Edited version of your written advice

Authorisation Number: 1051408149912

Date of advice: 2 August 2018

Ruling

Subject: Employee Incentive Plan - Employee Share Trust

Question 1

Will Company A, as the head entity of the income tax consolidated group, be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for irretrievable cash contributions made by Company A to the Trustee of the Company A Employee Share Trust (the Trust) to fund the subscription for, or acquisition on-market of, ordinary shares in Company A (Shares) to satisfy Employee Share Scheme (ESS) interests issued pursuant to the Plan?

Answer

Yes

Question 2

Will the irretrievable cash contributions made by Company A to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plan, be deductible to Company A under section 8-1 of the ITAA 1997 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 by the ultimate beneficiaries?

Answer

Yes

Question 3

Will the irretrievable contributions made by Company A, to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plan, be deductible to Company A under section 8-1 of the ITAA 1997 in the income year when the contributions are made, if the contributions are made after the acquisition of the relevant ESS interests by the ultimate beneficiaries?

Answer

Yes

Question 4

Will the Commissioner seek to make a determination that Part IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) applies to deny, in part or in full, any deduction claimed by Company A for the irretrievable cash contributions made to the Trust to fund the subscription for, or acquisition on-market of Shares by the Trustee, pursuant to the Plan?

Answer

No

Question 5

Will the provision of ESS interests to employees of Company A under the Plan constitute a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefit Tax Assessment Act 1986 (Cth) (FBTAA)?

Answer

No

Question 6

Will the irretrievable cash contributions made by Company A, to the Trustee of the Trust, to fund the subscription for, or acquisition on-market of, Shares pursuant to the Plan, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA?

Answer

No

Relevant facts and circumstances

Company A and the Group

1. Company A is listed on the Australian Securities Exchange.

Company A Long Term Incentive Plan (the Plan)

2. Company A established the Long Term Incentive Plan (the Plan).

3. The Board approved the establishment of an employee share trust under the terms of the Trust Deed, with an entity as the trustee (the Trustee) of the Company A Employee Share Trust (the Trust).

4. The Plan states that the purpose of the Plan is to:

(a) assist in the reward, retention and motivation of eligible employees;

(b) encourage and reward eligible employees to positively influence the strategic direction and financial performance of the Group;

(c) reward high performance by the granting of equity interest that will provide eligible employees with an additional reward above their base remuneration; and

(d) link the reward of eligible employees to shareholder value creation.

5. Pursuant to the Plan, the board of directors of Company A (the Board), in its sole and absolute discretion, may from time to time make an invitation letter to an eligible employee of the Group inviting them to take participate in the Plan.

6. Under the Plan, Company A may offer selected employees a range of interests collectively referred to below as Awards (and satisfy the definition of Awards in the Plan Rules).

7. Pursuant to the Plan, grants of Awards may be subject to an exercise condition, which must be met before vested Awards are exercisable (whether automatically or by the Participant).

8. Pursuant to the Plan, Awards may not be transferred by a Participant unless the prior consent of the Board is obtained or the transfer occurs by force of law.

9. Pursuant to the Plan, each Award entitles (subject to the satisfaction of any applicable Vesting Conditions, Performance Hurdles and/or Exercise Conditions) the Participant holding the Award to subscribe for, or to be transferred, one Share.

10. Pursuant to the Plan, upon exercise or vesting of Awards, subject to the discretion of the Board, Plan Shares may be acquired by the Participant in the following ways:

(a) by way of allotment and issue of Shares;

(b) by acquiring Shares from a third party; or

(c) by any combination of the methods set out in subclauses (a) or (b).

11. Pursuant to the Plan, the company may buy back Awards and/or plan shares in certain circumstances.

Grant of Awards

12. Pursuant to the Plan, the Board may offer Awards to eligible employees by providing the eligible employee with an Invitation Letter. An Invitation Letter contains details of any vesting conditions attached to the Awards being offered.

13. Pursuant to the Plan, Awards do not carry voting or dividend rights.

Lapse of Awards

14. Pursuant to the Plan, all unvested Awards will generally lapse immediately upon the Participant’s cessation of employment with the Group.

15. Pursuant to the Plan, unless the Board determines that an alternative treatment should apply, all vested Awards that have not been exercised or settled at the time of cessation of employment will remain “on-foot” where the Participant ceases employment with the Group.

Settlement of Awards

16. Once Awards vest or are exercised, Shares are allocated to Participants. Pursuant to the Plan, Participants are entitled to dispose of their Shares subject to complying with the Company’s Share Trading Policy.

17. The Plan does not contemplate Awards being settled by way of a cash payment in lieu of an allocation of Shares.

18. The Company uses the Trust to acquire and hold Shares to satisfy vested or exercised (as applicable) Awards granted under the Plan.

Employee Share Trust

Establishment of the Trust

19. The Recitals of the Trust Deed states that, Company A established the trust for the purpose of enabling the acquisition of Shares for the benefit of Employees as a component of remuneration; and the Trustee of the Trust agreed to receive funds from Company A from time to time and to apply those funds in accordance with the Trust Deed.

20. For tax purposes, the Trust is an independent legal entity and does not form part of the Company A income tax consolidated group. Company A (or any other group company) cannot be a beneficiary of the Trust.

Obligations of the Trustee

21. Under the Trust Deed, the sole activities of the Trustee are to acquire and hold shares for the purpose of providing them to Participants of the Plan on vesting and exercise of Awards (as applicable), and the administration of the Trust. All other activities of the Trust are incidental to the Trustee undertaking its sole activities. The Trust is managed and administered so that it satisfies the sole activities test for the purpose of subsection 130-85 of the ITAA 1997.

Allocating Shares to the Trust

22. Under the terms of the Trust Deed, Company A will instruct the Trustee to subscribe for, purchase or allocate a number of Shares specified in the notice. This instruction may occur at any time, depending on the capital management strategy of Company A.

23. In determining whether to request the Trustee to subscribe for or purchase Shares on-market, matters the board of Company A will take into account include:

(a) the Company’s current capital management strategy;

(b) the dilution impact any issue of new Shares will have;

(c) The liquidity (trade volume) of the Company’s Shares;

(d) the Board’s expectations regarding the Company’s Share price movements and volatility over the short and longer term; and

(e) trading restrictions or anticipated activity that may prompt restrictions in trading of the Company’s Shares.

24. The Trustee will, in accordance with instructions received and pursuant to the Trust Deed acquire, deliver and allocate Shares to participants provided that the Trustee receives sufficient payment from Company A to subscribe for or purchase Shares and/or has sufficient unallocated Shares available in the Trust.

25. Pursuant to the Trust Deed, Shares subscribed for or acquired for the benefit of Participants are to be registered in the name of the Trustee. Prior to individual Participants becoming beneficially entitled to the Shares they will be held in an unallocated account.

26. Pursuant to the Trust Deed, when a Participant becomes entitled to Shares then the number of Shares to which the Participant is entitled will be identified in the books and records of the Trust as being held on account of that Participant.

27. Pursuant to the Trust Deed, the Trustee shall, after allocation of Shares to a Participant’s account, transfer those Shares to the Participant.

28. Company A must make irretrievable contributions to the Trust as required under the Trust Deed. In determining the amount of funds to be contributed to the Trust at any point in time, matters the Board may take into account include:

(a) The number of Awards granted to employees under the Plan;

(b) The number of Shares held by the Trust at the relevant time;

(c) The likelihood of Awards vesting; and

(d) The Board’s expectations regarding the Company’s Share price performance and volatility over the short and longer term.

Contributions to the Trust

29. Under the Trust Deed, any Group company may pay to the Trustee contributions to fund the subscription for, or acquisition of, Shares for the benefit of Participants.

30. Under the Trust Deed, Participants will pay to the Trustee the Exercise Price for any Rights being exercised.

31. Under the Trust Deed, the Trustee will use such contributions and Exercise Prices to acquire Shares in the ordinary course of trading on the ASX, or to subscribe for new Shares issued by the Company, for the benefit of Participants. Under no circumstances may the Trustee repay to any Group Company any amount received as contributions for the subscription for, or acquisition of, Shares.

32. Under the Trust Deed, the Trustee will only undertake transactions to acquire Shares when able to do so without breaching the Corporations Act or any other applicable legislation or regulation.

33. It is the intention that the Trust be used to administer Awards granted under the Plan (and any new employee equity plans operated by the Company). Accordingly, the existing Plan incorporates the use of the Trust to facilitate the provision of Shares in respect of grants which have been made previously and new grants.

34. Company A is not a beneficiary under the Trust Deed and any funds it contributes to the Trust, other than specifically in the form of a loan, cannot be refunded, repaid or returned to the Company other than by way of the Trustee paying the issue price where it subscribes for Shares in the Company.

35. Company A will have no interest in the Shares held by the Trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 83A-10

Income Tax Assessment Act 1997 Section 83A-210

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

Income Tax Assessment Act 1997 Section 995-1

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 Subsection 136(1)

Question 1

The general deduction provision is section 8-1 of the ITAA 1997, which states:

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your * exempt income or your * non-assessable non-exempt income; or

(d) a provision of this Act prevents you from deducting it.

Losses or outgoings

To claim a deduction under subsection 8-1(1) of the ITAA 1997 contributions made to the Trustee by Company A must be irretrievable and non-refundable.

Pursuant to the Trust Deed, Company A or any other Group companies must make irretrievable contributions to the Trust to fund the subscription for, or acquisition of, Shares for the benefit of Participants. The Trustee will use such contributions (in addition to exercise prices in the case of Options) to acquire Shares in the ordinary course of trading on the ASX, or to subscribe for new Shares issued by Company A for the benefit of Participants. The sole activities of the Trustee under the Trust Deed are to acquire and hold Shares for the purpose of providing them to Participants of the Plan on vesting and exercise of Awards (as applicable). Further, the Trust is managed and administered so that it satisfies the sole activities test for the purpose of subsection 130-85 of the ITAA 1997.

The contributions made to the Trustee by Company A will be irretrievable and non-refundable to Company A because:

● All funds received by the Trustee from Company A in the form of irretrievable contributions will constitute accretions to the corpus of the Trust and no Participant will be entitled to receive a distribution of or from such funds; and

● any funds Company A contributes to the Trust, other than specifically in the form of a loan, cannot be refunded, repaid or returned to Company A other than by way of the Trustee paying the issue price where it subscribes for Shares in Company A.

On this basis, these irretrievable contributions are losses or outgoings for the purpose of subsection 8-1(1) of the ITAA 1997.

Nexus

The purpose of establishing and making irretrievable contributions to the trustee of the Trust for the purposes of the Company A Long Term Incentive Plan (the Plan) is to provide benefits to employees in the form of Shares.

Company A makes irrevocable cash contributions to the Trust as part of the overall employee remuneration costs of Company A and other Group companies. Pursuant to the Plan, the benefits provided to employees under the Plan are designed to encourage and reward high performance, and the contributions made by Company A to the Trustee of the Trust are part of the overall employee remuneration costs of Company A.

Accordingly, there is a sufficient nexus between the outgoings to the Trust (that is, any direct contribution made by Company A or any contributions made by other companies within the Company A Group and the derivation of their assessable income (Herald and Weekly Times Ltd v FCT (1932) 48 CLR 113; (1932) 2 ATD 169), Amalgamated Zinc (De Bavay's) Ltd v FCT (1935) 54 CLR 295;(1935) 3 ATD 288, W Nevill & Co Ltd v FC of T (1937) 56 CLR 290;4 ATD 187;(1937) 1 AITR 67, Ronpibon Tin NL v FCT (1949) 78 CLR 47; 4 AITR 236; (1949) 8 ATD 431, Charles Moore & Co (WA) Pty Ltd v FCT (1956) 95 CLR 344;(1956) 6 AITR 379; (1956) 11 ATD 147).

Capital or revenue

The contributions by Company A (or its subsidiary members) will be recurring and made from time to time as and when Shares are to be subscribed for or acquired pursuant to the Plan. The contributions are not capital in nature, but rather outgoings incurred by Company A in carrying on its businesses.

In support of this conclusion, the Court held in Pridecraft Pty Ltd v FC of T [2004] FCAFC 339; 2005 ATC 4001; 58 ATR 210; FC of T v Spotlight Stores Pty Ltd [2004] FCA 650; 2004 ATC 4674; 55 ATR 745 that payments by an employer company to a trust established for the purpose of providing incentive payments to employees were on revenue account and not capital or of a capital nature. It should be noted that although the Court held that the payments were deductible under subsection 51(1) of the ITAA 1936, it found that subsection 177F(1) of Part IVA of the ITAA 1936 applied to cancel the tax benefit arising from the deduction.

This confirms the view expressed in ATO ID 2002/1074 Income Tax – deductibility – irretrievable employer contributions paid to the Trustee of its employee share scheme to acquire a share or right under the employee share scheme that a company will be entitled to a deduction under section 8-1 of the ITAA 1997 for irretrievable contributions made to the trustee of its employee share scheme.

Nothing in the facts suggest that the irretrievable contributions made by Company A to the Trustee of the Trust are private or domestic in nature, or are incurred in gaining or producing exempt income, or are otherwise prevented from being deductible under a specific provision of the ITAA 1936 or ITAA 1997.

Conclusion

The irretrievable contributions Company A makes to the Trustee of the Trust to fund the acquisition of Shares in Company A, in accordance with the Trust Deed and the Plan, will be an allowable deduction to Company A under section 8-1 of the ITAA 1997.

Question 2

The deduction for the irretrievable cash contributions under section 8-1 of the ITAA 1997 would generally be allowable in the income year in which Company A incurred the outgoing. However, under certain circumstances, the timing of the deduction is specifically determined under section 83A-210 of the ITAA 1997, which states:

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.

Under an arrangement

An ‘arrangement’ is defined in section 995-1 of the ITAA 1997 as any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.

The implementation of the Plan, establishment of the associated Trust and provision of contributions by Company A to the Trustee of the Trust constitute an arrangement for the purposes of paragraph 83A-210(a)(i) of the ITAA 1997.

Acquiring an ESS interest ‘…directly or indirectly...’

An employee share scheme is a scheme under which ESS interests in a company are provided to employees of a company, or their associates, in relation to their employment (subsection 83A-10(2) of the ITAA 1997).

An ESS interest is a beneficial interest in a share in a company or a right to acquire a beneficial interest in a share in a company (subsection 83A-10(1) of the ITAA 1997).

Awards

Awards granted to an employee under the Plan will be ESS interests as each of these rights represents a right to acquire a beneficial interest in a share in a company. These ESS interests will also be granted under an employee share scheme as they are granted in relation to the employee’s employment. A Share acquired by the Trustee to satisfy a right to acquire a Share, granted under the employee share scheme to an employee in relation to the employee’s employment, is itself provided under the same scheme.

The granting of the beneficial interests in the Awards, the provision of the money to the Trustee under the arrangement (the Plan), 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 Plan. 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.

Accordingly, the provision of money to the Trustee to acquire Shares is considered to be for the purpose of enabling the participating employees employed by Company A to acquire ESS interests.

Timing – acquisition time

The deductibility of money provided to employee share trusts is considered in ATO ID 2010/103 Income tax – Employee share scheme: timing of deduction for money provided to the trustee of an employee share trust. The facts described in ATO ID 2010/103 are comparable to the present ESS and therefore, the reasoning in it is relevant as explained immediately below.

Contribution to Trustee made in an income year prior to the income year that Awards are acquired by Participant

The acquisition time for the purposes of paragraph 83A-210(b) of the ITAA 1997 will occur when the Awards are granted to Participants. Accordingly, when Company A (or a subsidiary member of the Company A income tax consolidated group) makes a cash contribution to the Trustee to acquire Shares in an income year before the income year in which the Awards are acquired by the Participant, the timing of the deduction allowable to Company A as the head entity of the income tax consolidate group under section 8-1 of the ITAA 1997 will be determined by section 83A-210 of the ITAA 1997 as being the later income year in which these ESS interests (Awards) are granted to the Participant.

Question 3

As discussed in the reasoning for question 2 above, section 83A-210 of the ITAA 1997 will not apply if a cash contribution is made by Company A, in an income year that is later than the income year in which the Awards are granted. In this case, the cash contribution will be deductible to Company A as the head entity of the consolidated income tax group, under section 8-1 of the ITAA 1997 in the income year in which the loss or outgoing is incurred, being the later income year.

Question 4

Part IVA of the ITAA 1936 (Part IVA) is a general anti-avoidance provision.

Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules (PS LA 2005/24) deals with the application of the general anti-avoidance rules, including Part IVA of the ITAA 1936.

Part IVA gives the Commissioner the power to cancel a ‘tax benefit’ that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. This power is found in subsection 177F(1) of the ITAA 1936.

Before the Commissioner can exercise his discretion to make a determination in respect of Part IVA under subsection 177F(1) of the ITAA 1936, three requirements must be met:

● there must be a scheme within the meaning of section 177A of the ITAA 1936,

● a tax benefit must arise based on whether a tax effect would have occurred, or might reasonably be expected to have occurred, if the scheme had not been entered into or carried out, and

● having regard to the matters in subsection 177D(2) of the ITAA 1936, the scheme is one to which Part IVA of the ITAA 1936 applies.

Regard must be had to the individual circumstances of each case in making a determination under section 177F to cancel a tax benefit.

On the basis of an analysis of these three requirements, the Commissioner will not seek to make a determination that Part IVA of the ITAA 1936 applies to deny, in part or full, any deduction claimed by Company A for the irretrievable cash contributions they respectively make to the Trustee of the Trust to fund the subscription for, or acquisition on-market of Shares by the Trustee, pursuant to the Plan.

Question 5

A liability of an employer to fringe benefits tax (FBT) arises under section 66 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax. Under the FBTAA, the calculation of the fringe benefits taxable amount is made by reference to the taxable value of each fringe benefit provided.

Without the provision of a ‘fringe benefit’, no amount will be subject to FBT.

Section 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), defines a fringe benefit as being a benefit provided to an employee or an associate of an employee ‘in respect of’ the employment of the employee.

The provision of Awards

Certain benefits however are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA.

Paragraph (h) of the definition of 'fringe benefit' relevantly states that a fringe benefit does not include:

(h) 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 83AB or 83AC of that Act applies.

The Commissioner accepts that the Plan is an employee share scheme, the Awards provided under the Plan are ESS interests and that Division 83A of the ITAA 1997 applies to those ESS interests.

Accordingly, the provision of the Awards pursuant to the Plan will not be subject to FBT on the basis that they are acquired by Participants under an employee share scheme (to which Subdivision 83A-B or 83A-C will apply) and are excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA.

The provision of the shares in Company A

As mentioned above, in general terms, ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA as being a benefit provided to an employee or an associate of an employee ‘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. Heerey, Merkel and Finkelstein JJ at page 410 stated:

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, causal connection or relationship between the benefit and the employment.

The situation is similar to that which existed in Federal Commissioner of Taxation 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. Davies, Gummow and Lee JJ 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 of the income tax consolidated group or the economic group of Company A accepts to participate in the Plan, they obtain a right to acquire a beneficial interest in a Share. 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 (refer ATO ID 2010/219 Fringe Benefits Tax- Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme).

Therefore, the benefit that arises to an employee upon the exercise of an Option or a right, or upon vesting of the RSUs under the Plan (that is, the provision of a Share) will not give rise to a fringe benefit, as a benefit has not been provided in respect of the employment of the employee.

Question 6

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

(ha) 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);

Subsection 995-1(1) states that the expression an ‘employee share trust’ has the same meaning given by subsection 130-85(4).

Employee share trust (EST)

Subsection 130-85(4) of the ITAA 1997 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) of the ITAA 1997 are satisfied because:

● the EST acquires Shares in Company A; and

● the Awards are 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 shares to the employees in accordance with the Trust Deed and the Plan.

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 Plan.

For the purposes of paragraph 130-85(4)(c) of the ITAA 1997, activities which are merely incidental, as set out in 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, include:

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

● the receipt of dividends in respect of shares held by the EST 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

● 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.

For the purpose of the EST the powers of the Trustee are set out under the Trust Deed. As stated in the Recitals of the Trust Deed, Company A established the Trust for the purpose of enabling the acquisition of Shares for the benefit of Employees as a component of remuneration; and the Trustee of the Trust agreed to receive funds from Company A from time to time and to apply those funds in accordance with the Trust Deed. Further, the sole activities of the Trustee are to acquire and hold shares for the purpose of providing them to Participants of the Plan on vesting and exercise of Awards (as applicable), and the administration of the Trust. The Trust is managed and administered so that it satisfies the sole activities test for the purpose of subsection 130-85 of the ITAA 1997. These terms collectively make it clear that the Trustee can only use the contributions received exclusively for the acquisition of Shares for eligible employees in accordance with the Plan. To this end, all other duties or general powers listed in the Trust Deed are considered to be merely incidental to the functions of the Trustee in relation to its dealing with the Shares for the sole benefit of Participants in accordance with the Plan.

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

Accordingly, as paragraph (ha) of the definition of fringe benefit in subsection 136(1) of the FBTAA 1986 excludes the contributions to the Trustee of the EST from being a fringe benefit, Company A and its subsidiary members will not be required to pay FBT in respect of irretrievable cash contributions made to the Trustee of the EST to fund the acquisition of Shares in accordance with the Trust Deed.