Edited version of private advice

Authorisation Number: 5010080927302

Date of advice: 14 March 2022

Ruling

Subject: Employee share scheme

Question 1

Will the Company obtain an income tax deduction pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable cash contributions made by the Company to the Trustee of the Trust to fund the subscription for, or acquisition on-market of shares in the Company to satisfy the issue of Shares by the Trustee in respect of its Australian employees (Participants) pursuant to the Share Plans?

Answer

Yes

Question 2

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

Answer

Yes

Question 3

Will irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for, or acquisition on-market of Shares by the Trust, be deductible to the Company at a time determined by section 83A-210 of the ITAA 1997?

Answer

Yes

Question 4

If the Trust satisfies its obligations under the Share Plans by subscribing for new Shares, will the subscription proceeds be included in the assessable income of the Company under sections 6-5 or 20-20 of the ITAA 1997, or trigger a 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 the Company in respect of the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition on-market of Shares by the Trust?

Answer

No

Question 6

Will the provision of ordinary shares and/or rights over Shares by the Company to its employees under the Share 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 the Company 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 the Company by the amount of tax benefit gained from irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for, or acquisition on-market of Shares?

Answer

No

Relevant facts and circumstances

The Company carries on a business that provides services the other businesses.

The Company is a public company listed on the Australian Securities Exchange and is the head company of a tax consolidated group (Group).

The Company currently has two Share Plans that are facilitated through the Trust:

•         Omnibus Plan

•         SARs Plan.

Omnibus Plan

The Company has the Omnibus Plan in place which allows it to grant the following Awards to Participants:

•         Performance Rights

•         Options

•         Share Appreciation Rights (SARs), or rights to an Award equivalent

•         Salary Sacrificed Rights: Rights received by non-executive directors in sacrifice of their director fees

•         Tax Exempt Shares

The Company expects these Awards to be offered on an annual basis moving forward.

SARs Plan

The Company has the SARs Plan in place which allows the Company to provide Participants with an equity interest in the Company in the form of SARs.

Offer

The Awards that may be offered to Participants pursuant to the Omnibus Plan and the SARs offered to Participants pursuant to the SARs Plan are hereinafter collectively referred to as "Awards".

An Invitation to a Participant to apply for Awards/SARs may be made on such terms and conditions as the Board decides from time to time, including as to:

•         the number of Awards/SAR/Tax Exempt Shares for which the Participant may apply

•         the Grant Date

•         the amount payable (if any) for the grant of each Award/SAR/Tax Exempt Share or how such amount is calculated

•         whether Awards upon vesting will be Manually Exercised (through providing an Exercise Notice and paying the Exercise Price) or Automatically Exercised (on the date of the Confirmation/Vesting Notice)

•         the Exercise Conditions for Awards

•         the Exercise Price for Awards

•         whether the Company must fulfil a vested Award/Tax Exempt Share by acquiring Shares on-market or by any other means

•         any Vesting Conditions

•         the Performance Hurdles and/or other conditions

•         whether the Awards/SARs will be settled with cash, Shares, a combination of both or to be determined by the Board on or following the Performance Qualification Date

•         disposal restrictions attaching to the Shares

•         any other supplementary terms and conditions.

The Invitation to a Participant must be accompanied by an Application Form and the Ancillary Documentation (if any).

A Participant may apply for the Awards/SARs/Tax Exempt Shares by sending the completed Application Form to the Company (or its designated officer as set out in the Application Form) by the time and date specified in the Invitation, unless otherwise determined by the Board.

Unless otherwise expressly permitted in the Invitation, a Participant may only submit an Application in the Participant's name and not on behalf of any other person or entity. If permitted, the Participant may nominate another person or entity (the Nominated Affiliate) to be granted the Awards/SARs/Tax Exempt Shares.

General Conditions for the Share Plans

In order to ensure compliance with the Share Plans, each Participant must grant an irrevocable power of attorney (in the form set out in the Invitation or such other form as agreed by the Company) to any person nominated from time to time by the Board.

If a Participant and the Company (acting by the Board) agree in writing that some or all of the Awards/SARs granted to that Participant are to be cancelled on a specified date or on the occurrence of a particular event, those Awards/SARs may be cancelled in the manner agreed between the Company and the Participant.

Administration of the Share Plans

The Share Plans will be administered by the Board.

The Trustee does not act as an agent of the Company and (Group Company) or any Participant.

The Company is not a beneficiary of the Trust.

To enable the Company to satisfy its obligations to allocate Shares under the Share Plans, the Trustee must, if directed by the Board, acquire:

•         Shares in the ordinary course of trading on the market conducted by ASX

•         Shares by way of an off-market transaction

•         new Shares issued by the Company.

On receipt of a direction by the Board to do so, the Trustee must transfer to any Participant nominated by the Board the number of Shares specified by the Board, on the date specified by the Board.

Upon Shares being transferred to a Participant, the Company will register the Participant as the holder of those Shares and the Participant will be absolutely legally and beneficially entitled to them.

The Trustee may, prior to the termination of the Trust, apply that part of the capital of the Trust to which no Participant would be entitled, in payment of any costs and expenses incurred by the Trustee in the execution or purported execution of the Trust.

Awards (Omnibus Plan)

An Award will vest when a Vesting Notice in respect of that Award is given or is deemed to be given to the Participant.

A Vesting Condition for an Award may, subject to any applicable laws and regulations and the Listing Rules, be waived by the Board by written notice to the relevant Participant and on such terms and conditions as determined by the Board and set out in that notice.

Settlement of Awards

As soon as practicable, after the valid exercise or deemed exercise of an Award by a Participant the Company will:

•         issue, allocate or cause to be transferred to that Participant the number of Shares that the Participant is entitled to receive under these Rules

•         where permitted in the relevant Invitation, pay a cash amount to that Participant in accordance with Rules

When Awards have vested and are settled with a cash payment, the outgoing will not flow through the Trust.

Tax Exempt Shares

Participants in the Omnibus Plan will face no risk of forfeiting their Tax Exempt Shares (within the meaning of that expression in section 83A-35(7)) acquired under this Plan.

A Participant will have an absolute and indefeasible entitlement to any dividend declared and paid or payable by the Company on any Tax Exempt Share held by or on behalf of a Participant, as at the books closing date for determining an entitlement to the dividend.

If a Participant becomes a Leaver, their Tax Exempt Shares will not be subject to compulsory divestiture.

Share Appreciation Rights (SARs Plan)

Prior to a SAR Vesting and being Exercised a Participant holding a SAR:

•         does not have any interest in any Shares the subject of the SAR other than those expressly set out in these Rules

•         is not entitled to notice of, or to vote or attend at, a meeting of Shareholders

•         is not entitled to receive any dividends

Unless the Board in its discretion so approves, or the relevant dealing is effected by force of law on death or legal incapacity to the Participant's legal personal representative, a Participant may not sell, assign, transfer or grant a mortgage, charge, lien, encumbrance or other third party interest over or otherwise deal with a SAR that has been granted to it.

The Board may determine that the Performance Hurdles and/or other conditions attaching to a SAR have been satisfied, or determine to waive the Performance Hurdles and/or other conditions.

SARs are deemed to have Vested if both of the following have occurred:

•         the Performance Hurdles and/or other conditions applicable to those Share Appreciation Rights have been determined by the Board (acting reasonably) to be satisfied, are waived by the Board, or are deemed to have been satisfied under these Rules

•         the Company has issued a Vesting Notice to the Participant informing him or her that some or all of his or her Share Appreciation Rights have Vested.

A Participant will be deemed to have automatically Exercised all Vested SARs that are the subject of a Vesting Notice on the date of the relevant Vesting Notice.

On or as soon as reasonably practicable from the date a Vesting Notice is given to a Participant and the Participant is deemed to have automatically Exercised the Share Appreciation Rights that are the subject of that Vesting Notice the Company will:

•         settle the Exercised Share Appreciation Rights by Equity Settlement, Cash Settlement, or a combination as both, as relevantly set out in the Vesting Notice.

•         issue a substitute Certificate to the Participant for any remaining SARs held by that Participant.

When SARs have vested and are settled with a cash payment, the outgoing will not flow through the Trust.

Forfeiture of Awards and SARs under the Share Plans

Where an Award or SAR has been forfeited in accordance with the Share Plans, the Award/SAR will automatically lapse.

Unless stated in the Invitation or determined by the Board, an Award or SAR which has not yet vested or exercised will be forfeited immediately on the date that the Board determines that any applicable Vesting Conditions or Exercise Conditions have not been met or cannot be met by the relevant date.

If a Participant ceases to be an employee (Leaver), all unvested Awards and SARs will be forfeited automatically or on a date determined by the Board, unless the Board provides express written consent that the Participant may retain any or all of their unvested Awards and SARs.

Awards and SARs which have not yet been validly exercised will be automatically forfeited on the Expiry Date. Awards and SARs will also be forfeited in any other circumstances expressly set out in the Participant's Invitation.

Where in the opinion of the Board, if a Participant acts fraudulently, dishonestly or materially breaches their obligations to the Group, the Board may take actions by:

•         requiring any Awards, SARs or Resulting Shares of the Participant to be forfeited or compulsorily divested

•         where any Resulting Shares held by the Participant as a result of the exercise of one or more Awards have been sold by the Participant, by requiring the Participant to pay all or part of the net proceeds of that sale (to the extent that they exceed the Exercise Price paid by the Participant to the Company in respect of those Resulting Shares) to the Company.

Unless otherwise determined by the Board or stated in the Invitation, all of a Participant's Awards and SARs (whether vested or unvested) will be forfeited on the date that the Board determines that the Participant has become Insolvent.

Trust

The Company established the Trust pursuant to the Trust Deed. The Trustee is an independent third party.

The Company created and establish the Trust for the purposes of holding Shares for the benefit of Participants who are, or will become, the beneficial owners of Shares pursuant to the Share Plans.

The Trustee acknowledges and agrees that each Participant is absolutely entitled to any and all Allocated Plan Shares held by the Trustee on their behalf, and all other benefits and privileges attached to or resulting from holding those Allocated Plan Shares.

On receipt of a direction by the Board, the Trustee must allocate to a Participant nominated by the Board the number of Shares specified. The Shares acquired in accordance with the Trust Deed and allocated to a Participant must, subject to the relevant Plan Rules be, held by the Trustee on the terms and conditions of the Trust Deed on behalf of the Participant who is the beneficial owner of the Shares, and allocated in the books of the Trustee to the relevant Participant.

On receipt of a direction by the Board, the Trustee must transfer to any Participant the number of Shares specified. Upon the Shares being transferred, the Company will register the Participant as the holder of those Shares and the Participant will be absolutely legally and beneficially entitled to them.

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

Funding

The Company must provide the Trustee with any funds required by the Trustee in order to comply with its obligations under the Trust Deed. Funds received by the Trustee from the Company will constitute Accretions to the corpus of the Trust and will not be repaid to the Company.

The Trustee is not entitled to receive from the Trust any fees, commission or other remuneration in respect of its office.

The Company will incur costs associated with the on-going administration and management of the Trust, including, but not limited to:

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

•         employee plan record keeping

•         production and dispatch of holding statements to employees

•         provision of annual income tax return information for employees

•         management of employee termination, and

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

Reasons for decision

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

Question1

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, 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.

The Company carries on a business that provides services to other businesses and produces assessable income. The Company operates an employee share scheme (ESS) as part of its remuneration strategy.

Under the Share Plans, the Company grants Awards, SARs and Tax Exempt Shares to employees and makes irretrievable contributions to the Trust (in accordance with the Rules and the Trust Deed) which the Trustee will use to acquire shares for allocation to Participants.

Incurred in carrying on a business

The Company must provide the Trustee with all the funds required to enable the Trustee to subscribe for, or acquire those Shares.

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

•         all funds received by the Trustee from the Company will constitute Accretions to the corpus of the Trust and will not be repaid to the Company and no Participant shall be entitled to receive such funds

•         when the Trust terminates, the Trustee must not pay any balance of capital or income of the Trust to which no Participant is entitled to, to the Company

•         the Company is not a beneficiary of the Trust.

The Company has granted (and will in the future grant) Awards, SARs and Tax Exempt Shares under the Share Plans as part of its remuneration and reward program for Participants. The costs incurred by the Company for the acquisition of shares to satisfy Awards, SARs and Tax Exempt Shares arise as part of these remuneration arrangements, and contributions to the Trust 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 ESS for employees of the Company. Costs incurred are likely to be in relation to more than one grant of Awards/SARs/Tax Exempt Shares (rather than being one-off), and the Company intends to continue satisfying this using Shares acquired by the Trust. This indicates that the irretrievable contributions to the Trust are ongoing in nature and are part of the broader remuneration expenditure of the Company.

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.

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

Question2

Detailed reasoning

In addition to the reasoning provided in question 1, the Company incurs on-going administration costs for operating the Trust such as:

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

•         employee plan record keeping

•         production and dispatch of holding statements to employees

•         provision of annual income tax return information for employees

•         management of employee termination

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

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 (see ATO Interpretative Decision ID 2014/42 Employer costs for the purpose of administering its employee share scheme are deductible).

Therefore, these costs are deductible under section 8-1 as they are incurred in relation the ongoing administration of the Trust.

Question3

Detailed reasoning

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 ESS interests to the employees arising in the year of income under an ESS. 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 Share Plans are an ESS 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 Participants in relation to their employment with the Company (or the Group).

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

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

Indeterminate rights under the Share Plans

An Award or SAR provided under the Share Plans may be an indeterminate right because that right entitles the employee to acquire either a Share or cash, to be determined at a future time at the discretion of the employer. Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, where it is ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to receive is determined), the indeterminate right will, pursuant to section 83A-340, be treated as if it had always been an ESS interest.

Section 83A-210 applies equally to contributions made in respect of ESS interests and indeterminate rights. Therefore, an irretrievable cash contribution in respect of an indeterminate right is taken to have been paid at the acquisition time of the ESS interest. If an indeterminate right becomes an ESS interest, deductible contributions made in respect of those rights can be claimed in the income year when the ESS interest is deemed to have been acquired under section 83A-340 (this will be the year in which the indeterminate right was granted to the employee). Once this has been established, such contributions can be matched to ESS interests issued to the Participant and where necessary the relevant earlier income year assessments can be amended to allow the deduction (Item 28 of subsection 170(10AA)).

It is important to note that an indeterminate right which is satisfied by the provision of cash never becomes an ESS interest and the contribution to the Trust in respect of the provision of that right is permanently deferred. However, where that ESS interest is subsequently issued to another participating employee, this employee becomes the 'ultimate beneficiary', and the deduction is available in the income year that this Participant acquired this ESS interest.

Question4

Detailed reasoning

Section 6-5

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 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 contribution of share capital received by the Company from the Trustee can be determined by the character of the right or thing disposed of in exchange for the receipt. Under this arrangement, as the Company issues Shares in itself to the Trustee in exchange for the subscription proceeds, the character of the newly issued shares is one of capital. Therefore, the receipt, being 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.

Accordingly, when the Company receives subscription proceeds from the Trustee where the Trustee has subscribed for new Shares to satisfy obligations to Participants, that subscription price received by the Company 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.

The Company will receive an amount when the Trustee subscribes for Shares. There is no insurance contract in this case, so the amount received is not 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 income 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, 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 the Company is in return for issuing Shares to the Trustee, not as a recoupment of previously deducted expenditure under section 8-1 regarding bad debts, rates or taxes that could be subject to section 20-30.

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

CGT

Section 102-20 provides that you make a capital gain or loss if, and only if, a CGT event happens. Where the receipt of subscription proceeds does not relate to a CGT event, a capital gain will not arise.

CGT events for which you can make a gain or loss are specified in Division 104. The relevant CGT events that may be applicable when the subscription proceeds are received by the Company from the Trustee are CGT event D1 (creating contractual or other rights) and CGT event H2 (receipt for event relating to a CGT asset).

However, paragraphs 104-35(5)(c) and 104-155(5)(c) state that CGT events D1 and H2 respectively do not happen if a company issues or allots equity interests or non-equity shares in the company. As the Company is issuing Shares, being equity interests as defined in section 974-75, to the Trustee, CGT events D1 and H2 do not happen. Given that no CGT event happens, there is no amount assessable as a capital gain to the Company.

Therefore, if the Trustee satisfied its obligations under the Trust Deed by subscribing or new Shares, then the subscription proceeds received by the Company will not be included in the assessable income of the Company under section 6-5 or 20-20, and a CGT event will not happen under Division 104.

Question5

Detailed reasoning

Part IVA 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 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 EST 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 the Company to obtain a tax benefit.

Question6

Detailed reasoning

An employer's liability to fringe benefits tax (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. In particular, paragraph (h) of the 'fringe benefit' definition 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 Share Plans are ESS's, the Awards/SARs/Tax Exempt Shares for Shares provided under the Share Plans are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests.

Accordingly, the provision of ESS interests under the Share Plans will not be subject to FBT on the basis that they are acquired by Participants under an ESS (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 or 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 Option or Performance Right and not is respect of employment (refer to 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).

Question7

Detailed reasoning

As stated above in response to Question 6, 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.

One benefit excluded from being a fringe benefit, pursuant to paragraph (ha) of the 'fringe benefit' definition in subsection 136(1) of the FBTAA, is a benefit constituted by the acquisition of money or property by an employee share trust (EST) within the meaning of the ITAA 1997.

In examining whether the requirements of subsection 130-85(4) are met, it is the activities of the Trustee in relation to the Trust that is relevant. To qualify as an EST, the 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))

•         other activities that are merely incidental to the activities mentioned in paragraphs 130-85(4)(a) and (b) (paragraph 130-85(c)).

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

• the Trust acquires shares in a company, namely the Company
• the Trust ensures that ESS interests (as defined in subsection 83A-10(1)) are provided under an ESS (as defined in subsection 83A-10(2)) by allocating those Shares to the employees in accordance with the Trust Deed and the Share 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 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 are 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 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), including paragraph 130-85(4)(c). The other activities undertaken by the Trustee are merely incidental to managing the Share Plans.

Therefore, the irretrievable cash contributions made by the Company to fund the subscription for, or acquisition of, Shares by the Trust will not be a fringe benefit.

Question8

Detailed reasoning

Section 67 of the FBTAA is a general anti-avoidance provision of the FBTAA. 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 make a determination under section 67 of the FBTAA 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 to Question 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 Share Plans are excluded from the definition of a fringe benefit for the reasons provided in response to Questions 7. As these 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 of the FBTAA applies to increase the aggregate fringe benefits amount of the Company by the amount of tax benefit gained from the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition of, Shares.