Edited version of private advice

Authorisation Number: 5010090748497

Date of advice: 30 March 2023

Ruling

Subject: Employee share scheme

Question 1

Will Company be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for the irretrievable cash contributions made by Company to Trustee (Trustee) as trustee of the Trust to fund the subscription for, or on-market purchase of, ordinary shares in Company (Shares) to satisfy the issue of Shares by the Trustee to employees, directors and individual service providers (Eligible Participants) pursuant to the Plan?

Answer

Yes.

Question 2

Will Company's irretrievable cash contributions to the Trustee, to fund the subscription for, or on-market acquisition of, Shares to satisfy Company's obligations with respect to the issue of Shares to Eligible Participants pursuant to the Plan, be deductible to Company at the time determined by section 83A-210 of the ITAA 1997?

Answer

Yes.

Question 3

Will Company be entitled to deduct an amount under section 8-1 of the ITAA 1997, in respect of costs incurred in the relation to the on-going administration of the Plan or the Trust?

Answer

Yes.

Question 4

Will Company be entitled to deduct an amount under section 40-880 of the ITAA 1997, in respect of costs incurred in relation to the establishment of the Plan or the Trust?

Answer

Yes.

Question 5

Will the Commissioner seek to make a determination under subsection 177F(1) of the Income tax Assessment Act 1936 (ITAA 1936), as a result of section 177D of the ITAA 1936, to deny, in part of in full, any deduction claimed by Company in respect of the:

a)    irretrievable cash contribution made by Company to the Trustee to fund the subscription for, or on-market acquisition of, Shares by the Trustee to satisfy the issue of Shares to Eligible Participants pursuant to the Plan, or

b)    costs incurred by Company in relation to the ongoing administration of the Plan or the Trust, or

c)    costs incurred by Company in relation to the establishment of the Plan or the Trust?

Answer

No.

Question 6

Will the provision of Shares or Performance Rights to employees and directors under the Plan constitute a 'fringe benefit' within the meaning of the term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 7

Will the irretrievable cash contributions made by Company to the Trustee, to subscribe for, or acquire on-market, Shares pursuant to the Plan or to fund the ongoing administration of the Trust or to establish the Trust, constitute a 'fringe benefit' within the meaning of that term in subsection 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 aggregated fringe benefits taxable amount to Company, by the amount of tax benefit gained from the irretrievable cash contribution made by Company to the Trustee, to fund the subscription for, or on-market acquisition of, Shares by the Trustee?

Answer

No.

Relevant facts and circumstances

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

The Plan

Company established the Plan to:

a)    assist in the reward, retention and motivation of Eligible Participants

b)    align the interest of Eligible Participants with the interests of the shareholders of Company

c)    encourage participation of Eligible Participants in the growth and success of Company through share ownership

d)    promote the long-term success of Company (and its associated entities).

The Plan was approved by the Company Board in [MONTH] 2022.

The Plan allows Company to grant Shares and rights to Shares to Eligible Participants by way of either issue or transfer.

Eligible Participants are employed or otherwise directly engaged by Company or members of the TCG.

Invitation

The Board may invite any Eligible Participant to participate in the Plan. The Invitation must be made in writingand may state the following, including:

• whether, and the manner in which, the Eligible Participant may apply for:

-          Salary Sacrifice Shares

-          Discounted Shares

-          Performance Rights.

• if the Eligible Participant is invited to apply for Plan Shares (being Salary Sacrifice Shares or Discounted Shares):

-          the number of Plan Shares for which that Eligible Participant may apply or how that number will be calculated

-          the Acquisition Price or how such price will be calculated

-          whether the Plan Shares will be held by a Trustee under a Trust for and behalf of the Eligible Participant

-          the dates on which Salary Sacrifice Amounts or Salary Contribution Amounts will be used to acquire Salary Sacrifice Shares or Discounted Shares

-          the terms and conditions of the Salary Sacrifice Arrangement or Salary Contribution Arrangement that must be entered into and signed by the Eligible Participant.

• if the Eligible Participant is invited to apply for Performance Rights:

-          the number of Performance Rights for which that Eligible Participant may apply

-          the Issue Price payable (if any) for the grant of each Performance Right

-          the Grant Date of the Performance Right

-          the Exercise Period applicable to the Performance Right

-          the Vesting Conditions to which the Performance Right will be subject

-          whether each Performance Right, upon vesting, needs to be Manually Exercised (and, if so, how to do so) or whether it will be Automatically Exercised

-          the circumstances in which the Performance Right will lapse

-          the Exercise Price (if any) payable to Exercise each Performance Right

-          whether a minimum number of Performance Rights must be applied for by the Eligible Participant.

• any restrictions (including the period of any restriction) on dealing attachment to the applicable Plan Shares
• where Subdivision 83A-C of the ITAA 1997 requires a statement that deferred taxation applies, such wording as appropriate.

An Invitation under the Plan is personal and can only be accepted by, and Plan Shares may only be granted or allocated to, the Eligible Participant to whom the Invitation is made.

An Eligible Participant may accept the Invitation by giving to Company a validly completed Application and Ancillary Documentation (as required) within the time period specified in the Invitation. Where an Eligible Participant applies for Performance Rights under the relevant Invitation Letter, the Eligible Participant must pay to Company (in the manner set out in the Invitation Letter) the Issue Price (if any) within the period specified in the Invitation.

Following receipt of a completed and signed Application from an Eligible Participant, Company may accept the Application in whole or in part by granting or allocating the Plan Shares the subject of the Application, and the Eligible Participant becomes a Participant in the Plan.

Salary Sacrifice Shares

An Invitation made to an Eligible Participant to acquire Salary Sacrifice Shares under the Plan will set out matters including:

• the maximum amount of the Eligible Participant's pre-tax Remuneration that may be sacrificed by the Eligible Participant in any Financial Year (Total Salary Sacrifice Amount)
• the number of Salary Sacrifice Shares to be allocated to the Eligible Participant at each Grant Date and the total dollar amount of the relevant Salary Sacrifice Amounts.

If Company accepts an Application from an Eligible Participant, Company will allocate the relevant number of Salary Sacrifice Shares in accordance with a Salary Sacrifice Arrangement.

Delivery of Salary Sacrifice Shares

The Board must procure, at the relevant Grant Date(s) using the Salary Sacrifice Amounts sacrificed up to the relevant Grant Date, that the relevant number of Salary Sacrificed Shares are:

• transferred or issued to the Participant or the Trustee to be held on their behalf, or
• acquired for or on behalf of the Participant using a combination of transfer and issue methods as determined by the Board.

Restriction on dealing with Salary Sacrifice Shares

All Salary Sacrifice Shares allocated to a Participant will be subject to restrictions on dealing for a period outlined in the Invitation (Restriction Period) and be classified as Restricted Salary Sacrificed Shares.

The holder of Restricted Salary Scarified Shares must not engage in any dealing with the Restricted Salary Sacrificed Shares or interest in Restricted Salary Sacrificed Shares for the duration of the Restriction Period.

Company must place a Holding Lock on all Restricted Salary Sacrificed Shares to prevent dealings.

Upon expiry of the Restriction Period, Company must lift the Holding Lock on any Restricted Salary Sacrificed Shares and notify the Participant of the lifting.

Termination of a Salary Sacrifice Arrangement

A Salary Sacrifice Arrangement is terminated when:

• a Participant submits notice to the Board requesting the Arrangement be terminated
• the Participant ceases to be engaged with Company
• if there is a change of control event or if one determined by the Board to likely occur in the near future or if the Board wishes to terminate the Salary Sacrifice Arrangement for any other reason.

Discounted Shares

If the Company accepts an Application for Discounted Shares, Company will allocate Discounted Shares in accordance with the Salary Contribution Arrangement that is agreed to it by the Eligible Participant as part of their Application.

Delivery of Discounted Shares

The Board must, following the acceptance of a Participant's Application for Salary Contribution Shares, procure the relevant number of Discounted Shares at the relevant Grant Date. The relevant number of Discounted Shares to be procured is determined by reference to the amount of after-tax Remuneration that has been contributed by the Participant at the relevant Grant Date. The relevant number of Discounted Shares are to be:

• transferred or issued to either the Participant or the Trustee to be held on their behalf, or
• transferred or issued to either the Participant or the Trustee using a combination of transfer and issue methods as determined by the Board.

Restriction on Dealing in relation to Discounted Shares

All Discounted Shares allocated to a Participant will be subject to restrictions on dealing for a period outlined in the Invitation (Discounted Shares Restriction Period) and be classified as Restricted Discounted Shares.

The holder of Restricted Discounted Shares must not engage in any dealing with the Restricted Discounted Shares or interest in Restricted Salary Sacrificed Shares for the duration of the Discounted Shares Restriction Period.

Company must place a Holding Lock on all Restricted Discounted Shares to prevent dealings.

Upon expiry of the Discounted Shares Restriction Period, Company must lift the Holding lock on any Restricted Discounted Shares and inform the Participant of the lifting.

Termination of a Salary Contribution Arrangement

A Salary Contribution Arrangement is terminated when:

• a Participant submits notice to the Board requesting the Arrangement be terminated
• the Participant ceases to be engaged with Company
• if there is a change of control event or if one determined by the Board to likely occur in the near future or if the Board wishes to terminate the Salary Contribution Arrangement for any other reason.

Performance Rights

If Company accepts an Application for Performance Rights from an Eligible Participant, it must grant the Eligible Participant the relevant number of Performance Rights that is agreed to it by the Eligible Participant as part of their Application.

A Performance Right may be subject to Vesting Conditions as determined by the Board and set out in the Invitation Letter. A Performance Right will vest once a Vesting Notice is given to a Participant.

The Board has the absolute discretion to vary or waive Vesting Conditions, deem if a Vesting Condition has been met or determine a new First or Last Exercise Date.

A Performance Right may only be Exercised if it is vested and is Exercised before the Last Exercise Date.

Where a Participant has been given a Vesting Notice in relation to a Performance Right, the Participant may exercise that Vested Performance Right in the manner set out in the Plan Rules.

Subject to Plan Rules, where a valid Exercise or deemed Exercise of a Vested Performance Right by a Participant in accordance with the Plan Rules, Company must either issue or cause the transfer of the number of Shares to which Participant is entitled to.

Unless the Board determines otherwise, Company is not obliged to issue or transfer Shares on Exercise of Vested Performance Rights until the payment of any Exercise Price has been received.

Unless otherwise determined by the Board, an Unvested Performance Right will lapse when:

• the Participant is a Good or Bad Leaver
• the Vesting Conditions are not met before the date determined by the Board
• there is a material breach of the Plan Rules by the Participant that is not remedied within 20 business days of receiving notice from Company.
• the Last Exercise Date has passed
• there is a Change of Control Event where the Board determines that under the Plan Rules that the Unvested Performance Rights will lapse
• any other circumstances determined by the Board and set out in the Invitation that will result in the lapse of Unvested Performance Rights
• the Participant provides written notice to Company that they are voluntarily forfeiting a Performance Right.

The Trust

On [DATE] 20XX, Company established the Trust under a deed entered into between Company and the Trustee.

The Trust does not form part of the TCG and the TCG is not a beneficiary of the Trust.

The Trust Deed states that Company established the Trust for the sole purpose of managing employee share schemes of Company, which includes obtaining and managing Shares (including subscribing for, acquiring, allocating, holding and delivering Shares) for the benefit of Participants who are, or will become entitled to acquire Shares under those schemes.

The Trustee has powers to:

• enter into and execute all agreements, deeds and documents
• subscribe for, purchase or otherwise acquire and to sell or otherwise dispose of property, rights or privileges which the Trustee is authorised to acquire or dispose of on such terms and conditions it sees fit
• open bank accounts, retain on current or deposit account at any bank any money which it considers proper
• take and act upon the advice or opinion of any legal practitioner, or other professional person
• do all acts, matters or things which it may deem necessary or expedient for the purpose of giving effect to, and carrying out, the trusts, powers and discretions conferred on the Trustee by the Trust Deed or the law.

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 purposes of section 130-85(4) of the ITAA 1997.

Subject to the Trust Deed, neither the Trustee nor Company or any of its Associated Entities may grant a Security Interest over any Share. Company shall not obtain any Security Interest, proprietary right or proprietary interest in Shares acquired by the Trustee under the Trust Deed.

Acquisition and transfer of Plan Shares

If directed by the Board, the Trustee must acquire:

• Shares in the ordinary course of trading on the market
• Shares by way of an off-market transaction at market value
• new Shares issued by Company.

Funding

Company must provide the Trustee with any funds required by the Trustee to comply with its obligations to acquire Shares under the Trust Deed.

The Trustee must hold the Shares acquired on trust in accordance with the Trust Deed. The funds provided by Company to the Trustee will form part of Trust Property held by the Trustee for the purposes of the Trust Deed, and may only be paid to Company as consideration for Shares acquired by the Trustee under the terms of the Trust Deed. Cash contributions made by Company are irretrievable and will constitute an increase to corpus of the Trust and are not repayable to Company.

Where an amount paid by Company to the Trustee is in excess of the amount required, Company may require the Trustee to:

• apply such amount to subscribe for, acquire or allocate (or both) and deliver Shares in accordance with the Trust Deed, the Plan or relevant terms of participation
• deposit the funds into any account opened and operated by the Trustee in accordance with the Trust Deed.

The Trust will not be used to satisfy any cash bonuses to which a Participant may become entitled with any such cash bonuses to be satisfied through the funds of Company.

Company must pay all Trust Expenses which means all expenses, outgoings, costs and charges incurred by the Trustee in establishing and operating a Plan and the Trust and any amount of income or other Tax payable by any Group Company and/or the Trustee in relation to a Plan and the costs of the audit of the Trust, but excludes any costs directly related to selling and transferring Allocated Plan Shares or exercising Share Rights on behalf of a Participant.

Unallocated Plan Shares

The Trustee will hold Unallocated Plan Shares on trust for the benefit of Participants in accordance with the Trust Deed. Where a Participant forfeits its right or interest in Allocated Plan Shares, those shares become Forfeited Shares and must be held by the Trustee as though they were Unallocated Plan Shares until it receives notice from the Board directing the Trustee to reallocated them to one or more other Participants.

The balance of the Net Income of the Trust to which no Participant is presently entitled may be accumulated by the Trustee as an Accretion to the Trust.

Rights attaching to Allocated Plan Shares

Subject to Applicable Law, the Rules and the terms of the relevant Invitation, a Participant with Allocated Plan Shares is presently entitled to so much (if any) of the Net Income of the Trust for a Financial Year which is attributable to:

• the Participant's Allocated Plan Shares
• the proceeds of sale arising from the sale of Share Rights or Allocated Plan Shares by the Trustee on behalf of the Participant
• transactions or events related to any Allocated Plan Shares or property related to, or arising from, those Allocated Plan 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 assessable income. Company operates an Employee Share Scheme (ESS) as part of its strategy to remunerate Eligible Participants involved in that business.

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

Incurred in carry on a business

Company will provide the Trustee with any funds required by the Trustee to comply with its obligations to acquire Shares under 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 Shares under the terms of the Trust Deed
• nothing in the Trust Deed confers, or is intended to confer, on Company any Security Interest, proprietary right or proprietary interest in the Shares acquired by the Trustee.

Company will grant ESS interests (that is a beneficial interest in a share or a beneficial interest in a right to acquire a beneficial interest in a share) as part of its remuneration and reward program for Eligible Participants. The costs incurred by Company to facilitate the Trustee's acquisition of Shares to satisfy grants of ESS interest 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 Shares, and Company intends to satisfy outstanding Share issues using 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 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 comparatively small. Therefore, the payments are not capital, or of a capital nature, and paragraph 8-1(2)(a) is not satisfied.

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

Question 2

Detailed Reasoning

Section 83A-210 applies to determine the timing of the deduction, but only in respect of the contributions provided to the Trust to purchase 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 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 Plan is an ESS for the purposes of subsection 83A-10(2) as it is a scheme under which ESS interests are provided to employees in relation to their employment with Company (or 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 Shares for the purposes of enabling each Eligible Participant, indirectly as part of the Plan, to acquire ESS interests.

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

Question 3

Detailed Reasoning

In addition to the reasoning provided in Question 1, Company incurs ongoing administration costs for operating the Trust and has appointed the Trustee to administer the Trust. Company must pay all Trust Expenses which includes all expenses, outgoing, costs and charges incurred in operating the Plan (including any amount of income or other Tax payable by Company or the Trustee (or both) in relation to the Plan and the costs of the audit of the Trust by excludes any cost directly related to selling and transferring Plan Shares or exercising Share Rights).

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 outgoings 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 4

Detailed Reasoning

Taxation 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 in establishing the employee share trust (EST) and ESS plan rules. Amendment expenses include legal fees paid to amend the 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 and amendment expenses of the Plan 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 5

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 be obtained but for section 177F, 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 EST where the conditions of Division 83A are met.

In this case, the ESS 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 ESS 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 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 in subsection 136(1) of the FBTAA 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 Plan is an ESS as a Discount Share and Performance Right granted under the Plan is an ESS interest under paragraph 83A-10(1)(a) and 83A-10(1(b), being a beneficial interest in either a share in a company or a right to acquire a share in a company. A Discount Share or Performance Right is also an ESS interest to which Subdivision 83A-B or 83A-C applies because an Eligible Participant acquires the ESS interest under an ESS either at a discount or for nil consideration, which is also at a discount.

The Commissioner also accepts that a Salary Sacrifice Share granted under the Plan is an ESS interest under paragraph 83A-10(1)(a), being a beneficial interest in a share in a company. A Salary Sacrifice Share is also an ESS interest to which subsection 83A-105(4) applies. Eligible Participants acquire the interest in lieu of future salary or wages they otherwise would earn (in line with subsection 83A-105(4)(a)(i)) (Taxation Ruling TR 2001/10: Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements).

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

Question 7

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 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:

• obtaining shares or rights in a company (paragraph 130-85(4)(a))
• ensuring that ESS interests in the company that are beneficial interest in those shares or rights are provided under the ESS to employees, or to associated 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)).

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

Accordingly, paragraph 130-85(4)(a) and (b) are satisfied because:

• The Trust acquires shares in 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 Shares to the employees in accordance with the Trust Deed and the Plan.

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 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)(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, Shares pursuant to the Plan or the ongoing administration of the Trust, or to establish the Trust, will not be fringe benefit.

Question 8

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 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 Plan 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 of the FBTAA 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 subscription for, or on-market acquisition of, Shares.