Edited version of private advice

Authorisation Number: 1052096228649

Date of advice: 30 May 2023

Ruling

Subject: Employee share scheme

Question 1

Will Company (Company) obtain an income tax deduction undersection 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the irretrievable cash contributions made by Company to the Trustee to fund the subscription for or acquisition on-market of ordinary shares in Company (Company Shares) by the Trust?

Answer

Yes.

Question 2a

Will Company obtain an income tax deduction under section 8-1 of the ITAA 1997 in respect of costs incurred by Company in relation to the on-going administration of the Trust?

Answer

Yes.

Question 2b

Will Company obtain an income tax deduction under section 25-5 of the ITAA 1997 in respect of costs incurred by Company in managing the tax affairs of the Trust?

Answer

Yes.

Question 2c

Will Company obtain an income tax deduction under section 40-880 of the ITAA 1997 in respect of costs incurred by Company in relation to the establishment of the Trust?

Answer

Yes.

Question 3

Will irretrievable cash contributions made by Company to the Trustee, to fund the subscription for or acquisition on-market of Company Shares by the Trust, be deductible to Company at a time determined by section 83A-210 of the ITAA 1997 where contributions are made before the acquisition of the relevant 'ESS interests' (as defined in subsection 83A-10(1) of the ITAA 1997)?

Answer

Yes.

Question 4

If the Trust satisfies its obligation under the Plan A and Plan B (collectively the Company Plans)by subscribing for new Company Shares will the subscription proceeds be included in the assessable income of Company under section 6-5 or section 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 (ITAA 1936) applies to deny, in part or full, any deduction claimed by Company in respect of the irretrievable cash contributions made by Company to the Trustee to fund the subscription for or acquisition on-market of Company Shares by the Trust?

Answer

No.

Question 6

Will the provision of Performance Rights or Options by Company to employees of Company or employees of other employer entities within the Company Group under the Company Plans be 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 or other employer entities within the Company Group to the Trustee, to fund the subscription for or acquisition on-market of Company Shares by the Trust, be treated as a fringe benefit within the meaning of section 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 fringe benefits taxable amount to Company or any employer entity within the Company Group, by the amount of tax benefit gained from irretrievable cash contributions made by Company to the Trustee, to fund the subscription for or acquisition on-market of Company Shares?

Answer

No.

Relevant facts and circumstances

Company is an Australian public company and is the head company of a tax consolidated group (TCG).

Plan A

The Plan A was approved by Company shareholders.

The Plan A allows Company to grant Performance Rights to Eligible Participants, being Company's key management personnel, employees of a Group Company holding the position of General Manager, or a person who is declared by the Board to be an Eligible Participant for the purposes of Plan A.

Invitation

The Board may invite an Eligible Participant to apply for a specified number of Performance Rights on the terms of Plan A.

Unless determined otherwise by the Board, Performance Rights will be granted for nil consideration.

The Invitation will include the following information:

• the number of Performance Rights the Eligible Participant is able to apply for
• the date and time by which the application for Performance Rights must be received by
• any applicable Vesting Conditions
• the date the Performance Rights will vest and exercise automatically into Shares (Vesting Date), and
• any other relevant terms and conditions attaching to the Performance Rights (including any Disposal Restrictions).

An Eligible Participant may accept, in part or in full, the Invitation by making an application to Company within the Acceptance Period.

The grant of Performance Rights is subject to the Company receiving a signed and completed application form. On receiving the completed form, the Company may accept the application, at the discretion of the Board, and issue the Eligible Participant with Performance Rights.

Performance Rights

A Performance Right granted under Plan A will not vest or become exercisable until the Vesting Conditions have been satisfied. The Board has the absolute discretion to vary or waive Vesting Conditions.

Once vested, a Performance Right will be exercised automatically and the Participant will become entitled to receive a Share or cash equivalent.

Once the Performance Right has been exercised, the Company will:

• issue or procure the relevant number of Shares to satisfy the number of Performance Rights being exercised, or
• pay the Participant a cash amount equal to the number of Shares not being issued or transferred, multiplied by the volume weighted average price of Shares over 5 trading days on the ASX in the immediately prior to the date the Shares would have been issued or transferred, or
• issue or transfer a combination of Shares and a payment of a cash amount equal to the number of Shares not being issued or transferred.

The Board may, in its absolute discretion impose Disposal Restrictions as part of the terms of terms of an Invitation or allow Eligible Participants to elect to be subject to Disposal Restrictions and nominate a period of time which the Disposal Restrictions will apply.

The Board may also implement any procedures it deems necessary to restrict a Participant from trading in Shares while they remain subject to a Disposal Restriction, including imposing a holding lock on the Shares.

Lapse of Performance Rights

Unless the Board determines otherwise, an unvested Performance Right will lapse upon the earliest to occur of:

• a Participant purporting to transfer, assign, mortgage, charge or otherwise dispose of or encumber a Performance Right without consent of the Board
• an Eligible Participant or its nominee enters, or purports to enter into any scheme, arrangement or agreement which may alter the economic benefit to be derived from an unvested or unexercised Performance Rights
• a Change of Control event occurs and the Board determines Vesting Conditions will not be satisfied
• the Participant fails to meet the Vesting Conditions in the prescribed period
• a Participant resigns or is Terminated for Cause, for example due to an act of fraud, defalcation or gross misconduct, or active to bring the company into disrepute, or
• any date set out in an Invitation by which it is stated that the Participant will automatically lapse.

Plan B

Plan B was approved by the Company shareholders on [Date].

Plan B allows Company to grant Shares, Options and Performance Rights (ESS Interests) to Eligible Participants.

Invitation

The Board may invite an Eligible Participant to participate in Plan B. The terms of the Invitation may require either no Monetary Consideration or Monetary Consideration to be provided by the Eligible Participant in order to participate in Plan B.

An Invitation may state the following, including:

• the maximum number of ESS Interest which the Eligible Participant is eligible to apply for
• any applicable Grant Conditions or Vesting Conditions
• whether Vesting or exercise (or both) is automatic or requires a Notice of Exercise or any Exercise Price (or both)
• the date on which the ESS Interests will vest (Vesting Date)
• in respect to Shares:

­   the Issue Price (if any) or the manner of determining the Issue Price (if any) of the Shares, and

­   details of the Vesting Conditions (if any) attached to the Shares

• in respect to Options or Performance Rights:

­   the Issue Price or manner of determining the Issue Price (if any)

­   details of the Vesting Conditions attached (if any)

­   the first and last Exercise dates, and

­   the Exercise Price or manner of determining the Exercise price (if any)

• any other specific terms or conditions including any Disposal Restrictions.

The Invitation will include the Issue Price (if any) in respect of a Share, Option or Performance Right and the Exercise Price (if any) in respect of an Option or Performance Right.

An Invitation is personal and can only be accepted by the Eligible Participant to whom the Invitation is made. Where the Eligible Participant nominates a Third Party in whose favour the Eligible Participant wishes the ESS Interests the subject of the Invitation to be issued or transferred, and the Board permits the ESS Interests to be issued to the Third Party, the Eligible Participant procures that the Third Party also agrees to be bound by the Plan.

An Eligible Participant may accept the Invitation by applying for all or some of the ESS Interests specified in the Invitation in the method set out by the Invitation during the Acceptance Period. Where an Invitation includes an Issue Price, the Eligible Participant must also pay the Issue Price.

Following the receipt of an application from an Eligible Participant, the Company will be deemed to have accepted the application once the Company issues or transfers the ESS Interests the subject of the application to the Eligible Participant (or their Third Party where applicable).

ESS Interests

ESS Interests granted by the Company to an Eligible Participant (or their Third Party) have effect from the Grant Date and are subject to any Grant Conditions being met or waived, the terms of Plan B, and any additional conditions the Board determines in its absolute discretion.

The Company must provide the Eligible Participant a Certificate in respect of the Options and Performance Rights issued or granted.

An ESS Interest will not vest or be exercisable unless the Vesting Conditions attached to the ESS Interest have been satisfied. Where the ESS Interest is an Option or a Performance Right, a Vesting Notice will be issued to the Eligible Participant (or their Third Party) once Vesting Conditions have been satisfied.

The Board has the absolute discretion to amend or waive any Vesting Condition.

ESS Interests that have the Vesting Conditions met will be exercisable or exercise automatically in accordance with the terms of the Invitation.

If the ESS Interest is a Performance Right or Option, the Vested ESS Interest may be exercised by the Participant upon the Company receiving:

• the Certificate of Options or Performance Rights
• a signed Notice of Exercise, and
• payment of the Exercise Price (if any).

A Participant, in lieu of payment of the Exercise Price (where relevant), may elect to instead exercise their Vested Options or Performance Rights by surrendering a portion of their exercisable Options or Performance Rights.

Once the Vested ESS Interest is exercised, the Company will issue or transfer a Share to the Participant.

The Board may, in its absolute discretion impose Disposal Restrictions as part of the terms of an Invitation or allow Eligible Participants to elect to be subject to Disposal Restrictions and nominate a period of time which the Disposal Restrictions will apply.

The Board may also implement any procedures it deems necessary to restrict a Participant from trading in Shares while they remain subject to a Disposal Restriction, including imposing a holding lock on the Shares.

Lapse of ESS Interests

Unless the Board determines otherwise, an Unvested ESS Interest will lapse if:

• the Participant purports to transfer, assign, mortgage, change or otherwise dispose of or encumber (in whole or in part) the ESS Interest in a manner other than in accordance with the Plan Rules
• it lapses in accordance with Plan Rules (including circumstances where in the Board's opinion, there has been fraudulent or dishonest actions by a Relevant Person)
• an Eligible Participant or Third Party breaches the prohibition against entering into or purporting to enter into any activity in relation to the ESS Interests that is considered to alter the economic benefit derived from those ESS Interests
• a Change of Control event occurs and the Board determines Vesting Conditions will not be satisfied
• the Participant ceases employment or engagement with the Company due to resignation or Termination for Cause
• the Participant ceases employment or engagement with the Company for any other reason other than resignation or Termination for Cause, a portion of the Unvested ESS Interests equivalent to the remaining prescribed period in which the Vesting Conditions must be satisfied will lapse
• the Vesting Conditions have not been reached, or
• any date set out in an Invitation by which the ESS Interest will automatically lapse.

An Unvested Share will be forfeited upon the earliest of:

• the Board determining that any Vesting Conditions have not been satisfied, reached or met
• the Unvested Share being forfeited in accordance with a provision of the Plan Rules,
• the Board providing the Participant with a written notice under the Plan Rules, or
• the Participant purporting to Deal or enter into an arrangement in the Unvested Shares in breach of the Plan Rules.

The Trust

On [DATE], the Company established the Trust under a Deed (Trust Deed) entered into between the Company and the Trustee.

The Trust is an independent third party.

The Recitals to the Trust Deed states that the Company wishes to establish the Trust for the sole purpose of subscribing for, acquiring, holding and transferring Shares in connection with equity incentive plans for the benefit of participants in those plans.

Trust Assets means cash (including the Settlement Sum), ESS Interests, and income of the Trust and includes Accretions in respect of the relevant Trust Asset.

The Trustee has the powers to do all things a trustee is permitted to do by law in respect to the Trust, Trust Shares and Trust Assets, including to:

• enter into and execute all agreements, deeds and documents
• subscribe for, acquire, hold, dispose or otherwise deal with Trust Assets for the purpose of, and as authorised under, the Trust Deed and to do all things incidental to these activities
• take and act upon any advice or opinion of any legal practitioner or any other professional advisor
• open and operate any bank account, retain on current or deposit account at any bank any money it considers proper
• borrow money for the purpose of acquiring Shares or rights in the Company, where no security is provided over the assets of the Trust and the interest payable on the loan is not more than arm's length commercial rates
• receive dividends in respect to Unallocated Shares and any interest from bank accounts and using those funds to:

­   acquire additional shares for the purpose of a Plan

­   pay any necessary and incidental costs of administering the Trust in accordance with paragraphs 130-85(4)(a), (b) and (c) of the ITAA 1997, or

­   pay interest on loans provided to the Trust for the acquisition of Shares or rights to Shares in the Company.

• do all acts, matters or things which the Trustee in its discretion considers necessary or expedient to administer and maintain the Trust and the Trust Assets for the purpose of the Trust Deed.

The Company and the Trustee agree that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" for the purpose of section 130-85(4) of the ITAA 1997.

The Trustee's activities in its capacity as trustee will be limited to the relevant Plan Rules and relevant Terms of Participation.

Acquisition of Trust Shares

The Board may instruct the Trustee by way of a Dealing Notice, and subject to the Trustee having or receiving sufficient funds or having sufficient capital, to:

a)    purchase or subscribe for the required number of Shares on behalf of the relevant Participant(s)

b)    allocate any Unallocated Shares to one or more Participants

The Trustee must hold all Trust Assets (including any Unallocated Shares) on trust in accordance with the Trust Deed. Nothing in the Trust Deed confers or intends to confer on the Company any charge, lien, or any other proprietary right or beneficial interest in the Trust Assets.

Funding

The Company must provide, or cause the provision to the Trustee, of any funds required by the Trustee to comply with its obligations to acquire Trust Shares under the Trust Deed.

All funds provided to the Trustee will constitute Accretions to the corpus of the Trustand may be paid to the Company as consideration for the subscription for Shares.

In accordance with the Company Plans, if the Board has made the decision to settle ESS Interest in cash, any payment that is made to a Participant will not be made from Trust Assets.

The Trustee may recover from the Trust Assets (excluding Allocated Shares, Unallocated Shares and dividends from Allocated Shares) all reasonable disbursements actually incurred by the Trustee in performing its duties, or alternatively, may seek reimbursement from the Company of reasonable expenses incurred by the Trustee for managing the Trust.

The Company incurs costs in relation to the on-going administration of the Trust including:

• employee plan record keeping
• production and dispatch of holding statements to Participants
• provision of annual income tax return information for Participants
• costs incurred in the acquisition of shares on market (e.g., brokerage costs and the allocation of such shares to Participants)
• management of Participant termination (as it pertains to the Company Plans)
• annual audit of the financial statements
• annual income tax return of the Trust, and
• drafting and lodging a private ruling application with the Australian Taxation Office and obtaining related tax advice associated with the implementation of the Trust.

Allocation of Shares

The Board may instruct the Trustee by way of Dealing Notice to allocate the specified number of Plan Shares to a specified Participant or Participants. The specified Participant(s) will become the beneficial owner of the Allocated Plan Shares.

Each Participant must not assign, transfer, sell, or grant an encumbrance over an interest in that Allocated Share of that Participant during any applicable Restriction Period. After the expiry of the Restriction Period and subject to the guidelines set by the Board, the relevant Plan Rules and the relevant Terms of Participation, a Participant may give the Trustee a Withdrawal Notice requiring the Trustee to transfer some or all of the Participant's Allocated Shares to the Participant (or their nominated third party).

The Trustee must do all things required to transfer some or all of a Participant's Allocated Shares and pay any monies held on account for the Participant, subject to:

• a valid Withdrawal Notice being provided and approved by the Board
• requirement to do so by the relevant Plan Rules or Terms of Participation
• termination of the Trust, or
• if the Trustee determines so, following a written instruction from the Board.

Unallocated Shares

The Trustee must deal with Unallocated Shares in the manner set out in a Dealing Notice.

In respect to the Unallocated Shares held by the Trustee, the Trustee must:

• if instructed by the Board:

­   dispose of any Unallocated Shares (including pursuant to a buyback being conducted by the Company)

­   participate in a Rights Issue in respect to the Unallocated Shares, or

­   dispose of any rights under a Rights Issue in respect of the Unallocated Shares.

• hold any bonus shares issued in respect of that Unallocated Shares.

The Board may from time to time specify that certain Unallocated Shares be held by the Trustee for a particular Plan.

Income and capital distributions

Subject to Applicable Law, the relevant Plan Rules and relevant Terms of Participation, a Participant is presently entitled to so much of the Net Income of the Trust for a Year of Income which is attributable to:

• the Participant's Allocated Shares
• the proceeds of sales arising from the sale by the Trustee of rights under a Rights Issues relating to that Participant's Allocated Shares, and
• transactions or events related to that Participant's Allocated Shares or property related to or arising from that Participant's Allocated Shares.

Reasons for decision

All legislative references are to provisions of the ITAA 1936 or to provisions of the ITAA 1997, unless otherwise indicated.

Question 1

Detailed Reasoning

Subsection 8-1(1) allows 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, under 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 carries on a business which provides it with assessable income. Company operates an Employee Share Scheme (ESS) as part of its remuneration strategy.

Under the Company Plans, Company will grant Performance Rights or Options to Eligible Participants and make irretrievable cash contributions to the Trustee which the Trustee will use to acquire Company Shares for allocation to Eligible Participants (in accordance with the Company Plans and the Trust Deed).

The cash contributions made by Company to the Trustee are irretrievable and non-refundable to Company as:

• all funds received by the Trustee from Company will constitute Accretions to the corpus of the Trust and will not be repaid to Company, other than as consideration for Company Shares under the terms of the Trust Deed, the Company Plans or relevant terms of participation
• nothing in the Trust Deed confers, or is intended to confer, on Company any security interest, proprietary right or proprietary interest in the Company Shares acquired by the Trustee.

Company will grant ESS interests (that is a beneficial interest in a right to acquire a beneficial interest in a share) as part its reward and remuneration program for Eligible Participants. The costs incurred by Company to facilitate the Trustee's acquisition of Company Shares to satisfy grants of ESS interests that arise as part of these remuneration arrangements, and contributions to the Trust are part of an ongoing series of payments in the nature of remuneration of its employees. Therefore subsection 8-1(1) is satisfied.

Not capital or of a capital nature

The costs will be an outgoing incurred for periodic funding of an ESS for employees of Company. Costs incurred are likely to be in relation to more than one grant of Company Shares, and Company intends to satisfy outstanding Company Share issues using Company Shares acquired by the Trust. This indicates that the irretrievable cash contributions to the Trustee are ongoing in nature and are part of the broader remuneration expenditure of Company.

While the irretrievable cash contributions may secure and 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 comparatively small. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied.

Company will be entitled to deduct an amount under section 8-1 for its irretrievable cash contributions to the Trustee to acquire Company Shares to satisfy ESS interests issued under the Company Plans.

Question 2a

Detailed Reasoning

In addition to the reasoning provided in Question 1, Company incurs on-going administration costs for operating the Trust and has appointed the Trustee to administer the Trust. Company may pay all trust expenses which includes all expenses, outgoings, costs and charges incurred in operating the Company Plans (including any amount of income or other Tax payable by Company or the Trustee (or both)) in relation to the Company Plans and the costs of the audit of the Trust but excludes any costs directly related to selling and transferring Company Shares or exercising share rights or options.

The costs are regular and recurrent which are deductible under section 8-1 as they are costs necessarily incurred by Company in administering the ESS while carrying on its business for the purpose of gaining or producing its assessable income. These costs are not capital or of a capital nature as the loss or outgoing are regular, recurrent and part of the ordinary employee remuneration costs of Company (Taxation Determination TD 2022/8 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme').

Question 2b

Detailed Reasoning

Section 8-1 allows a deduction for all losses and outgoing 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.

Section 8-10 states that if more than one provision applies, the most appropriate provision should be used.

Division 12 sets out particular types of deductions that are dealt with by a specific provision of either the ITAA 1936 or the ITAA 1997. Section 25-5 of the ITAA 1997 is such a provision listed in Division 12 dealing with tax-related expenses.

Subsection 25-5(1) allows a deduction for tax-related expenses, such as, managing your tax affairs.

To the extent Company incurs costs in managing its tax affairs, including costs incurred on obtaining accounting, tax and legal advice in relation to the implementation of the Trust, Company will be entitled to deduct these expenses under subsection 25-5(1).

Question 2c

Detailed Reasoning

Tax Determination TD 2022/8 "Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme'"sets out the Commissioner's views on the deductibility of expenses in establishing and administering an ESS.

Establishment expenses are outgoings associated with the creation of an ESS and include fees and start-up costs incurred to establish or implement the employee share trust (EST) and the ESS plan rules.

Section 40-880 allows deductions for certain business capital expenditure that fall outside the scope of the deduction provisions of the income tax law. It requires the expenditure to be capital and in relation to the business. As this expenditure relates to remuneration of employees of the employer company who work within that business, the expenditure must be incurred in relation to that business.

Section 40-880 contains limitations and exceptions in subsections 40-880(3) to (9) which may prevent a deduction being allowed. Subsection 40-880(3) indicates that the expenditure is only deductible to the extent that the business is carried on for a taxable purpose. The other limitations and exceptions in subsections 40-880(4) to (9) do not prevent the expenses from being deductible under section 40-880.

Therefore, establishment expenses of the Company Plans or the Trust are deductible in equal proportions over five years under section 40-880 to the extent that the business carried on is for a taxable purpose

Question 3

Detailed Reasoning

Section 83A-210 applies to determine the timing of the deductions, but only in respect of the cash contributions provided to the Trust to purchase Company Shares in excess of the number required to grant the relevant ESS interest to the ultimate beneficiary arising in the year of income under an ESS. The effect of section 83A-210 is to deem the timing an employer incurred the outgoing to be the time when the ESS interest is acquired by the ultimate beneficiary, rather than the time when the employer makes the contribution to the trust. Further information is available in ATO Interpretive 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 Company Plans are an ESS for the purpose of subsection 83A-10(2) as they are schemes under which ESS interests, are provided to employees in relation to their employment or engagement with Company (or with members of the TCG).

Company's ESS contains a number of interrelated components which include the provision of irretrievable cash contributions by Company to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Company Shares for the purpose of enabling each Eligible Participant, indirectly as part of the Company Plans, to acquire ESS interests.

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

Question 4

Detailed Reasoning

Section 6-5

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

In an ESS, 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 subscription proceeds received by Company from the Trust can be determined by the character of the right or thing disposed of in exchange for the receipt. Where Company issues the Trust with new shares in itself, the character of the newly issued share is one of capital. Therefore, the receipt of the subscription proceeds takes the character of share capital, and is of a capital nature. This view is supported by the reasoning in ATO Interpretative Decision ATO ID 2010/155 Income Tax - Employee Share Scheme: assessability to an employer of the option exercise price paid by an employee.

When Company receives subscription proceeds from the Trustee where the Trustee has subscribed to new Company Shares to satisfy obligations to Participants, those subscription proceeds received are a capital receipt and will not be treated as 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 will receive an amount for the subscription of Company Shares by the Trustee. There is no insurance contract in this case, so the amount is not received by way of insurance. 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. Therefore, the receipt of the subscription proceeds does not constitute an assessable recoupment under subsection 20-20(2).

Subsection 20-20(3) provides that an amount received by you as a 'recoupment' of a loss or outgoing, except by way of insurance or indemnity, is an 'assessable recoupment' if you can deduct the loss or outgoing is deductible in the current or a prior income year because of a provision listed in the table in section 20-30.

None of the provisions listed in section 20-30 are relevant to the current circumstances. Therefore, the subscription amount also does not constitute an assessable recoupment under subsection 20-20(3).

Division 104

A capital receipt will only be included as an assessable net capital gain only if it arises as a result of a CGT event (section 102-20).

The only CGT events that may have possible application to the receipt of the subscription proceeds are CGT event D1 (Creating a contractual or other rights) and CGT event H2 (Receipt for event relating to a CGT asset) or both.

Paragraphs 104-35(5)(c) and 104-155(5)(c) respectively provide that CGT event D1 and CGT event H2 do not apply if a company issues or allots equity interest or non-equity shares in the company.

As the Company Shares constitute an "equity interest" (see subsection 974-75(1)), neither CGT event D1 nor CGT event H2 will occur.

Since no CGT event occurs, the subscription proceeds will not be assessable as a capital gain to Company.

Question 5

Detailed Reasoning

Part IVA of the 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, 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 of the ITAA 1997 are met.

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

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

Question 6

Detailed Reasoning

An employer's liability to fringe benefits tax (FBT) arises under section 66 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) 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 the 'fringe benefit' definition in subsection 136(1) excludes a benefit constituted by the acquisition of an ESS interest under an ESS (within the meaning of the ITAA 1997) to which Subdivision 83A-B or 83A-C applies.

The Commissioner accepts that the Company Plans are ESS as an Option or Performance Right granted under the Company Plans are an ESS interest under paragraph 83-10(1)(b), being a beneficial interest in a right to acquire a share in a company.

The Commissioner also accepts that Options or Performance Rights granted under the Company Plans that may be satisfied in cash instead of Company Shares are indeterminate rights. However, where the indeterminate rights are ultimately satisfied with Company Shares instead of cash, section 83A-340 will operate to treat those Options or Performance Rights to have always been an ESS interest within the meaning of subsection 83A-10(1). In these circumstances, the Company Plans will constitute an ESS within the meaning of subsection 83A-10(2) because they are schemes under which ESS interests are provided to employees of Company or other employer entities within the Company Group in relation to their employment.

Options and Performance Rights granted under the Company Plans for nil consideration are acquired by employees at a discount and therefore are ESS interests to which Subdivision 83A-B will apply, unless conditions in subsection 83A-105(1) are satisfied, in which Subdivision 83A-C will apply.

The exclusion in paragraph 136(1)(h) will apply and provision of Options or Performance Rights under the Company Plans will not constitute a 'fringe benefit' within the meaning of subsection 136(1).

Therefore, the provision of Options or Performance Rights under the Company Plans to employees of Company or other employer entities within the Company Group, where those Options or Performance Rights are satisfied by Company Shares, will not constitute a 'fringe benefit' within the meaning of paragraph 136(1)(h) (refer to ATO Interpretive Decision ATO ID 2010/142 Fringe Benefit Tax employee share scheme: indeterminate rights not fringe benefits).

Question 7

Detailed Reasoning

An employer's liability to FBT arises under section 66, which provides that tax is imposed in respect of the fringe benefits taxable amount of an employer for the relevant year of tax.

One benefit excluded from being a fringe benefit, under paragraph (ha) of the 'fringe benefit' definition in subsection 136(1), is a benefit constituted by the acquisition of money or property by an EST within the meaning of subsection 130-85(4).

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 are relevant. To qualify as an EST, a trustee's activities must be limited to:

• obtaining shares or rights in a company (paragraph 130-85(4)(a))
• ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the ESS to employees, or to associates of employees, of the company or a subsidiary of the company (paragraph 130-85(4)(b))
• or activities that are merely incidental to the activities mentions in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(4)(c)).

As stated above in the response to Question 6, the Commissioner accepts that the Company Plans are an ESS and Options and Performance Rights granted under the Company Plans are ESS interests under paragraph 83A-10(1)(a) in respect of an ESS to which Subdivision 83A-B or 83A-C applies.

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

• The Trust acquires shares in a company, namely Company
• The Trust ensures that ESS interests (as defined in subsection 83A-10(a)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those Company Shares to the employees in accordance with the Trust Deed and the Company 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 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 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 conjecture with something else'.

The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Tax 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 the Trust are for the sole purpose of undertaking activities that are in line with the definition of an EST under section 130-85(4)(a) and (b). The other activities undertaken by the Trustee are merely incidental under paragraph 130-85(4)(c).

Therefore, the irretrievable cash contributions made by Company, to fund the subscription for, or acquisition on-market of, Company Shares under to the Company Plans will not be fringe benefits.

Question 8

Detailed Reasoning

Section 67 is a general anti-avoidance provision of the FBTAA. Subsection 67(1) 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 make a determination under section 67 if the arrangement resulted in the payment of less FBT than would be payable but for entering into the arrangement.

As stated above in response in Question 6 and 7, without the provision of a fringe benefit, no amount will be subject to FBT. The benefits provided to the Trustee by way of irretrievable cash contributions to the Trust under the Company Plans are excluded from the definition of a fringe benefit for the reasons provided in response to Question 7. As the benefits have been excluded from the definition of a fringe benefit, the FBT 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 applies to increase the aggregate fringe benefits amount of Company by the amount of tax benefit gained from the irretrievable cash contributions made by Company to the Trustee to fund the subsection for, or on-market acquisition of, Company Shares.