the beneficial interest in the Company A share for more than its cost base in the hands of the Trustee at the time that CGT event E5 happens, subsection 130-90(1) will apply.

Under these circumstances, section 130-90 operates to disregard any capital gain or loss made by the Trustee on any Company A share when a Participant becomes absolutely entitled to that share.

CGT Event E7

Subsection 104-85(1) provides that CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital.

However, section 106-50 provides that if you are absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), Part 3-1 and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it.

A Participant, on allocation of the Company A shares by the Trustee, becomes absolutely entitled to those shares. In accordance with clause 7.1(c) of the Deed each Participant is absolutely entitled to any Company A shares held by the Trustee on their behalf once allocated, and is entitled to the same rights in respect of those shares as if he or she was the legal owner of the shares (subject to the LTIP or GESS).

Once a Participant is absolutely entitled to the Company A shares held on their behalf by the Trust, section 106-50 will deem the disposal of the Company A shares by the Trustee to be done by the Participant.

Therefore, section 106-50 will apply such that, if the Trustee disposes of the Company A shares under the LTIP or GESS (by way of transfer to a Participant), the Trustee will not make a capital gain or capital loss under CGT Event E7.