Edited version of private advice

Authorisation Number: 1051642527990

Date of advice: 04 March 2020

Ruling

Subject: Employee share plan

Issue 1

Income Tax

Question 1

Will Company A as head company of the Company A income tax consolidated group ("ACG") obtain a deduction 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 Share Trust B to fund the subscription for, or acquisition on-market of, Company A's shares in respect of employees based in Australia ("Participants")?

Answer

Yes

Question 2

Will Company A obtain a deduction under section 8-1 of the ITAA 1997 for costs it (or any subsidiary member of the ACG) incurred in relation to the on-ongoing administration of Share Trust B, including expenses relating to preparation of tax returns and annual audit of financial statements?

Answer

Yes

Question 3

Are irretrievable contributions made by Company A (or any subsidiary member of the ACG) to the Trustee, to fund the subscription for, or acquisition on-market of, Company A Shares by Share Trust B deductible to Company A under section 8-1 of the ITAA 1997 at a time determined by section 83A-210 of the ITAA 1997, where the contributions are made before the acquisition of the relevant ESS interests?

Answer

Yes

Question 4

If the Trustee satisfies its obligations under the Incentive Plan or the Employee Share Plan by subscribing for new Shares in Company A, will the subscription proceeds be included in the assessable income of Company A 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 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, a deduction claimed by Company A as head company of the ACG for irretrievable contributions made to the Trustee to fund the acquisition of Company A Shares in respect of Participants, where a share is a fully paid ordinary share in the capital of Company A?

Answer

No

The rulings for questions 1 - 5 inclusive apply for the following periods:

·         Income tax year ended 30 June 2019

·         Income tax year ended 30 June 2020

·         Income tax year ended 30 June 2021

·         Income tax year ended 30 June 2022

·         Income tax year ended 30 June 2023

Issue 2

Fringe Benefits Tax

Question 6

Is the provision of Rights and Shares in Company A, or Salary Sacrificed Shares by Company A to employees of Company A (or employees of a subsidiary member of the ACG) under the Incentive Plan or the Employee Share Plan a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefit Tax Assessment Act 1986 ("FBTAA 1986")?

Answer

No

Question 7

Will the irretrievable cash contributions made by Company A (or any subsidiary member of the ACG) to the Trustee to fund the subscription for, or acquisition on-market of, Company A Shares in respect of Participants, be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986?

Answer

No

Question 8

Will the Commissioner seek to make a determination that section 67 of the FBTAA 1986 applies to increase the aggregate fringe benefits amount of Company A (or any subsidiary member of the ACG), by the amount of tax benefit gained from irretrievable cash contributions made by Company A or any subsidiary member of the ACG to the Trustee, to fund the subscription for, or acquisition on-market of, Company A Shares?

Answer

No

The rulings for questions 6 - 8 inclusive each apply for the following periods:

·         Fringe benefits tax year ended 31 March 2019

·         Fringe benefits tax year ended 31 March 2020

·         Fringe benefits tax year ended 31 March 2021

·         Fringe benefits tax year ended 31 March 2022

·         Fringe benefits tax year ended 31 March 2023

Relevant facts and circumstances

Background

·         Company A is an ASX listed company and head of a tax consolidated group ("ACG").

·         Company A has implemented the Incentive Plan and the Employee Share Plan (together, "the Plans") to encourage loyalty and prolonged employee excellence.

·         The awards are offered to at least 75% of permanent Australian employees of Company A with at least three years of service. Company A has not and does not intend to offer any awards to non-resident employees.

·         Each employee holds 10% or less of the Shares in Company A.

·         Share Trust B was established with the sole purpose of acquiring, allocating, holding and transferring Shares in connection with incentive plans and established by Company A for the benefit of Participants in those plans.

Incentive Plan

·         The board of directors of Company A (the 'Board') in its absolute discretion may offer the following Incentives to Eligible Employees:

-  Rights (including Share Appreciation Rights)

-  Options

-  Restricted Shares

·         The term 'Eligible Employees' means 'a director, employee, contractor or consultant of the Group or an associate of those who is invited to participate in the Plan by the Company.

·         Offers are made by Invitation Letter to Eligible Employees.

·         Acceptance of an offer must be made by the Eligible Employee in accordance with the instructions that accompany the offer, or any other way the Board determines.

·         An Eligible Employee who has been allocated an Incentive or Share becomes a Participant.

·         Shares issued under the Incentive Plan rank equally in all respects with existing Company A Shares.

·         In the event of a change of control, the board may in its absolute discretion deal with all vested and unvested awards in any manner, including determining that all or a specified number of a Participant's Incentives Vest or cease to be subject to restrictions.

Indeterminate Rights

·         The Board may determine that vesting and exercise of the Rights or Options will be met by Company A making cash payment instead of allocating Shares. Such Rights or Options are referred to as Indeterminate Rights, which are offered under the Incentive Plan for nil consideration.

·         In order to receive Shares, the Participant must satisfy the Vesting Conditions specified in their Invitation Letter.

·         On exercise of the vested Rights or Options (nil exercise price), the Shares may be acquired and held in Share Trust B on behalf of the Participant. The Participant can then apply to have the Shares sold or withdraw the Shares from Share Trust B.

Employees Share Plan

·         The purpose of the Employee Share Plan is to facilitate the grant of equity by Company A to Eligible Persons through either a Deferred Grant or an Exempt Grant.

·         An 'Eligible Person' is defined to mean 'a director, employee, contractor or consultant of the Group or an associate of those who is invited to participate in the Plan by the Company'.

·         The Board has unfettered discretion to determine the Participants who are eligible to participate in the Employee Share Plan, make an invitation to an eligible person to acquire Restricted Shares; and grant Restricted Shares to an Eligible Person.

·         Restricted Shares rank equally with all existing Shares on and from the Date of Registration in respect of all Shareholder entitlements.

·         Unless the Board determines otherwise, a Participant must not assign or transfer to any other person any of their legal or equitable rights to Restricted Shares.

·         Participants must not Dispose of any Restricted Share until the removal of any Disposal Restrictions.

·         If there is a transaction or event that the Board determines is likely to result in a change of control of the Company, the Board may in its discretion determine that the Restricted Shares are no longer subject to restriction.

Restricted Shares

·         If the Company declares a dividend, participants are entitled to receive dividends on their Shares.

·         Participants are entitled to vote at any Company A shareholder meeting.

·         If the Participant ceases to work at Company A after the Shares have been allocated, the holding lock on the Shares will be lifted.

Deferred grant

·         Deferred Grant is a grant to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997) applies to allow deferral of income tax and includes a Salary Sacrifice Grant.

·         The Employee Share Plan allows Participants to acquire Company A Shares to a predetermined limit on a deferred tax salary sacrifice basis. These Shares have the same rights and entitlements as other Company A Shares.

·         At the time of election to participate, Participants are asked to elect a restriction period and the holding lock will be applied for the period - the periods that may be elected are 1, 3, 5 or 7 years. The Participant cannot sell, transfer or deal in the Shares during this time.

Exempt Grant

·         Exempt Grant means a grant to which Subdivision 83A-B of the ITAA 1997 applies.

·         Eligible employees are invited to apply for up to a predetermined limit of Shares in Company A. These Shares have the same rights as other Company A Shares.

·         Eligible employees are Australian permanent full-time or permanent part-time employees who are not eligible to participate in the Incentive Plan.

·         Eligible employees are invited to accept at no initial monetary cost.

·         The Shares will be subject to a holding lock for three years from the allocation date if the Participant remains employed with Company A. The Participant cannot sell, transfer or deal in the Shares during this time.

Share Trust B

·         Share Trust B is administered by the terms of the Trust Deed.

·         Share Trust B is funded by contributions from Company A or a subsidiary member of the ACG.

·         The funds contributed did not and will not relate to Company A (as head company of the ACG) gaining or producing exempt income or non-assessable non-exempt income.

·         The funds are used by the Trustee to acquire Shares in Company A either on-market or via a subscription for new Shares in Company A based on written instructions from Company A.

·         Where the Employee Share Plan Rules ("ESP Rules") or the Incentive Plan Rules ("IP Rules") stipulate that the Shares are to be held by the Trustee on behalf of Participants, the Trustee will hold the Company A Shares as Shares in respect of an identified Participant(s) on an allocated basis.

·         Where the ESP Rules or the IP Rules include that the Shares may be held by the Trustee on behalf of Participants or employees, the Trustee will hold the Company A Shares on an unallocated basis on trust for Participants generally.

·         'Participant' is defined to mean an Eligible Participant to whom Company A makes an award under an Employee Share Plan or an Incentive Plan and determines will have Shares allocated to them.

·         'Eligible Participant' is defined to mean 'a person who is a:

a)    Full-time or part-time employee of the Group;

b)    Director of the Company;

c)    Consultant or contractor to the Company; or

d)    An associate of those persons in paragraphs (a), (b), or (c) who is invited to participate in the Plan by the Company.'

·         The Trustee may not, at its own discretion, exercise any voting rights in relation to the unallocated Plan Shares.

·         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.

·         The Trustee may apply any capital receipts, dividends or other distributions received in respect of the unallocated Share to purchase further Shares to be held on trust for the purposes of Share Trust B.

·         Neither the Trustee nor Company A may use the Company A Shares held by the Trustee on behalf of a Participant as security.

·         Company A and subsidiary members of the ACG do not have any beneficial interest in any Company A Shares subscribed or acquired by the Trustee.

·         After a disposal restriction period lapses, the Trustee must transfer the relevant number of Shares into the name of the relevant employee or any third party as directed by the relevant employee.

·         The Trustee can sell Shares on behalf of an employee where permitted to do so by the Participant.

·         The Trustee will not levy any fees or charges for administering the Trust that are payable directly by any Eligible Participant or out of the assets of Share Trust B, other than reasonable disbursements, including brokerage and tax levied or incurred in connection with Share Trust B.

·         The Trust Deed sets out that the balance of Net Income is to be used to meet any reasonable costs and expenses properly incurred by the Trustee in relation to the establishment, administration or termination of Share Trust B (including, but not limited to, administration, trust, financial and audit expenses).

·         The Trust Deed provides the Capital of Share Trust B may be applied to the following beneficiaries if Share Trust B was terminated, as the Trustee thinks fit:

(a)  All or any employees of the Group;

(b)  A Participant; or

(c)  A provident, benefit, superannuation or retirement fund established and maintained by Company A for employees or past employees of the Group.

Reasons for decision

All legislative references are to provisions of the Income Tax Assessment Act 1997 unless otherwise indicated.

Questions 1 to 5 - application of the single entity rule in section 701-1

The consolidation provisions of the Income Tax Assessment Act 1997 allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule ("SER") in section 701-1 the subsidiary members of an income tax consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period that they are members of the income tax consolidated group, with the head company of the group being the only entity recognised for income tax purposes.

The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997.

As a consequence of the SER, the actions and transactions of the subsidiary members of the Company A income tax consolidated group ("ACG") are treated, for income tax purposes, as having been undertaken by Company A as the head company of the ACG.

Questions 6 to 8

The SER in section 701-1 has no application to the Fringe Benefits Tax Assessment Act 1986. The Commissioner has therefore provided a ruling to Company A and each company which is a subsidiary member of the ACG in relation to questions 6 to 8.

Question 1

For present purposes, subsection 8-1(1) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature.

Company A carries on a business which produces assessable income. Company A operates an employee share scheme as part of its remuneration strategy.

Under the Plans, Company A grants Options, Rights or Shares to employees and makes irretrievable contributions to Share Trust B (in accordance with the Trust Deed) which the Trustee will use to acquire Shares (either on-market or by subscription) for allocation to Participants to satisfy their Options or Rights or allocation of Shares.

Incurred in carrying on a business

Company A or a subsidiary member of the ACG must provide the Trustee with all the funds required to enable the Trustee to subscribe for, or acquire those Company A Shares.

The contributions made by Company A are irretrievable and non-refundable to Company A in accordance with the Trust Deed as:

·         Company A and subsidiary members of the ACG do not have any beneficial interest in any Company A Shares subscribed or acquired by the Trustee; and

·         On termination of Share Trust B, Company A and subsidiary members of the ACG do not have any entitlement to any part of the capital of Share Trust B.

Company A has granted (and will in the future grant) Rights, Options and Shares under the Plans as part of its remuneration and reward program for Participants. The costs incurred by Company A for the acquisition of Shares to satisfy the Rights or Options of the Plans arise as part of these remuneration arrangements, and contributions to Share Trust B are part of an on-going series of payments in the nature of remuneration of its employees.

Not capital or of a capital nature

The costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for employees of Company A and the ACG. Costs incurred are likely to be in relation to more than one period of remuneration (rather than being one-off), and Company A intends to continue satisfying the outstanding Options or Rights of the Plans using Shares acquired by Share Trust B. This indicates that the irretrievable contributions to Share Trust B are ongoing in nature and are part of the broader remuneration expenditure of Company A.

While the contributions may secure an enduring or lasting benefit for the employer that is independent of the year to year benefits that the employer derives from a loyal and contented workforce, that enduring benefit is considered to be sufficiently small. Therefore, the payments are not capital, or of a capital nature.

Question 2

Section 8-1 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, incurred in producing exempt or non-assessable non-exempt income or where a provision of the tax law prevents the deduction.

Company A carries on a business which produces assessable income. Company A operates an employee share scheme as part of its remuneration strategy.

Company A incurs on-ongoing administration costs for operating the Employee Share Scheme (ESS) such as

·         Employee plan record keeping

·         Production and dispatch of holding statements to employees

·         Costs incurred in the acquisition of Shares on market (e.g. brokerage costs and the allocation of Shares to Participants),

·         preparing the annual audit of the financial statements of Share Trust B, and

·         preparing the annual income tax returns of Share Trust B.

These costs are regular and recurrent employment expenses which are deductible under section 8-1 as they are costs necessarily incurred in running the ESS while carrying on its business for the purpose of gaining or producing its assessable income.

Relevantly, these costs are not capital or of a capital nature as the loss or outgoings are regular and recurrent and are part of the ordinary employee remuneration costs of the company. (ATO Interpretative Decision ATO ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible).

Question 3

Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contribution provided to the trust to purchase shares in excess of the number required to grant the relevant options or rights to the employees arising in the year of income from the grant of options or rights, under an employee share scheme. Further information is available 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.

The Plans are employee share schemes for the purposes of subsection 83A-10(2) as they are schemes under which ESS interests (i.e. a beneficial interest in a share or a beneficial interest in a right to acquire a beneficial interest in a share) are provided to employees (i.e., Participants) in relation to their employment with Company A (or subsidiary members of the ACG).

The Plans contain a number of interrelated components which include the provision of irretrievable cash contributions by Company A to the Trustee of Share Trust B. These contributions enable the Trustee to acquire Company A Shares for the purpose of enabling each Participant, indirectly as part of the Plans, to acquire ESS interests.

The deduction for the irretrievable cash contribution can only be deducted from the assessable income of Company A in the income year when the relevant beneficial interest in a Share in Company A, or beneficial interest in a Right to a beneficial interest in a Share in Company A, is acquired by a Participant under the Plans.

Indeterminate rights under the Incentive Plan

Rights and Options provided under the Incentive Plan are indeterminate rights for the purposes of section 83A-340. That is because, on exercise, the Board has the discretion to make cash payment instead of allocating Company A Shares. In this regard, such Rights and Options are not rights to acquire a beneficial interest in a Share unless and until the Board determines the Rights and Options that will be satisfied by the provision of Company A Shares.

Once this is determined, section 83A-340 operates to treat such a Right or Option as though it had always been a right to acquire a beneficial interest in the Share.

If an irretrievable contribution is provided to the Trustee before such Rights or Options are acquired (and the Rights or Options subsequently do become ESS interests), section 83A-340 operates to deem the Rights or Options to always have been ESS interests. Where this occurs, section 83A-210 will apply to modify the timing of the deduction claimed under section 8-1. In such a case, a deduction for the contribution will only be available to Company A in the income year in which the relevant Participant acquires the Right or Option.

Where an indeterminate right does not become an ESS interest because it is ultimately satisfied in cash, the outgoing should not flow through Share Trust B. This is because Share Trust B would not satisfy the sole activities test for the purposes of subsection 130-85(4).

Question 4

Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income. Receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business.

In an employee share scheme, where the trustee subscribes to the company for an issue of Shares and pays the full subscription price for the Shares, the company receives a contribution of share capital from the trustee.

The character of the contribution of share capital received by Company A from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Under this arrangement, Company A is issuing the Trustee with a new Share in itself. The character of the newly issued share is one of capital. Therefore, 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 2010/155Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee.

Accordingly, when Company A receives subscription proceeds from the Trustee of Share Trust B where the Trustee has subscribed for new Shares in Company A to satisfy obligations to Participants, that subscription price received by Company A is a capital receipt. That is, it will not be on revenue account and it will not be ordinary income under section 6-5.

Section 20-20

Subsection 20-20(2) provides that if you receive an amount as a recoupment of a loss or outgoing, it will be assessable income if you received it by way of insurance or indemnity and that amount can be deducted as a loss or outgoing in the current year or earlier income year.

Company A will receive an amount for the subscription of Shares by the Trustee of Share Trust B. There is no insurance contract in this case, so the amount is not received by way of insurance. Further, the amount is not an indemnity because the receipt does not arise under a statutory or contractual right of indemnity, and the receipt is not in the nature of compensation.

Subsection 20-20(3) makes assessable a recoupment of a loss or outgoing that is deductible in the current income year, or has been deductible or deducted in a previous income year, where the deduction was claimed under a provision in section 20-30.

Subsection 20-25(1) defines a recoupment as including any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described and a grant in respect of the loss or outgoing.The Explanatory Memorandum to the Tax Law Improvement Bill 1997 states that the ordinary meaning of recoupment encompasses any type of compensation for a loss or outgoing.

To the extent that section 8-1 allows a deduction for bad debts or rates or taxes, section 20-30 will apply such that if there was a recoupment of that deduction, that amount would be assessable. The receipt by Company A is in return for issuing Shares to the Trustee of Share Trust B, not as a recoupment of previously deducted expenditure under section 8-1 regarding bad debts or rates and taxes that could be subject to section 20-30.

The subscription proceeds will therefore not be an assessable recoupment under section 20-20.

Capital Gains Tax (CGT)

Section 102-20 states that you make a capital gain or loss if, and only if, a CGT event happens.

The relevant CGT events that may be applicable when the subscription proceeds are received by Company A are CGT event D1 (creating a contractual or other rights) and CGT event H2 (receipt for event relating to a CGT asset). However, paragraph 104-35(5)(c) states that CGT event D1 does not happen if a company issues or allots equity interests or non-equity shares in the company.

In relation to CGT event H2, paragraph 104-155(5)(c) also states that CGT event H2 does not happen if a company issues or allots equity interests or non-equity shares in the company. As Company A is issuing Shares, being equity interests as defined in section 974-75, to the Trustee of Share Trust B neither CGT event D1 nor CGT event H2 will happen.

When the Trustee of Share Trust B satisfies its obligations under the Trust Deed by subscribing for new Shares in Company A, the subscription proceeds will not be included in the assessable income of Company A under section 6-5 or section 20-20 and will also not trigger a CGT event under Division 104.

Question 5

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies.

The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A are met.

In this case, the scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement.

Having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling Company A to obtain a tax benefit.

Question 6

An employer's liability to fringe benefits tax ("FBT") arises under section 66 of the Frings 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.

In general terms, a '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. However, certain benefits are excluded from being a 'fringe benefit' by virtue of paragraphs (f) to (s) of the 'fringe benefit' definition.

In particular, paragraph (h) of subsection 136(1) of the FBTAA 1986 excludes the following from being a 'fringe benefit':

(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 83A-B or 83A-C of that Act applies;

The Commissioner accepts that the Employee Share Plan is an employee share scheme, the Options, Rights and Company A Shares provided under the Plans are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests.

Accordingly, the provision of Options or Rights for Company A Shares under the Incentive Plan and the provision of Shares under the Employee Share 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 thereby excluded from being a fringe benefit by virtue of paragraph (h) of the definition of fringe benefit in subsection 136(1) of the FBTAA.

In addition, when an option is later exercised, it will not give rise to a fringe benefit as any benefit received would be in respect of the exercise of the option and not in respect of employment (refer ATO Interpretative Decision ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme).

Question 7

One benefit excluded from being a 'fringe benefit', pursuant to paragraph (ha) of subsection 136(1) of the FBTAA, is 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.

In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the trustee in relation to a particular trust that is relevant. To qualify as an employee share trust, a trustee's activities must be limited to those described in paragraphs 130-85(4)(a), (b) and (c).

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

·         Share Trust B acquires Shares in a company, namely Company A; and

·         Share Trust B ensures that ESS interests as defined in subsection 83A-10(1) (being Options or Rights in the Incentive Plan and Shares in the Employee Share Plan) 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 Plans.

Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'.

The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'?

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.

In the present case, the objects of Share Trust B are for the sole purpose of undertaking activities that are in line with the definition of an employee share trust under subsection 130-85(4) including paragraph 130-85(4)(c) as the other activities undertaken by the Trustee are merely incidental to managing the Plans.

Therefore, the cash contribution made by Company A to fund the subscription for or acquisition on-market of Company A Shares by Share Trust B will not be a fringe benefit.

Question 8

The Commissioner would only seek to make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less fringe benefits tax than would be payable but for entering into the arrangement. The point is made effectively in Miscellaneous Taxation Ruling MT 2021 Fringe Benefits Tax - Response to questions by major rural organisation under the heading "Appendix, Question 18" where, on the application of section 67 of the FBTAA, 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 Practice Statement 2005/24 states:

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 the present case, the benefits provided to the Trustee by way of irretrievable contributions to Share Trust B, and to Participants by way of the provision of Options or Rights under the Incentive Plan (and the Company A Shares received on their vesting) and Company A Shares under the Employee Share Plan are excluded from the definition of a fringe benefit for the reasons given above in questions 6 and 7. As the benefits have been excluded from the definition of a fringe benefit, the fringe benefits tax liability is not any less than it would have been but for the arrangement.

The Commissioner will not seek to make a determination that section 67 of the FBTAA applies to increase the aggregate fringe benefits amount of Company A or any subsidiary member of the ACG by the amount of the tax benefit gained from the irretrievable cash contributions made by Company A to the Trustee of Share Trust B to fund the subscription for, or acquisition on-market of, Shares in Company A.