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1 Will the Taxpayer be entitled to deduct an amount under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for irretrievable cash contributions made by the Taxpayer to the trustee of the Trust (Trustee) to fund the subscriptions for, or acquisition of fully paid ordinary shares in the Taxpayer (Shares), to satisfy employee share scheme (ESS) interests issued pursuant to the Plan?

1 Yes. Question 2a Will the irretrievable cash contributions made by the Taxpayer to the Trustee of the Trust, to fund the subscription for, or acquisition of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plan, be deductible to the Taxpayer under section 8-1 of the ITAA 1997 at the time determined by section 83A-210 of the ITAA 1997, if the contributions are made before the acquisition of the relevant ESS interests by participants under the Plan? Answer 2a Yes. Question 2b Will the irretrievable contributions made by the Taxpayer to the Trustee of the Trust, to fund the subscription for, or acquisition of, Shares by the Trustee to satisfy ESS interests issued pursuant to the Plan, be deductible to the Taxpayer under section 8-1 of the ITAA 1997 in the income year when the contributions are made, if the contributions are made in the same income year or in a year that is after the acquisition of the relevant ESS interests by participants under the Plan? Answer 2b Yes. Question 3 Will the Commissioner make a determination that Part IVA of the Income Tax Assessment Act 1936

(ITAA 1936) applies to deny, in part or in full, any deduction claimed by the Taxpayer for the irretrievable cash contributions made to the Trust to fund the subscription for, or acquisition off-market of Shares by the Trustee pursuant to the plan? Answer 3 No. Question 4 Will the provision of ESS interests to employees of the Taxpayer under the Plan constitute a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Answer 4 No. Question 5 Will the irretrievable cash contributions made by the Taxpayer the Trustee of the Trust, to fund the subscription for, or acquisition, of Shares pursuant to the Plan, constitute a fringe benefit within the meaning of subsection 136(1) of the FBTAA? Answer 5 No. Question 6 Will the Commissioner make a determination under section 67 of the FBTAA applies to increase the aggregate fringe benefits amount to the Taxpayer, by the amount of the tax benefit gained from the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for new Shares, or acquisition of existing Shares by the Trustee to satisfy its obligations under the Plan? Answer 6 No. Question 7

To the extent the Taxpayer is a private company for the purpose of the ITAA 1936 in a given income year, will the irretrievable cash contribution made by the Taxapyer to the Trustee to fund the subscription for, or acquisition of, Shares for the Trust to satisfy ESS interest issued pursuant to the Plan to Participants, be treated as deemed dividends within the meaning of Division 7A of the ITAA 1997? Answer 7 No. This ruling applies for the following periods : In relation to income tax: 1 January 20xx to 31 December 20xx 1 January 20xx to 31 December 20xx 1 January 20xx to 31 December 20xx 1 January 20xx to 31 December 20xx 1 January 20xx to 31 December 20xx In relation to fringe benefits tax: 1 April 20xx to 31 March 20xx 1 April 20xxto 31 March 20xx 1 April 20xx to 31 March 20xx 1 April 20xxto 31 March 20xx 1 April 20xx to 31 March 20xx The scheme commenced on: 1 July 20xx

The Taxpayer is a privately held unlisted Australian company. The Taxpayer is the head company of an income tax consolidated group. As part of its strategy to attract, retain and motivate key talent, the Taxpayer implemented the Equity Incentive Plan (the Plan) during the 20xx income year. The Taxpayer operates the Plan for eligible employees of the tax consolidated group in accordance with Division 83A of the ITAA 1997. The Plan The Plan states that the purpose of the Plan is to allow the Board to offer Rights to Employees to assist with: (a)          attracting, motivating and retaining Employees (b)          delivering rewards to Employees for individual and/or Company performance (c)          allowing employees the opportunity to become shareholders (d)          aligning the interests of Employees with those of Shareholders (e)          facilitating conduct and good risk practices through the use of a malus and clawback provision. Under the Plan, eligible Australian employees (Participants) are granted rights (Rights) to acquire shares (Shares) of the Taxpayer.

The Plan states that the Taxpayer's Board of Directors (the Board) may from time to time, in its absolute discretion operate the Plan and invite an employee to apply for a grant of, or grant to an employee, Rights upon the terms of the Plan and upon such additional terms and conditions as the Board determines. The Plan states in part that at the time of the invitation, the Board will provide each Participant with an invitation letter which contains information regarding the Rights. The Plan states the Board administers the Plan and has discretion in exercising any power or discretion concerning the Plan and may establish, implement or operate a Trust for the purposes of delivering and holding Shares on behalf of Participants. Each Right granted is a right to acquire a restricted fully paid shares in the Taxpayer, at no cost, subject to the Participant remaining employed with the Taxpayer until the vesting date. The Plan will operate in accordance with subdivision 83A-C of the ITAA 1997 such that Rights allocated under the Plan are subject to deferred taxation. Employee share trust

The Taxpayer established the Trust under the terms of the Trust Deed to facilitate the acquisition, holding of, and allocation of Shares to participants in accordance with the Plan. The Trust is an independent legal entity that operates in accordance with the Trust Deed and the Plan. The beneficiaries of the Trust are all Participants and associates of Participants on whose behalf the Trustee holds shares or other general trust property or allocated trust property. The object of the Trust is set out in the Trust Deed. The Trustee in its discretion has the full power to do all things a trustee is permitted to do by law in respect of the Trust and the Trust Fund. The Taxpayer will pay the Trustee any fee, commission, expense or other remuneration in respect of its officer as agree between the Taxpayer and the Trustee. The Trust will be managed and administered so that it satisfies the sole activities test and is considered an "employee share trust" for the purpose of subsection 130-85(4) of the ITAA 1997. Allocating Shares to the Trust

Under the terms of the Trust Deed, the Taxpayer will instruct the Trustee to subscribe for, acquire and/or allocate a number of Shares specified in the notice. This instruction may occur at any time, in accordance with the Plan Rules and terms of the offer (Offer), depending on the Taxpayer's management strategy. In determining whether to request the Trustee to subscribe for or purchase Shares off-market, matters the Board will take into account various factors. The Trustee will, in accordance with instructions received from the Taxpayer and pursuant to the Trust Deed acquire, deliver and allocate Shares to Participants provided that the Trustee receives sufficient payment from the Taxpayer to subscribe for or purchase Shares and / or has sufficient unallocated Shares available in the Trust. The Trust will set aside and hold for the benefit of identified Participants (each an Allocated Trust Property Beneficiary) any part of the trust fund (Allocated Trust Property). Contributions to the Trust

All funds received by the Trustee from the Taxpayer in the form of irretrievable contributions will constitute accretions to the corpus of the Trust and no 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 Trustee will not be permitted to acquire any Shares or deliver any Shares to any participant, if to do so would contravene applicable law or would not be consistent with the operation of the Plan. Generally, the expedient to administer and maintain the Trust. It will not be permitted to carry out activities which result in the Participants being provided with additional benefits other than the benefits that arise under the Trust Deed. It is the intention that the Trust be used to administer Rights or Shares granted under the Plan (and any new employee equity plan operated by the Taxpayer). Accordingly, the Plan incorporates the use of the Trust to facilitate the provision of Shares in respect of grants that may vest.

The Taxpayer or any member of the Group will not be beneficiaries under the Trust Deed and any funds the Taxpayer contributes to the Trust, other than specifically in the form of a loan, may not be refunded, repaid or returned to the Taxpayer (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. The Taxpayer (or any member of the Group) will have no interest in the Shares held by the Trust.

Income Tax Assessment Act 1997 Section 8-1 Income Tax Assessment Act 1997 Section 83A-10 Income Tax Assessment Act 1997 Section 83A-210 Tax Assessment Act 1997 Section 83A-340 Tax Assessment Act 1936 Section 177D Fringe Benefits Tax Assessment Act 1986 Section 136 Does Part IVA apply to this private ruling? Part IVA has been considered in this case due to a part IVA question being asked. Please refer to Question 3.

All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated. Question 1 Summary The Taxpayer will be entitled to a deduction under section 8-1 in respect of the irretrievable cash contributions made by the Taxpayer (excluding those funds provided by way of a loan) to the Trustee of the Trust to fund the subscription for, or acquisition of ESS rights or ESS Shares, as the contributions are payments by the employer to the Trust incurred in gaining or producing the Taxpayer's assessable income. 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 Taxpayer is a privately held unlisted Australian company. The Taxpayer operates employee share schemes (ESS) as part of its remuneration strategy.

Under the Plan, the Taxpayer may grant Rights to eligible employees and will make irretrievable cash contributions to the Trust (in accordance with Trust Deed), excluding those funds provided by way of a loan, which the Trustee uses to acquire shares for allocation to Participants to satisfy their Rights. The Taxpayer must provide the Trustee with all the funds required to enable the Trustee to subscribe for, or acquire, the Taxpayer's shares. The cash contributions made by the Taxpayer to the Trust are irretrievable and non-refundable (excluding those funds provided by way of a loan) to the Taxpayer in accordance with the Trust Deed, as: a.            all funds provided to the Trustee will constitute accretions to the corpus of the Trust and will not be repayable by the Trustee, and b.            on termination, the Taxpayer (or any other member of the Group) will not be a beneficiary of the Trust and will have no interests in the Shares held by the Trust.

Therefore, if the Taxpayer makes a cash contribution (excluding those funds provided by way of a loan) to the Trust to acquire or subscribe for Shares to satisfy the Rights granted to the participants pursuant to the Plan, the amount has been incurred for the purposes of subsection 8-1(1). The costs incurred by the Taxpayer for the acquisition of shares to satisfy its obligations under the Plan in respect of the grant of Rights arise as part of the Taxpayer's remuneration arrangements, and contributions to the Trust are part of an on-going series of payments in the nature of remuneration of its employees. That is the bonus that would otherwise have been paid as wages and a deduction claimed by the employer as a wages expense, will now be paid to the Trustee of the Trust to fund the employee participating in the Plan. As such, the payment by the Taxpayer to the Trust is incurred in the process of carrying on a business to reward and retain staff, and is related to gaining or producing the Taxpayer's assessable income.

The cash contributions will be an outgoing incurred for periodic (rather than once-off) funding of an ESS for employees of the Taxpayer. The cash contributions are made as part of an ongoing process of remunerating employees, with the Trust expected to acquire shares regularly. Nothing in the facts suggests any intention for any contribution to be retained in the Trust for an extended period of time. 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. The Taxpayer will be entitled to a deduction under section 8-1 in respect of the irretrievable cash contributions made by Taxpayer (excluding those funds provided by way of a loan) to the Trustee of the Trust to fund the subscription for, or acquisition, Shares. Question 2a Summary

Pursuant to section 83A-210 where irretrievable cash contributions are made at a time before the ultimate beneficiaries acquire the relevant ESS interest, the irretrievable cash contribution can only be deducted from the assessable income of the Taxpayer in the income year when the ESS interest is acquired by the Participant under the Plan. Detailed reasoning It is often the case that an outgoing will be both incurred and paid in the same year of income, and as such, the amount is deductible in that income year for the purposes of section 8-1. However, section 83A-210 modifies this rule in certain circumstances in respect of contributions provided by an employer to a trust to purchase shares under an ESS. Section 83A-210 provides that if: (a)          at a particular time, you provide another entity with money or other property: (i)          under an arrangement; and (ii)          for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an ESS interest under an employee share scheme in relation to the ultimate beneficiary's employment (including past or prospective employment); and

(b)          that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the ESS interest; then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time. 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 a beneficiary under an arrangement, rather than the time when the employer makes the contribution to the trust, if the contribution was made before the ESS interests are acquired. 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.

An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company. The participant will acquire anESS interest when the Participant is granted a Right pursuant to the Plan. Shares that are purchased by the Trustee to satisfy its obligation under the Taxpayer's ESS, and subsequently granted to the Taxpayer Participants pursuant to the Plan, are ESS interests for the purposes of section 83A-210. The Taxpayer's ESS satisfies the definition of an 'employee share scheme' in subsection 83A-10(2) as they are a scheme under which ESS interests are provided to the Participants in relation to their employment with the Taxpayer. The granting of the ESS interest to the Participants, the provision of the cash contributions to the Trustee, the acquisition and holding of shares by the Trustee and the allocation of shares to Participants are all interrelated components of the Taxpayer's ESS. All the components constitute an arrangement for the purposes of section 83A-210 that must be carried out so that the scheme can operate as intended.

The Taxpayer intends to only make irretrievable contributions to the Trust to fund the acquisition of Shares once Rights have been granted to a Participant. A Right provided under the Plan is an indeterminate right because that Right entitles the employee to acquire a Share, to be determined at a future time at the discretion of the Taxpayer (in line with the Plan rules). 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 (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 employee and where necessary the relevant earlier income year assessments can be amended to allow the deduction (Item 28 of subsection 170(10AA) of the ITAA 1936).

It is important to note that an indeterminate right which is satisfied by the provision of cash never becomes an ESS interest and the deduction in relation to 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 participating employee acquired this ESS interest. Therefore, where irretrievable cash contributions are made at a time before the Participants acquire the relevant ESS interest, the irretrievable cash contribution can only be deducted from the assessable income of the Taxpayer in the income year when the ESS interest is acquired by the Participant under the Plan, as provided by section 83A-210. Question 2b Summary

Yes, the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for, or acquisition of Shares by the Trustee are deductible to the Taxpayer in the income year when the contributions are made, if the contributions are made 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 Taxpayer to the Trustee of the Trust to fund the subscription for, or acquisition of existing Shares (i.e. from existing shareholders) 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 Taxpayer pursuant to section 8-1. Question 3 Summary No, Part IVA of the ITAA 1936 will not apply to deny, in part or in full, any deduction claimed by the Taxpayer in respect of the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for or acquisition off-market of Shares by the Trust. Detailed reasoning

Part IVA of the ITAA 1936 is a general anti-avoidance provision which gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. The Commissioner generally accepts that a general deduction may be available where an employer provides money or other property to an employee share trust where the conditions of Division 83A 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, based on the current facts and 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 Taxpayer to obtain a tax benefit. Question 4 Summary The provision of the ESS interest by the Taxpayer to employees under the Plan will not be a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning 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 definition. Paragraph (h) of subsection 136(1) of the FBTAA excludes the following from being a 'fringe benefit': (h) a benefit constituted by the acquisition of an ESS interest under an employee share scheme (within the meaning of the Income Tax Assessment Act 1997 (ITAA 1997)) to which Subdivision 83A-B or 83A-C of that Act applies. An 'employee share scheme' is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees, or associates of employees (including past or prospective employees) in relation to the employee's employment. An ESS interest in a company is defined in subsection 83A-10(1) as either a beneficial interest in a share in the company, or a beneficial interest in a right to acquire a beneficial interest in a share in the company.

Shares that are purchased by the Trustee to satisfy its obligation under the Plan, and subsequently granted to Participants pursuant to the Plan, are ESS interests for the purposes of subsection 83A-10(1). Therefore, the Taxpayer's Plan constitute an 'employee share scheme' within the meaning of subsection 83A-10(2) because it is a scheme under which ESS interests in the Taxpayer are provided to the employees of the Taxpayer in relation to their employment with the Taxpayer. As the Rights to acquire the Shares or the Shares granted under the Plan will be acquired by the Participants at no cost, they are ESS interests to which Subdivision 83A-B or 83A-C applies. Accordingly, the provision of Rights to acquire Shares or Shares by the Taxpayer to Participants under the Plan will not be subject to FBT on the basis that they are acquired by Participants under an 'employee share scheme' (to which Subdivision 83A-B or 83A-C will apply) and are thereby excluded from being a fringe benefit by virtue of paragraph 136(1)(h) of the FBTAA.

In addition, when a right to acquire ordinary shares 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 right to acquire shares and not in respect of employment (refer to ATO ID 2010/219 Fringe Benefits Tax Fringe benefit: shares provided to employees upon exercise of rights granted under an employee share scheme ). Question 5 Summary The irretrievable cash contributions made by the Taxpayer to the Trustee pursuant to the Trust Deed, to fund the subscription for or acquisition of the Taxpayer's shares will not be treated as a fringe benefit. Detailed reasoning Paragraph 136(1)(ha) of the FBTAA of the definition of fringe benefit provides that a benefit constituted by the acquisition of money or property by an employee share trust (within the meaning) does not constitute a fringe benefit. Subsection 130-85(4) provides that an employee share trust (EST) for an employee share scheme is a trust whose sole activities are: (a)          obtaining shares or rights in a company; and

(b)          ensuring that ESS interests in the company that are beneficial interests in those shares or rights are provided under the employee share scheme to employees, or to associates of employees, of: (i)           the company; or (ii)           a subsidiary of the company; and (c)          other activities that are merely incidental to the activities mentioned in paragraphs (a) and (b). In the Taxpayer's case, paragraphs 130-85(4)(a) and (b) are satisfied because the Trust's activities are limited to managing the Plan and operates for the sole purpose of: (a)          acquiring, holding and delivering Shares or rights to acquire Shares for the purposes of the Plans; and (b)          providing beneficial interests in those Shares or rights to acquire Shares under the Plans to Participants Paragraph 130-85(4)(c) provides that a Trustee can engage in activities that are merely incidental to those described in paragraph 130-85(4)(a) and (b). The Commissioner's view on the type of activities that are and are not merely incidental is set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'?

The Taxpayer has stated that where vested Rights are to be settled in cash at the Company's election, any cash payments will be made by the relevant Group entity directly to the Participant and there is no involvement of the Trustee in settling those awards. Such Rights will be settled by way of a cash payment made by the relevant Group entity to the Participant through payroll. The Trust Deed indicates that the Trust will conduct other activities that are merely incidental to the main activities, as required by subsection 130-85(4)(c) and Division 1A of Part 7.12 of the Corporations Act 2001 (Cth). Therefore, the Trust established by the Deed also satisfies the definition of an employee share trust in subsection 130-85(4). Accordingly, the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for, or acquisition on-market of, Shares will not constitute a 'fringe benefit' within the meaning of subsection 136(1) of the FBTAA on the basis of the application of paragraph 136(1)(ha) of the FBTAA. Question 6 Summary

The Commissioner will not make a determination under section 67 of the FBTAA in relation to the irretrievable cash contributions made by the Taxpayer to the Trustee to fund the subscription for new Shares, or acquisition of existing Shares. Detailed reasoning Section 67 of the FBTAA involves arrangements to avoid or reduce fringe benefits tax. Essentially, it is the general anti-avoidance provision in the FBTAA and its operation is comparable to Part IVA of the ITAA 1936, in that the section requires the identification of an 'arrangement' and a 'tax benefit', includes a sole or dominant purpose test, and is activated by the making of a determination by the Commissioner.

As determined above, the irretrievable cash contributions made by the Taxpayer to the Trustee do not constitute fringe benefits within the meaning of subsection 136(1), nor would the grant of ESS interests (or cash payments) to Participants under the Plans if an EST was not used. Given the provision of ESS interests to employees are specifically excluded from the definition of fringe benefit, no tax benefit will arise. The applicant has advised the dominant purpose of the arrangement is to incentivise, reward and remunerate employees. Therefore, the Commissioner will not make a determination that section 67 of the FBTAA applies to increase the fringe benefits taxable amount to the Taxpayer by the amount of tax benefit gained from irretrievable cash contributions made by the Taxpayer to the Trustee to fund the acquisition of shares by the Trustee pursuant to the Plans. Question 7 Summary The irretrievable cash contribution made by the Taxpayer to the Trustee to fund the subscription for, or acquisition of, Shares for the Trust to satisfy ESS interest issued pursuant to the Plan to Participants, will not be treated as deemed dividends within the meaning of Division 7A.

Detailed reasoning Division 7A of the ITAA 1936 treats certain amounts as dividends paid by a private company, making those amounts assessable income of the shareholder or associate under section 44 of the ITAA 1936. Subsection 109C(1) of the ITAA 1936 states that a private company is taken to pay a dividend to an entity at the end of the private company's year of income if the private company pays an amount to the entity during the year and either: (a)          the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or (b)          a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time. 'Entity' is defined in section 109ZD of the ITAA 1936 as having the meaning given by section 960-100 and includes a trust and a trustee of a trust (subsections 960-100(1) and 960-100(2)).

However, Division 7A does not apply to a payment made to a shareholder, or an associate of a shareholder, in their capacity as an employee (as defined in the FBTAA) or an associate of such an employee (subsection 109ZB(3) of the ITAA 1936). An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current employee (a person who receives, or is entitled to receive, salary or wages), a future employee (a person who will become a current employee), or a former employee (a person who has been a current employee). 'Associate' is defined in section 109ZD of the ITAA 1936 as having the meaning given by section 318 of the ITAA 1936. Under subsection 318(1), an associate of an entity that is a natural person (otherwise than in the capacity of trustee) includes a trustee of a trust where the entity benefits under the trust. The irretrievable cash contributions that are made by the Taxpayer, to the Trustee would satisfy subsection 109C(1) of the ITAA 1936 if the Trustee held Shares at the time the contributions are made.

However, the Participants of the Plan are employees (as defined in subsection 136(1) of the FBTAA) and they receive Rights in their capacity as employees. Upon the exercise of their Rights, the Participants become beneficiaries of the Trust. As the Participants benefit under the Trust, the Trustee is considered an associate of the Participants. As the contributions that are paid to the Trustee from time to time as part of the Plan are made to the Trustee in its capacity as an associate of the Participants, the contributions will fall within the exception under subsection 109ZB(3) of the ITAA 1936. Accordingly, where the Taxpayer is a private company in a given income year, the irretrievable cash contributions it, or a subsidiary member of the Group, makes to the Trustee will not be deemed to be dividends under Division 7A of the ITAA 1936.