Compare documents

1 Will the Company obtain a deduction under 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 (Trustee) to fund the subscription for, or acquisition off-market of fully paid Class A shares in which have the same rights as ordinary shares (Shares) in respect of employees of the Company who are Australian residents (Participants), under the Company Share Acquisition Plan (Plan)?

Yes Question 2a Will irretrievable cash contributions made by the Company directly to the Trustee, to fund the subscription for, or acquisition off-market of, Shares by the Trust under the Plan, in respect of the Participants, be deductible to the Company under section 8-1 of the ITAA 1997, at a time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the acquisition of the relevant ESS interests? Answer Yes Question 2b Will irretrievable cash contributions made by the Company directly to the Trustee, to fund the subscription for, or acquisition off-market of, Shares by the Trust under the Plan, in respect of the Participants, be deductible to the Company under section 8-1 of the ITAA 1997 in the income year in which the contributions are made, if the contributions are made either in the same income year or in an income year that is after the acquisition of the relevant ESS interests? Answer Yes Question 3 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 of in 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 off-market of Shares by the Trust under the Plan? Answer No Issue 2 Fringe Benefits Tax Question 4 Will the provision of ESS interests by the Company to Participants under the Plan constitute a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Answer No Question 5 Will the irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for, or acquisition off-market, of Shares by the Trust under the Plan be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? Answer No This ruling applies for the following periods : Questions 1 to 3: •           Income year ended 30 June 2025 •           Income year ended 30 June 2026 •           Income year ended 30 June 2027 •           Income year ended 30 June 2028 •           Income year ended 30 June 2029 Questions 4 to 5: •           Fringe benefits year ended 31 March 2026

•           Fringe benefits year ended 31 March 2027 •           Fringe benefits year ended 31 March 2028 •           Fringe benefits year ended 31 March 2029 •           Fringe benefits year ended 31 March 2030 The scheme commenced on: 1 April 2025

1.    This private ruling is based on the facts and circumstances in the description of the scheme that is set out below, including the following documents, or relevant parts of them, which are to be read with the description: Private binding ruling application letter for the Company prepared by the Tax Agent, provided to the Commissioner, Templated invitation letter for grants of fully paid Class A shares which are subject to disposal restrictions in the Company, provided to the Commissioner. Rules of the Share Acquisition Plan, provided to the Commissioner, The Company Employee Share Trust Deed, provided to the Commissioner, and Proposed updates to the Company Employee Share Trust Deed (Mark-Ups dated XX/XX/XX) provided to the Commissioner. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. Find out more about when you can rely on your private ruling at ato.gov.au/relyonprivateruling . Background 2.    The Company, is a privately held unlisted Australian company.

3.    The Company employs staff and will make contributions to the Trustee of the Trust in relation to their employees who participate in the Plan. 4.    All employees of the Company are based in Australia. 5.    As part of its strategy to attract, retain and motivate key talent, and to align the interests of the employees with the Company's shareholders, the Company implemented the Plan during the 202X financial year. 6.    The Company will operate the Plan for eligible employees of the Company in accordance with Division 83A of the ITAA 1997. Key terms of the Plan 7.    The key terms of the Company Share Acquisition Plan (the Plan) as operated by the Company are summarized below. •         Eligible Australian employees will have at least 50% of their prospective annual bonus payment delivered in the form of Restricted Shares (Bonus Shares). In addition, the employee, at the time of receiving an offer of Bonus Shares, may elect to forgo additional amounts (up to 100%) of their prospective pre-tax bonus in return for additional Restricted Shares (Investment Shares)

•         Any pre-tax bonus not foregone to acquire Investment Shares will be paid out in cash via payroll, with the required PAYG withholding tax deducted from the cash payment. •         Upon accepting the offer to participate in the Plan, employees acquire an indeterminate right, which later becomes a right to acquire shares when the total number of Restricted Shares (both Bonus Shares and Investment Shares) to be granted to each employee is confirmed - this is expect to be when the annual bonus payment amounts and the Reference Price (being the shares price to be used by the Company to convert a dollar amount into a number of Restricted Shares) have been confirmed by the Company. •         The performance period for the annual bonus is 1 July to 30 June, and it is expected that bonus outcomes for employees and the Reference Price will be confirmed by early August with the grant of the required Restricted Shares to be made as soon as reasonably practicable following the confirmation of the bonus outcomes and the Reference Price. •         Each Restricted Share acquired under the Plan is subject to trading restrictions ( Restricted Share

). Restricted Shares will not be subject to any service or performance conditions and will be allocated as vested Restricted Shares. To date, no Restricted Shares have been granted under the Plan. •         Participants will be eligible to receive dividends in respect of their Restricted Shares. •         The Plan is intended to operate in accordance with subdivision 83A-C of the ITAA 1997 (which will be stated in each Invitation Letter, such that Restricted Shares allocated under the Plan are subject to deferred taxation (on the basis employees acquire an indeterminate right that is later always deemed to be a right to shares once the number of Restricted Shares required to satisfy the rights is confirmed). •         The restriction period in relation to the Restricted Shares will generally end on the earliest of the following to occur: -        15 years from the date the Participant returns their completed application from to sacrifice their potential annual cash bonus; or -        12 months following the participant ceasing employment with the Company.

•         If a Plan participant ceases employment after the bonus outcome is determined for the relevant financial year, but before Restricted Shares are allocated, then no Restricted Shares will be allocated to the Plan participant, and the full bonus will be paid in cash via payroll (provided the participant is employed on the payment date). If the Participant is terminated for cause (including gross misconduct), the participant will receive no bonus cash payment. •         If a Plan participant ceases employment after the Restricted Shares are allocated, the Company has the right (but not the obligation) to procure the Restricted Shares at any time following the end of the restriction period using the Trust, at market value. If a Participant is terminated for cause (including gross misconduct), Restricted Shares will be forfeited for no consideration to the Trust. •         Restricted Shares acquired by the Trustee will then be recycled for future grants of Restricted Shares to employees for bonus programs.

•         In the event of an exit event (eg a change in control of the Company, trade sale, share sale or initial public offering), any trading restrictions applicable to Restricted Shares will immediately cease to apply at a time determined by the Board of directors of the Company (Board). •         The Board may, in its absolute discretion, apply clawback provisions in certain scenarios (e.g. employee acts constituting fraud or dishonest or gross misconduct in relation to the affairs of the Company) in respect of Restricted Shares acquired by Plan participants. Employee Share Trust 8.    The Company is proposing to establish the Trust prior to 30 June 2025 under the terms of the Trust Deed to facilitate the acquisition, holding of, and allocation of Shares to participants in accordance with the Plan. 9.    For tax purposes, the Trust will be an independent legal entity. 10.  The Company (or any other member of the group) cannot be a beneficiary of the Trust (refer to clause 7(c) of the draft Trust Deed).

11.  The Company will only make contributions to the Trust to fund the acquisition of Shares once Plan participants have returned their application forms to sacrifice their future potential cash bonus to acquire Restricted Shares under the Plan for the relevant financial year. 12.  The Company will fund the Trust via irretrievable cash contributions prior to the end of each financial year. 13.  The taxpayer has given the following reasons for using a Trust: •         A company is unable to hold its own shares under Australian corporate law. The Trust is a vehicle which enables Shares to be acquired and held for the purpose of the Plan. •         To allow Shares to be made available to satisfy Restricted Shares granted under the Plan, the Trust will facilitate the acquisition of Shares off-market (eg by acquiring Shares at market value from a participating employee or other shareholder who want to sell), or by the new issue of Shares by the Taxpayer. •         The Trust provides an arm's length vehicle for acquiring and holding Shares in the Taxpayer, either by way of a new issue or acquiring off-market ie providing flexibility relating to capital management.

•         The Trust will be an efficient structure for giving effect to disposal restrictions. As the Trustee is the legal owner, employee have no ability to deal in the Restricted Shares. •         The Trust provides the flexibility to acquire and hold Shares that will be allocated to employee under the Plan. If Restricted Shares are forfeited under the terms of the Plan, the Trust enables Shares held for such forfeited Restricted Shares to be 'recycled' to satisfy other and future grants of Restricted Shares; and •         The Trust establishes independent records and accounts for participating employees. Obligations of the Trustee 14.  Under the Trust Deed (refer clause 1.4), the activities of the Trustee are limited to the sole purpose of exercising its power and discharging its obligations under the Trust Deed and the relevant Plan (and for no other purpose), 15.  All other activities of the Trust are incidental to the Trustee undertaking these sole activities. The Trust will be managed and administered so that it satisfies the sole activities test and is considered an 'employee share trust' for the purposes of subsection 130-85(4) of the ITAA 1997.

Allocating Shares to the Trust 16.  Under the Trust Deed (refer clause 4.1), the Trustee has the power to subscribe for, acquire and/or allocate a number of Shares specified in the notice. This instruction may occur from the Company at any time, in accordance with the Plan Rules and terms of the offer ('Offer'), depending on the Company's capital management strategy. 17.  In determining whether to request the Trustee to subscribe for or purchase Shares off-market, matters the Board will take into account include: •         the Company's current capital management strategy; •         the dilution impact any issue of new Shares will have; •         the availability of Shares e.g. from employee or shareholder who wish to sell (or are required to sell); •         the Board's expectation regarding the Taxpayer's Share price movements and volatility over the short and longer term; and •         trading restrictions or anticipated activity that may prompt restrictions regarding trading of the Taxpayer's Shares.

18.  The Trustee will, in accordance with the instructions received from the Company and pursuant to the Trust Deed acquire, deliver and allocate Shares to Plan participants provided that the Trustee received sufficient payment from the Taxpayer to subscribe for or purchase Shares and/or has sufficient unallocated Shares available in the Trust. 19.  The Company must make irretrievable contributions to the Trust as required under the Trust Deed to provide the Trustee with sufficient funds to acquire Shares. In determining the amount of funds to be contributed to the Trust at any point in time, matters the Board may take into account include: •         Participant elections received to sacrifice some or all of their potential future cash bonus to acquire Restricted Shares and anticipated cash bonus outcomes; •         the number of Restricted Shares granted to employees under the Plan; •         the market value of Shares at the relevant time; •         the number of Shares held by the Trust at the relevant time; and •         the Board's expectations regarding the Taxpayer's Share price performance and volatility over the short and longer term.

20.  All funds received by the Trustee from the Company in the form of irretrievable contributions will constitute accretions to the corpus of the Trust and no Plan participant will be entitled to receive a distribution of or from such funds. The funds will not be returned or repayable to the Taxpayer except where they are used for subscribing for Shares in the Taxpayer the contributions will be irretrievable. 21.  The Trustee will not be permitted to acquire any Shares or deliver any Shares to any Plan participant, if to do so would contravene applicable law or would not be consistent with the operation of the Plan. Generally, the Trustee will not be permitted to undertake activities that are not matters or things which are necessary or expedient to administer and maintain the Trust. It will not be permitted to carry out activities which result in participants being provided with additional benefits other than the benefits that arise under the Trust Deed.

22.  It is the intention that the Trust be used to administer Restricted Shares granted under the Plan (and any new employee equity plan operated by the Company). Accordingly, the Plan incorporate the use of the Trust to facilitate the provision of Restricted Share to Plan participants. 23.  The Company or any member of the group will not be beneficiaries under the Trust Deed and any funds the Company contributes to the Trust, other than specifically in the form of a loan, may not be refunded, repaid or returned to the Company (or any member of the group) other than by way of the Trustee paying the issue price where it subscribes for Shares in the Taxpayer. 24.  The Taxpayer (or any member of the group) will have no interest in the Shares held by the Trust.

Income Tax Assessment Act 1936 Part IVA Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 section 20-20 Income Tax Assessment Act 1997 subsection 25-5(1) Income Tax Assessment Act 1997 section 40-880 Income Tax Assessment Act 1997 section 83A-10 Income Tax Assessment Act 1997 section 83A-210 Income Tax Assessment Act 1997 Division 104 Income Tax Assessment Act 1997 subsection 130-85(4) Income Tax Assessment Act 1997 section 701-1 Fringe Benefits Tax Assessment Act 1986 section 67 Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

These reasons for decision accompany the Notice of private ruling for the Company. This is to explain how we reached our decision. This is not part of the private ruling. Legislative references in the following are to provisions of the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated. Issue 1 Income tax Question 1 Will the Company obtain a deduction under 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 (Trustee) to fund the subscription for, or acquisition off-market of fully paid Class A shares in the Company which have the same rights as ordinary shares (Shares) in respect of employees of the Company who are Australian residents (Participants), under the Company Share Acquisition Plan (Plan)? Summary The Company can deduct an amount under section 8-1 in respect of irretrievable cash contributions that it makes to the trustee of the Trust to fund the subscription for or acquisition off-market of fully paid Class A shares in the Company in respect of employees of the Company who are Australian residents, under the Company Share Acquisition Plan.

Detailed reasoning Subsection 8-1(1) will allow you to deduct from your assessable income any loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, pursuant to subsection 8-1(2), you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature. The Company carries on a business as a proprietary trading firm with a focus on automated trading and machine learning. It is a privately held unlisted Australian company. The Company provides an employee share scheme (ESS) as part of its remuneration strategy. The Company employs staff and will make contributions to the Trustee of the Trust in relation to their employees who participate in the Plan. Under the Plan, the Company grants Restricted Shares to eligible employees and will make irretrievable contributions to the Trust (in accordance with the Trust Deed) which the Trustee will use to acquire Shares (either off-market, or by subscription) for allocation to Plan participants to satisfy their awards.

Based on the following, The Commissioner considers the contributions to the Trust are irretrievable and non-refundable: •         The Company may not acquire any interest in the Capital (or corpus) and may not become entitled to any Income of the Trust Fund (clause 2.1(e)). •         nothing in the Trust Deed confers or is intended to confer onto the Company any encumbrance, proprietary right or interest in the Shares acquired by the Trustee The Trustee may only carry out activities that constitute the management of an employee share scheme plan. In addition, the Trustee agrees that the Trust will be managed and administered so that it satisfies the definition of "employee share trust" contained in subsection 130-85(4). The contributions to the Trust will be a loss or outgoing that is incurred at the time it is made in accordance with the Trust Deed and the rules of the Plans. Incurred in carrying on a business For a loss or outgoing to be deductible under subsection 8-1(1), it must be either incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing that assessable income.

A relevant connection exists between a loss or outgoing and the derivation of income where there is a sufficient nexus; (see, Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47 at 56). In this case, the contributions are made by the Company to the Trust to enable the Company to meet its obligations arising from the grant of rights, options and awards under the Plans. The Commissioner accepts that granting awards under the Plan is to incentivise, remunerate and retain employees of the Company and in turn, is likely to result in the gaining or production of the assessable income of the Company as a result of the employee's increased performance and productivity. The Commissioner accepts there is sufficient nexus between: a)    the irretrievable cash contributions made by the Company to the Trustee to satisfy the granting of rights, options and awards under the Plans to the Participants, and b)    the Company's own income earning activities. Therefore, subsection 8-1(1) is satisfied. Not capital or of a capital nature Paragraph 8-1(2)(a) states that a loss or outgoing is not deductible if it is a loss or outgoing of capital, or of a capital nature.

The Company will be making regular, irretrievable contributions, to the Trustee to awards granted under the Plan (in accordance with the Trust Deed and the rules of the Plans). These contributions are costs incurred by the Company to fund the acquisition of Restricted Shares for the purpose of the Plans. Therefore, the costs will be an outgoing incurred for periodic funding of a bona fide employee share scheme for the employees. Costs incurred are likely to be in relation to more than one grant of awards (rather than being one-off), and the Company intends to continue satisfying awards using shares acquired by the Trust. This indicates that the irretrievable cash contributions made by the Company to the Trustee are ongoing in nature, recurrent employment expenses, and are part of the broader remuneration expenditure of the Company. This is supported by the decisions in Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) FCAFC 339 (Pridecraft) and Federal Commissioner of Taxation v Spotlight Stores Pty Ltd (2004 FCA 650

(Spotlight), which held that payments by an employer company to a trust established for the purpose of providing incentive payments to employees were on revenue account and not capital, or of a capital nature. The loss or outgoing cannot be incurred in gaining or producing exempt income or non-assessable non-exempt income Nothing in the facts suggest that the irretrievable cash contributions made to the Trustee are private or domestic in nature, or are incurred in gaining or producing exempt, non-assessable non-exempt income or are otherwise prevented from being deductible under a specific provision of either the ITAA 1936 or ITAA 1997. Accordingly, subject to the operation of section 83A-210, the Company will be entitled to deduct an amount under section 8-1 for irretrievable cash contributions it makes to the Trustee to acquire Restricted Shares in accordance with the Plan. Question 2a

Will irretrievable cash contributions made by the Company directly to the Trustee, to fund the subscription for, or acquisition off-market of, Shares by the Trust under the Plan, in respect of the Participants, be deductible to the Company under section 8-1 of the ITAA 1997, at a time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the acquisition of the relevant ESS interests? Summary Where the irretrievable cash contribution are made before the acquisition of the relevant ESS interest, section 83A-210 will determine the timing of the deduction. Section 83A-210 will apply to contributions made in respect of ESS interest and indeterminate rights. The contributions will be deductible to the Company in the income year when the relevant beneficial interest in a Share is acquired by a Participant under the Plan. Detailed reasoning A deduction for the irretrievable cash contributions under section 8-1 would generally be allowable in the income year in which the Company incurred the outgoing. Under certain circumstances, the timing of the deduction is determined under section 83A-210.

The effect of section 83A-210 is to deem the timing of when 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, where the contribution is made before the ultimate beneficiary receives the ESS interest. The implementation of the Plan (as set out in the rules of the Plan), the establishment of the Trust and the provision of irretrievable cash contributions by the Company to the Trustee of the Trust, constitute an arrangement for the purpose of subparagraph 83A-210(a)(i). The term ESS interest, in a company is defined in subsection 83A-10(1) as being either a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. The ESS contains a number of interrelated components which include the provision of irretrievable cash contributions by the Company to the Trustee. These irretrievable cash contributions enable the Trustee to acquire Shares for the purpose of enabling each Participant, indirectly as part of the Plan, to acquire ESS interests.

The deduction for the irretrievable cash contributions, to the extent they relate to the Participants, can only be deducted from the assessable income of the Company in the income year when the relevant beneficial interest in a Share, or beneficial interest in an award to a beneficial interest in a Restricted Share, is acquired by the Participant under the Plan. This is consistent with the ATO view expressed 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 . If the irretrievable cash contributions are made before acquisition of the relevant ESS interests, the contribution can only be deducted from the assessable income of the Company in the income year when the relevant beneficial interest in a Share is acquired by a Participant under the Plan. Indeterminate Rights under the Plan

Upon accepting the offer to participate in the Plan, the employees acquire an indeterminate right as the number of shares granted is uncertain. The right later becomes a right to acquire a beneficial interest in shares when the total number of Restricted Shares granted to the employee is confirmed. The number of Restricted Shares granted will be confirmed once the annual bonus payment amount and the Reference Price, being the shares price used by the Company to convert a dollar amount into a number of Restricted Shares, have been confirmed by the Company. Although the indeterminate right is not an ESS interest within the meaning of subsection 83A-10(1) at the time it is granted, 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. The Plan meet the requirement of an ESS for the purpose of subsection 83A-10(2) as it is a scheme under which ESS interests are provided to Participants in relation to their employment or engagement with the Company.

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 (being the year in which the indeterminate right was granted to the employee). Question 2b Will irretrievable cash contributions made by the Company directly to the Trustee, to fund the subscription for, or acquisition off-market of, Shares by the Trust under the Plan, in respect of the Participants, be deductible to the Company under section 8-1 of the ITAA 1997 in the income year in which the contributions are made, if the contributions are made either in the same income year or in an income year that is after the acquisition of the relevant ESS interests? Summary

The irretrievable cash contribution made by the Company to the Trustee to fund the subscription for or acquisition of Shares by the Trustee is deductible to the Company in the income year when the contributions are made, if the contributions are made in the same income year or in an income year after the acquisition of the relevant ESS interests by the ultimate beneficiaries. Detailed reasoning Consistent with the analysis in Question 2a (above), where the contribution is made after the acquisition of the relevant ESS interests, irretrievable contributions made by the Company to the Trustee of the Trust to fund the subscription for or acquisition off-market of Shares by the Trust to satisfy the ESS interests granted to Participants will be deductible in the income year in which the contribution is made by the Company pursuant to section 8-1. Question 3 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 of in 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 off-market of Shares by the Trust under the Plan? Summary The Commissioner will not make a determination that Part IVA of the ITAA 1936 apply to deny, in part or in 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 off-market of Shares by the Trust under the Plans. 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 of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a 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 scheme does not contain the elements of artificiality or unnecessary complexity and the commercial drivers sufficiently explain the entry into the use of the employee share trust arrangement. Therefore, having regard to the eight factors set out in subsection 177D(2) of the ITAA 1936, the Commissioner has concluded that the scheme is not being entered into or carried out for the dominant purpose of enabling the Company to obtain a tax benefit. Issue 2 Fringe benefits tax Question 4 Will the provision of ESS interests by the Company to Participants under the Plan constitute a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Summary The provision of ESS interests to employees of the Company under the Plan does not constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA. 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. No amount will be subject to FBT unless a 'fringe benefit' is provided.

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. An indeterminate right comes within the definition of 'benefit'. 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. At the time indeterminate rights are granted, it may be unclear if paragraph (h) of the definition of fringe benefit in subsection 136(1) applies because at the time, the employee has not acquired rights that are ESS interests within the meaning of subsection 83A-10(1). Although the indeterminate rights are not ESS interest within the meaning of 83A-10(1) at the time they are granted, where they are ultimately satisfied with shares instead of cash (or when the number of shares the employee is entitled to is determined):

•         the indeterminate right will, pursuant to section 83A-340 be treated as if they had always been an ESS interest; and •         as they will constitute an acquisition of ESS interests acquired under an ESS (within the meaning of the ITAA 1997) to which to Subdivision 83A-B or Subdivision 83A-C applies, they will be excluded from the definition of fringe benefit by paragraph 136(1)(h) of the FBTAA (see ATO ID 2010/142). The Commissioner accepts that the Plan meets the requirement of an ESS, and the rights granted under the Plan are an ESS interests under section 83A-340 and paragraph 83-10(1)(b), being a beneficial interest in a right to acquire a share in a company. Specifically, the Commissioner accepts that the rights provided under the Plan are ESS interests and that Subdivision 83A-B or 83A-C applies to those ESS interests acquired at a discount. Where the indeterminate rights are ultimately satisfied with shares, section 83A-340 will operate to treat them to have always been ESS interests within the meaning of subsection 83A-10(1).

Accordingly, the provision of indeterminate rights under the Plans will not be subject to FBT on the basis that they are acquired by employees under an employee share scheme and exclude by virtue of paragraph (h) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. Question 5 Will the irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for, or acquisition off-market, of Shares by the Trust under the Plan be treated as a fringe benefit within the meaning of subsection 136(1) of the FBTAA? Summary The irretrievable cash contributions made by the Company to the Trustee, to fund the subscription for or acquisition off-market, of Shares by the Trust under the Plan, are not a fringe benefit within the meaning of subsection 136(1) of the FBTAA. Detailed reasoning Paragraph (ha) of subsection 136(1) of the FBTAA excludes from being a 'fringe benefit', a benefit constituted by the acquisition of money or property by an employee share trust within the meaning of the ITAA 1997.

Therefore, for the irretrievable cash contributions to be excluded from the definition of 'fringe benefit', the Trust must be an 'employee share trust' as defined in 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 is relevant. To qualify as an employee share trust, 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)), and •         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 the Company •                the Commissioner accepts that the Plans meet the requirements of an ESS under which ESS interests are provided to employees, and

•                the Trustee 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 Shares to Participants in accordance with the trust deed and the rules of the Plans. Paragraph 130-85(4)(c) provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b). The phrase 'merely incidental' takes its ordinary meaning, with further guidance drawn from the context and purpose of the legislation in which it appears. 'Merely incidental' is not defined in the legislation and has not been judicially considered in the context of subsection 130-85(4). The Macquarie Dictionary defines 'merely' to mean 'only as specified, and nothing more'. 'Incidental' is defined as 'happening or likely to happen in fortuitous or subordinate conjunction with something else'. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13 Income tax: what is an 'employee share trust'?

Activities that involve 'investing in assets other than shares or rights to shares in the employer company' or 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 employee share trust under subsection 130-85(4), including paragraph 130-85(4)(c). The other activities undertaken by the Trustee under the trust deed are merely incidental to managing the Plans. Therefore, paragraph 136(1)(ha) of the FBTAA applies to exclude the irretrievable cash contributions made by the Company to the Trustee to fund the subscription for, or acquisition of, Shares by the Trust from being a fringe benefit.