Edited version of private advice

Authorisation Number: 1051881354055

Date of advice: 18 August 2021

Ruling

Subject: Employee share scheme

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

Question 1

Will Company A obtain an income tax deduction, pursuant to section 8-1, in respect of the irretrievable cash contributions made by Company A to the Trustee to fund the subscription for or acquisition on-market of Shares by the Trust?

Answer

Yes

Question 2

Will Company A obtain an income tax deduction, pursuant to section 8-1, in respect of costs incurred by Company A in relation to the on-going administration of the Trust?

Answer

Yes

Question 3

Will irretrievable cash contributions made by Company A to the Trustee, to fund the subscription for, or acquisition on-market of Company A Shares by the Trust, be deductible to Company A at a time determined by section 83A-210?

Answer

Yes

Question 4

If the Trust satisfies its obligation under the Plans by subscribing for new Company A Shares, will the subscription proceeds be included in the assessable income of Company A under sections 6-5 or 20-20 or trigger a CGT event under Division 104?

Answer

No

Question 5

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

Answer

No

Question 6

Will the provision of Performance Rights and/or Shares by Company B to its employees under the Plans be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 7

Will the irretrievable cash contributions made by Company B to the Trustee, to fund the subscription for or acquisition on-market of Shares, be treated as a fringe benefit within the meaning of section 136(1) of the FBTAA?

Answer

No

Question 8

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

Answer

No

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

Company A is an Australian listed company which undertakes its primary business activities through a number of wholly owned subsidiaries.

Company A's remuneration strategy and framework has been designed to align the interests of employees with shareholder interests. Company A is committed to developing and maintaining a strategy and framework which is designed to attract, retain, motivate and reward employees of the business. In addition to wages and salaries, Company A offers its employees cash bonuses and equity based short term incentives and long term incentives to encourage loyalty and prolonged employee excellence.

Performance Rights Plan

The Performance Rights Plan is designed to provide a long-term incentive to eligible employees to acquire Performance Rights and ultimately Shares.

Selected eligible employees are provided with an invitation to participate in the Performance Rights Plan. A Performance Right represents an unrenounceable right, subject to vesting, to be issued, transferred or allocated one Share. Eligible employees, at their discretion, may accept the invitation constituted by an offer, in whole or in part. Upon the issue of a Performance Right to an eligible employee, that eligible employee becomes a Participant and is bound by the rules of the Performance Rights Plan.

Except where a Performance Right has been transferred under the Performance Rights Plan Rules, Performance Rights held by a Participant are personal to the Participant and may not be exercised by any other person. A Participant shall have no interest in a Share which is the subject of a Performance Right held by the Participant unless and until the Share is issued or transferred to that Participant. Furthermore, a Participant will not have any right to attend or vote at general meetings of Shareholders, by virtue of holding that Performance Right.

Performance Rights granted to a Participant under the Performance Rights Plan may not be transferred, mortgaged, charged or otherwise dealt with by a Participant, other than in accordance with the terms of the Performance Rights Plan. Any such dealing will not be recognised by Company A unless the Plan Committee consents to such action or the assignment or transfer occurs by legal operation upon the death or legal incapacity to a Participant's legal personal representative.

Performance Rights may be exercised:

•                 at any time commencing on the first Exercise Date and ending on the last Exercise Date for that Performance Right (Exercise Period)

•                 when the Exercise Conditions (i.e. performance, vesting and/or other conditions applicable) specific to those Performance Rights are determined by the Plan Committee to be satisfied, reached or met. The Plan Committee may, at its discretion, by notice to the Participant reduce or waive the Exercise Conditions attaching to a Performance Right in whole or in part at any time and in any particular case, and

•                 when the Participant delivers a signed Notice of Exercise and pays the Performance Right Exercise Price (if applicable) to or as directed by Company A, at any time prior to the last Exercise Date to exercise the Performance Right.

Upon Exercise of a Performance Right:

•                 the Trustee must subscribe for, or acquire the relevant number of Shares to be held for and on behalf of the Participant, as relevantly set out in the Notice of Exercise, and

•                 Company A may issue a Certificate stating the remaining Performance Rights held by that Participant.

All Shares issued, transferred and/or allocated upon the exercise of Performance Rights will rank equally in all respects with all existing Shares on issue. A Share may not be transferred, mortgaged, charged or otherwise dealt with by a Participant, other than in accordance with the terms of the Performance Rights Plan.

Subject to satisfaction of any condition and/or Disposal Restriction, a Participant may submit a Withdrawal Notice to the Plan Committee in respect of some or all of the Shares the Trustee holds on behalf of a Participant. At this point, if the Plan Committee approves the Withdrawal Notice, the Trustee must transfer legal title of the Shares to the Participant in accordance with the terms of the approved Withdrawal Notice.

Where the Trustee holds Shares on behalf of a Participant following the exercise of the Performance Right:

•                 the dividends payable on those Shares will be paid to the Trustee, and the Trustee will then pay any such dividends to the Participant, and

•                 the Participant may exercise any voting rights attaching to those Shares held by the Participant (or the Trustee for and on behalf of the Participant).

If a Participant, ceases to be an employee and has any Performance Rights which remain unvested, those unvested Rights will lapse, as determined by the Plan Committee.

Where a Participant ceases to be an employee and has Shares held by the Plan, the Plan Committee in its discretion, may specify to the Participant how their Shares will be treated. This will vary depending on the circumstances in which the Participant's employment ceases.

Subject to applicable laws, in the event of a reorganisation of the issued capital of Company A (whether before or during the Exercise Period) then the Performance Rights of a Participant (including the number of Performance Rights to which each Participant is entitled or the Exercise Price) will be changed to the extent necessary to comply with the Listing Rules applying to a reorganisation of capital at the time of the reorganisation.

Performance Rights are granted for nil consideration, unless otherwise determined by the Plan Committee.

Incentive Plan

The Incentive Plan is designed to provide Participants with the opportunity to acquire Shares, for nil consideration, as part of the remuneration for their services as eligible employees.

Selected eligible employees are provided with an invitation to participate in the Incentive Plan whereby eligible employees are invited to acquire Shares for nil cost. Shares are then allocated to a Participant to be held on their behalf in the Trust subject to restriction, until such time as the Vesting Conditions attaching to the Shares have been satisfied. After such time, the Trustee will transfer the legal title of the Shares to the Participant.

Eligible employees, at their discretion, may accept the invitation constituted by an offer, in whole or in part. Upon the allocation of Shares to an eligible employee that eligible employee becomes a Participant and is bound by the rules of the Incentive Plan.

Unvested Shares granted to a Participant under the Incentive Plan may not be transferred, mortgaged, charged or otherwise dealt with by a Participant. Any such dealing will be treated as void, unless the Plan Committee consents to such action or the assignment or transfer occurs by legal operation upon the death or legal incapacity to a Participant's legal personal representative.

From the date of issue, the Shares will entitle the Participant to the same benefits as other Shareholders, such as distributions and voting rights. Subject to the Incentive Plan Rules, Participants may direct the Trustee to exercise any rights and benefits attached to the Shares.

Shares allocated under the Incentive Plan may be subject to an ongoing holding lock even where the Shares vest (Holding Lock). If the Shares are subject to a Holding Lock, once the Holding Lock has been lifted, the Shares will be released and a Participant will be free to deal with the Shares in accordance with the Incentive Plan Rules. The Holding Lock can be lifted in certain limited circumstances.

Shares will become vested if:

•                 the Vesting Conditions and/or other conditions applicable to those Shares have been determined by the Plan Committee to be satisfied, deemed to be satisfied or are not required to be satisfied under the Incentive Plan Rules

•                 if the offer for Shares held by a Participant did not specify any Vesting Conditions, the Shares will become vested on and from the vesting date specified in the offer (or any earlier date determined by the Plan Committee).

Within a reasonable period after the Shares become vested, the Plan Committee must give the Participant a Vesting Notice advising that the Shares have become Vested.

Upon receipt of a Vesting Notice, Company A will instruct the Trustee to transfer the legal title to the Shares to the Participant and will procure that Company A's share registrar issues a holding statement to the Participant in respect of the Shares.

In the event the Vesting Conditions have not been satisfied, the Unvested Shares will be forfeited.

Where a Participant ceases employment, Unvested Shares will remain on foot unless the Plan Committee (in its sole and absolute discretion) determines otherwise in the offer or any time before or after cessation of employment of the Participant within the Group.

Subject to the terms specified in the offer and unless otherwise determined by the Plan Committee (at any time), some or all of any Unvested Shares held by a Participant that have not otherwise been forfeited under the Plan Rules, will be forfeited upon the earliest to occur of:

•                 if, and with effect from the date on which the Participant ceases employment, where the Plan Committee determines the Participant's Unvested Shares should be forfeited because of the circumstances in which the Participant's employment ceased

•                 where a Corporate Control Event occurs. Subject to the Incentive Plan Rules and Applicable Laws, where a Change of Control Event (defined in the Incentive Plan Rules) occurs, the Plan Committee may determine the manner in which any or all of a Participant's Unvested Shares will be dealt with

•                 10 years after the Date of Grant for the Share, or any other date nominated as the expiry date in the offer.

Exempt Employee Plan

The Exempt Plan is designed to provide eligible employees with the opportunity to acquire Shares as part of the remuneration for their services.

The Exempt Plan in its terms and operation, and Shares acquired by Eligible Employees under the Plan, shall satisfy the Exemption Conditions so as to permit the application of section 83A-35(1) to Participants to whom section 83A-35(2)(b) applies. Without limiting the foregoing, the Plan shall be operated and Offers must be issued on a non-discriminatory basis within the meaning of section 83A-35(6).

Selected eligible employees are provided with an invitation to participate in the Exempt Plan whereby eligible employees are invited to acquire Shares to the approximate value of $1,000 to recognise Company A's performance in the last financial year. Eligible employees, at their discretion, may accept the invitation by providing a duly completed application to the Plan Committee by the Final Acceptance Date. Upon the allocation of Shares to an eligible employee that eligible employee becomes a Participant and is bound by the rules of the Exempt Plan

Shares are then allocated to a Participant to be held on their behalf by the Trustee during the Restriction Period. The Restriction Period will run from the Date of Allocation until the earlier of:

•                 three years from the Date of Allocation; and

•                 the date on which the Participant ceases employment with Company A.

After such time, the Company must direct, in writing, the Trustee to release the relevant Shares and transfer the legal title of the Shares to the Participant.

From the Date of Allocation, Participants are entitled to the same benefits as other Shareholders in Company A, such as distributions and voting rights. Subject to the Exempt Plan Rules, Participants may direct the Trustee to exercise any rights and benefits attached to the Shares.

Shares allocated to a Participant under the Exempt Plan may not be transferred, mortgaged, charged or otherwise dealt with by a Participant, other than in accordance with the terms of the Exempt Plan, unless the Plan Committee consents to such action or the assignment or transfer occurs by legal operation upon the death or legal incapacity to a Participant's legal personal representative.

Employee Share Trust

The Trust was established as a sole purpose trust for obtaining Shares for the benefit of participants in Employee Share Plans and any Future Plans.

The Trust provides Company A with greater flexibility to accommodate the incentive arrangements of Company A both now and into the future as the group continues to expand its operations. The Trust provides capital management flexibility, in that the Trust can use the contributions made by Company A either to acquire Shares on market, in an off-market transaction or alternatively to subscribe for new Shares in Company A.

The Trust provides an arm's length vehicle through which Company A Shares can be acquired and held on behalf of employees. This allows Company A to satisfy the requirements contained in the Corporations Act 2001 relating to companies dealing in their own shares.

The Trustee of the Trust is an independent third party. Company A will pay the Trustee's costs of operation to the extent they relate to the operation of the Trust which will facilitate the Plans.

The Trustee is required to comply with the rules of the Plans and holds the Settlement Sum and all other property including but not limited to money or Shares (Fund) that may be paid, transferred or credited to the Trust, on trust for all Participants in accordance with the Trust Deed. The Trust is funded by contributions from Company A (i.e. for the purchase of Shares in accordance with the terms of the Plans). The Trustee uses the Funds to subscribe for, or acquire Company A Shares, based on notification from the Plan Committee.

The Trustee is required to allocate Shares to Participants and hold these on trust on their behalf in accordance with the terms of the Plans. Company A may instruct the Trustee to subscribe for, or acquire a number of Shares to be held by the Trustee on an unallocated basis on trust for participants generally.

If Shares are held by the Trustee on behalf of a Participant, the Trustee may apply any income it receives (including, but not limited to, dividends, distributions and returns of capital) in the manner directed by the Participant or as otherwise provided in the rules of the Plans. During any Restriction Period, the Trustee and the Participant must not assign, transfer, sell or grant an Interest in or over, or otherwise deal with Shares, without the express consent of the Boards or Plan Committee in accordance with the relevant rules of the Plans. The Trustee can sell Shares on behalf of a Participant where permitted to do so by the Participant. The Trustee may exercise voting rights on behalf of a Participant who has Shares held in the Trust, where directed to do so.

Company A must ensure the Trustee has the necessary funds to do any act requested by the Board/Plan Committee and to enable the Trustee to pay any costs and expenses incurred in accordance with the Trust Deed.

Company A is not permitted to be a beneficiary of the Trust (nor may it become a beneficiary), nor does it have any proprietary right or interest in any of the Shares acquired by the Trustee.

Contributions to the Trust

Company A does not and will not pay cash contributions to the Trust prior to the issue of Performance Rights or Shares under the Plans to Participants.

Company A will wait until vesting and to receive the Notice of Exercise from Participants before providing the Trust with the cash contributions necessary to satisfy the acquisition/ subscription of Shares. However, where it makes commercial sense to do so, Company A may make cash contributions to the Trust prior to vesting.

On-going administration expenses

Company A has incurred and will incur costs for the on-going administration of the Trust including:

•                 employee plan record keeping

•                 production and dispatch of holding statements to Participants

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

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

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 67

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 177F

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 20-20

Income Tax Assessment Act 1997 section 83A-210

Income Tax Assessment Act 1997 Division 104

Reasons for decision

Question 1

Summary

Company A is entitled to income tax deductions pursuant to section 8-1 in respect of the irretrievable payments that it makes to the Trustee to fund the acquisition by the Trust of Company A shares either on-market or via a new subscription of shares.

Detailed reasoning

In accordance with the Plan Rules and the Trust Deed, Company A makes payments to the Trustee to enable the Trust to purchase Shares to benefit Participants. The Shares are acquired either on-market or via a new subscription of Shares.

The Trust Deed states that contributions made by Company A to the Trustee constitute accretions to the capital of the Trust, are irretrievable by Company A and are non-refundable by the Trustee. As the funds are not repayable by the Trustee, the contributions represent a permanent loss or outgoing incurred by Company A.

Company A will generally incur the contributions at the time these are made to the Trust in accordance with the Plan Rules and the Trust Deed. (See further the Detailed reasoning for Question 3 below as to the timing of deductions for the contributions).

The Commissioner accepts that the contributions made by Company A to the Trust are incurred in gaining or producing the assessable income of Company A for the purposes of section 8-1.

Company A's payments are generally deductible when made (subject to the timing rule in section 83A-210 which is discussed in the Detailed reasoning for Question 3 below), as they enable Company A to meet its obligations arising under the Plan Rules.

Relevantly, the Commissioner's view as set out in ATO Interpretative Decision ATO ID 2010/103 states:

The provision of money to the trustee of an employee share trust by the employer for the purpose of remunerating its employees under an employee share scheme is an outgoing in carrying on the employer's business and is deductible under section 8-1 of the ITAA 1997.

It is not necessary to consider the 'necessarily incurred' part of this limb.

Further, the contributions made by Company A are not of, nor will be of a private or domestic nature (paragraph 8-1(2)(b)).

However, paragraph 8-1(2)(a) provides that a loss or outgoing is not deductible under section 8-1 to the extent that it is a loss or outgoing of capital, or of a capital nature.

The Commissioner accepts that the contributions to the Trust to fund the acquisition of Shares are on revenue account and are not capital or capital in nature (Spotlight Stores Pty Ltd v Federal Commissioner of Taxation (2004) 55 ATR 745 and Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) 58 ATR 210). Therefore, the contributions will be deductible to Company A pursuant to section 8-1 on the basis that the contributions are regular and recurrent employment expenses.

Finally, the Commissioner accepts that the contributions made by Company A to the Trust are deductible irrespective of whether the Trust acquires Shares on-market or via a new subscription of Shares.

Paragraph 1.72 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 which introduced Division 83A recognises that a general deduction may be available to companies that provide securities under an employee share scheme and states:

The employee share trust may acquire the securities by buying them on the market or by participating in a share issue by the employer.

Question 2

Summary

Company A is entitled to an income tax deduction pursuant to section 8-1 in respect of costs it incurs in relation to the on-going administration of the Trust.

Detailed reasoning

The Commissioner accepts that the on-going costs incurred by Company A towards the on-going administration of the Trust are deductible to Company A under section 8-1.

The on-going costs are considered to be regular and recurring expenses in connection with employees. The Commissioner also accepts these costs are deductible in accordance with the Commissioner's view set out in ATO Interpretative Decision ATO ID 2014/42.

Question 3

Summary

Irretrievable payments made by Company A to fund the acquisition of Company A shares either on-market or via a new subscription of share by the Trust, will be deductible to Company A pursuant to section 8-1, at the time determined by section 83A-210.

Detailed reasoning

The circumstances where some or all of the irretrievable payments are in excess of the amount required are addressed in the Detailed reasoning for Question 4 below.

Section 83A-210 states that 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.

As discussed in the Detailed reasoning for Question 1 above, a deduction is generally available to Company A pursuant to section 8-1 in the income year in which it incurs the relevant outgoing.

Where Company A makes irretrievable payments to the Trustee which are not in excess of the amount required, the Commissioner accepts that Company A will be entitled to the deduction pursuant to section 8-1 in the year of income the irretrievable payments are made. Section 83A-210 will not operate to defer the timing of the deduction in this instance.

Therefore, a deduction will be available to Company A once the contributions are made to the Trust, even if the relevant performance rights or shares have not been acquired and allocated (i.e. exercise on vesting), provided the contributions are not in excess of the amount required, or do not purchase shares in excess of the number required, to meet the exercise of Rights that have been acquired by employees (before or during the year of income) under the Plan.

The Commissioner confirms that where contributions are made by Company A to the Trust:

In the same income year or a later income year to that in which the Rights are acquired by (i.e. granted to) the employee under the Plan, then as long as the contributions do not exceed a sufficient amount to acquire the requisite number of ESS interests, the deduction under section 8-1 will be available in the income year in which the contribution is made.

Question 4

Summary

Where the Trust satisfies its obligation under the Plans by subscribing for new shares in Company A, the subscription proceeds payable by the Trust will not be included in the assessable income of Company A under sections 6-5 or 20-20, or result in a capital gains tax ('CGT') event happening under Division 104.

Detailed reasoning

Where an employee share trust subscribes for shares in the company, the Commissioner states in ATO ID 2010/155 that:

In accordance with the ESS, the trustee either acquires the shares on market or it subscribes for the issue of shares using the funds provided by the employer. If the trustee subscribes for the issue of shares, it pays the full subscription price for the shares and the company receives a contribution of share capital from the trustee. The subscription price received by the company from the trustee is a capital receipt of the company.

Accordingly, the subscription proceeds Company A receives from the Trust do not form part of the assessable income of Company A as ordinary income under section 6-5.

1. Recoupment by way of insurance or indemnity

Subsection 20-20(2) states that:

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

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

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

In accordance with the Plan rules and the Trust Deed, subscription proceeds received by Company A are not a recoupment by way of insurance or indemnity.

Rather, the amount received by Company A is by way of subscription proceeds for the issue of shares to the Trust, which is a capital receipt of the company.

Therefore, the subscription proceeds payable by the Trust are not included in the assessable income of Company A under subsection 20-20(2).

2. Assessable Recoupment - Other Recoupment (i.e. not by way of insurance or indemnity)

Subsection 20-20(3) states that:

An amount you have received as recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if:

(a)             you can deduct an amount for the loss or outgoing for the current year; or

(b)             you have deducted or can deduct an amount for the loss or outgoing for an earlier income year;

under a provision listed in section 20-30.

In accordance with the Plan rules and the Trust Deed, the subscription proceeds received by Company A will not satisfy any of the items / provisions listed in the table in section 20-30.

Therefore, the subscription proceeds will not constitute an assessable recoupment - other recoupment to Company A.

3. Capital Gains Tax (CGT)

Section 102-20 states:

102-20 Ways you can make a capital gain or a capital loss

You can make a *capital gain or *capital loss if and only if a *CGT event happens. The gain or loss is made at the time of the event.

The only CGT events which may be relevant to the receipt of the subscription proceeds are:

•                 CGT event D1 (Creating a contractual or other rights), or

•                 CGT event H2 (Receipt for event relating to a CGT asset).

For both CGT events D1 and H2, paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that the events do not happen to a company that issues equity interests.

As the ordinary shares of Company A will satisfy the test for an equity interest as defined in subsection 974-75(1) (Item 1 of the Table) and subsection 974-70(1), neither CGT events D1 nor H2 will happen as the subscription amounts for new Company A shares by the Trustee to which this question relates involves Company A issuing equity interests.

Question 5

Summary

The Commissioner will not seek to make a determination under section 177F of the ITAA 1936 (in respect of a scheme to which section 177D of the ITAA 1936 that is within Part IVA of the ITAA 1936) to deny, in part or full, any deduction claimed by Company A in respect of the irretrievable payments made by Company A to the Trustee to fund the acquisition by the Trust of Company A shares either on market or via a new subscription of shares.

Detailed reasoning

Part IVA of the ITAA 1936 is a general anti-avoidance provision. It enables the Commissioner 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 following requirements must all be present before the Commissioner can make a determination under subsection 177F(1) of the ITAA 1936:

•                 a 'tax benefit', as defined in section 177C of the ITAA 1936 has been obtained or would (but for subsection 177F(1) of the ITAA 1936) be obtained

•                 the tax benefit was, or would have been, obtained in connection with a 'scheme' as defined in section 177A of the ITAA 1936, and

•                 having regard to the matters in subsection 177D(2) of the ITAA 1936, the person or persons who entered into or carried out any part of the scheme did so for the dominant purpose of enabling a taxpayer to obtain a tax benefit in connection with the scheme.

In the present case, the Plan rules and the Trust Deed constitute a 'scheme' for the purposes of section 177A of the ITAA 1936. The deduction which Company A is entitled to is a tax benefit under paragraph 177C(1)(b) of the ITAA 1936.

In considering the Relevant facts and circumstances and taking into account the commercial rationale for using a trust for the remuneration program, the Commissioner accepts that it cannot be objectively concluded that the person or persons who entered into or carried out any part of the scheme did so for the dominant purpose of enabling Company A to obtain a tax benefit in connection with the scheme.

Therefore, as one of the requirements is not present, the Commissioner will not seek to make a determination under subsection 177F(1) of the ITAA 1936.

Question 6

Summary

The provision of Performance Rights and/or Shares by Company B to its employees under the Plan Rules will not be a 'fringe benefit' within the meaning of the term in subsection 136(1) of the FBTAA.

Detailed reasoning

An employer's liability to FBT arises under section 66 of the 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.

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

... a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997) to which Subdivision 83A-B or 83A-C of that Act applies; ...

Paragraph (h) uses the term 'ESS interest' and specifically excludes such an interest from the definition of a fringe benefit where it is acquired under an employee share scheme at a discount.

The Commissioner accepts that the Plans are employee share schemes, the Performance Rights and/or 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 Performance Rights and/or Shares under the Plans will not be subject to FBT on the basis that they are acquired by employees (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 a Performance Right 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 Performance Right and not in respect of employment in accordance with the Commissioner's view set out in ATO Interpretative Decision ATO ID 2010/219.

Question 7

Summary

The irretrievable payments made by Company B to the Trustee, to fund the acquisition of Company A shares either on market or via a new subscription, will not be treated as a fringe benefit within the meaning of the term in subsection 136(1) of the FBTAA.

Detailed reasoning

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

... a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning of the Income Tax Assessment Act 1997); ...

The term 'employee share trust' is defined in subsection 130-85(4) as follows:

... for an employee share scheme, is a trust whose sole activities are:

(a)             obtaining shares or rights in a company; and

(b)             ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of:

(i) the company; or

(ii) a subsidiary of the company; and

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

The Commissioner accepts that paragraphs 130-85(4)(a) and (b) will be satisfied as

•                 the Trust will acquire shares in Company A, and

•                 the Trust will ensure that 'ESS interests' as defined in subsection 83A-10(1), being the beneficial interests in those shares, will be provided under an ESS, as defined in subsection 83A-10(2), by allocating those shares to the employees (Participants) in accordance with the governing documents of the scheme.

For paragraph 130-85(4)(c), Taxation Determination TD 2019/13 lists a number of activities which the Commissioner considers to be merely incidental.

Provided the Trustee administers the Trust according to the terms of the Trust Deed, the Commissioner accepts that the activities of the Trustee will satisfy the 'sole activities test'. The Trust will therefore constitute an 'employee share trust', as defined in subsection 130-85(4).

Accordingly, the contributions to the Trustee will not be a fringe benefit in accordance with paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA.

Question 8

Summary

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 B, by the amount of any tax benefit gained from irretrievable payments made to the Trustee, to fund the acquisition by the Trust of Company A shares either on market or via a new subscription of shares.

Detailed reasoning

Section 67 of the FBTAA is a general anti-avoidance provision.

Subsection 67(1) of the FBTAA is satisfied where a person, or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer, or the eligible employer and another employer, to obtain a tax benefit.

The Commissioner will 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 otherwise be payable but for entering into the arrangement.

The provision of benefits to the Trustee as irretrievable contributions are excluded from the definition of a 'fringe benefit'.

As these benefits are excluded from the definition of a fringe benefit, no fringe benefit arises and no fringe benefits tax will be payable under the arrangement which includes the Trust. As there will be no fringe benefits tax payable without the operation of the Trust, the Commissioner accepts that the fringe benefits tax liability is not any less than it would otherwise be but for entering into the arrangement.

Accordingly, 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 B, by the amount of any tax benefit gained from the irretrievable cash contributions made to the Trustee, to fund the acquisition of shares either on-market or via a new subscription of shares in Company A.