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1 Will the irretrievable cash contributions that are made by the Company, to the Trustee of the Trust, to fund the subscription for, or acquisition of, shares in the Company for the Trust, be assessable income of the Trust pursuant to sections 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 No. Question 2 Will a capital gain or capital loss that arises for the Trustee, at the time when the participants of the Plan become absolutely entitled to the shares in the Company that are held by the Trust (CGT event E5), be disregarded under section 130-90 of the ITAA 1997 if the participants acquire the shares for the same or less than the cost base of the shares in the hands of the trustee? Answer 2 Yes. Question 3 To the extent the Company is a private company for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936) in a given income year, will the irretrievable cash contributions that are made by the Company, or a subsidiary member of its tax consolidated group, to the Trustee, to fund the acquisition of shares in the Company by the Trust for the purposes of the Plan in respect of rights granted to participants, be treated as a deemed dividend within the meaning of Division 7A of the ITAA 1936? Answer 3 No. This ruling applies for the following periods : 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 The scheme commenced on: 1 July 20XX

The Applicant is the Trustee of the Trust. The Company is a privately held unlisted Australian company. The Company is the head company of an income tax consolidated group. As part of its strategy to attract, retain and motivate key talent, the Company implemented the Equity Incentive Plan (the Plan) during the 20xx income year. The Company 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 Company.

The Plan states that the Company'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 employee 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 Company, at no cost, subject to the Participant remaining employed with the Company 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 Company 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 Company will pay the Trustee any fee, commission, expense or other remuneration in respect of its officer as agree between the Company 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 Company 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 Company'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 Company and pursuant to the Trust Deed acquire, deliver and allocate Shares to participants provided that the Trustee receives sufficient payment from the Company 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 Company would be in the form of irretrievable contributions and 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 Company except where they are used for subscribing for Shares in the Company. 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 Company). Accordingly, the Plan incorporates the use of the Trust to facilitate the provision of Shares in respect of grants that may vest.

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 Company. The Company (or any member of the Group) will have no interest in the Shares held by the Trust.

Income Tax Assessment Act 1936 Division 7A Income Tax Assessment Act 1997 Section 6-5 Income Tax Assessment Act 1997 Section 6-10 Income Tax Assessment Act 1997 Section 130-90

All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated. Question 1 Summary No, the irretrievable cash contributions will not be assessable income of the Trust under sections 6-5 or 6-10 for the purpose of determining the net income of the trust. Detailed reasoning Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936) provides for the assessment of income tax on the income of a trust estate and on amounts of income distributed by the trust estate. Subsection 95(1) of the ITAA 1936 defines 'net income', in relation to a trust estate, as the total assessable income of the trust estate calculated under 'this Act' as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions. [1] Subsection 6(1) of the ITAA 1936 states that 'assessable income' has the meaning given by subsection 995-1(1), which relevantly has the meaning given by sections 6-5, 6-10 and 6-15. Irretrievable cash contributions not ordinary income under section 6-5 Subsection 6-5(1) provides that your assessable income includes income according to ordinary concepts, which is called 'ordinary income'.

Whether or not a particular receipt is income depends upon its character in the hands of the recipient. [2] This depends on various factors such as the periodicity, regularity or recurrence of the receipt, the character of a right or thing disposed of in exchange for the receipt, the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. [3] The contributions made by the Company, or a subsidiary member of the consolidated group, are capital receipts as they form part of the corpus of the Trust which the Trustee will use to subscribe for, or acquire, shares in the Company that will be held on trust for the benefit of Participants of the Plan. Therefore, they are not assessable under section 6-5. Irretrievable cash contributions not statutory income under section 6-10

Subsection 6-10(1) provides that your assessable income also includes some amounts that are not ordinary income. Such amounts are included in your assessable income by provisions about assessable income and are called 'statutory income' (subsection 6-10(2)). Section 10-5 provides a list of provisions that include in your assessable income amounts that are statutory income. None of the provisions listed in section 10-5 are relevant in the present circumstances. The irretrievable cash contributions made by the Company, or a subsidiary member of the consolidated group, to the Trustee of the Trust will therefore not be included in the assessable income of the Trust under section 6-10. Question 2 Summary Any capital gain or capital loss that arises for the Trustee, when Participants of the Plan become absolutely entitled to the Shares, is disregarded under section 130-90, if the Participants acquire the Shares for the same or less than the cost base of the Shares in the hands of the Trustee. Detailed reasoning

Subsection 102-5(1) states that your assessable income includes your net capital gain (if any) for the income year. You make a capital gain or capital loss if and only if a CGT event happens (section 102-20). CGT event E5 CGT event E5 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust as against a trustee (subsection 104-75(1)). The time of the event is when the beneficiary becomes absolutely entitled to the asset (subsection 104-75(2)). Subsection 130-85(2) treats a beneficiary as absolutely entitled to the relevant share from the time of acquisition of the ESS interest until they no longer have the ESS interest in the share. Subsection 130-85(2) only applies if the following requirements under subsection 130-85(1) are satisfied: (a)          the beneficiary acquires an ESS interest under an employee share scheme (b)          Subdivision 83-B or 83-C applies to the ESS interest, and (c)          the ESS interest is, or arises because of, an interest the beneficiary holds in an employee share trust. Participants acquire ESS interests under the Plan which is an employee share scheme

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 of the company, or a subsidiary of the company, in relation to the employees' employment. Subsection 83A-10(1) defines an 'ESS interest', in a company, as a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. Paragraph 130-85(1)(a) is satisfied because: •                     the participants of the Plan are beneficiaries of the Trust which was established for the purpose of administering the Plan, and •                     the Plan is a scheme under which participants are provided with rights in relation to their employment that provides them with a right to acquire shares in the Company. Subdivision 83A-B or 83A-C applies to the rights Subsection 83A-20(1) states that Subdivision 83A-B applies to an ESS interest if you acquire the interest under an employee share scheme at a discount.

As rights are provided to participants of the Plan for no consideration, they are acquired by those participants at a discount and Subdivision 83A-B would apply to those ESS interests (unless the conditions in subsection 83A-105(1) are satisfied, in which case Subdivision 83A-C would apply instead). Accordingly, paragraph 130-85(1)(b) is satisfied. The rights arose because of an interest the participants hold in an employee share trust The participants of the Plan are beneficiaries of the Trust as they have an interest in the shares that are held within the Trust. Subsection 995-1(1) defines 'employee share trust' as having the meaning given by subsection 130-85(4). Subsection 130-85(4) defines an 'employee share trust', for an employee share scheme, as 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). Paragraphs 130-85(4)(a) and (b) of the definition of an employee share trust are satisfied because the Trustee: •                     acquires shares in the Company, and •                     ensures those shares (which are 'ESS interests' under subsection 83A-10(1)) are provided under the Plan (which is an 'employee share scheme' as defined in subsection 83A-10(2)) to participants (who are employees of the Company or a subsidiary member of the group) by allocating those shares to the participants in accordance with the Trust Deed and the Plan Rules. Taxation Determination TD 2019/13 Income tax: what is an 'employee share trust'? sets out the Commissioner's view on the type of activities that are and are not considered merely incidental for the purposes of paragraph 130-85(4)(c). Whether a trust is an 'employee share trust' for the purposes of subsection 130-85(4) requires an analysis of what the trustee actually does, not only the powers and duties that are prescribed in the trust's deed.

In the present case, the Commissioner considers the Trust to be an 'employee share trust' for the purposes of subsection 130-85(4) and paragraph 130-85(1)(c) is satisfied. As all the conditions in subsection 130-85(1) are satisfied, the participants are taken to be absolutely entitled to the shares held by the Trustee from the time they were granted rights under the Plan pursuant to subsection 130-85(2), and CGT event E5 will happen at that time. Capital gain or capital loss to be disregarded under section 130-90 However, subject to subsection 130-90(2), any capital gain or capital loss made by the trustee, to the extent that it results from CGT event E5, is disregarded if either subsection 130-90(1A) or subsection 130-90(1) applies. Subsection 130-90(1) states that any capital gain or capital loss made by an employee share trust to the extent that it results from a CGT event is disregarded if: (i)          the CGT event is CGT event E5 (ii)          the CGT event happens in relation to a share (iii)          the beneficiary had acquired a beneficial interest in the share by exercising a right; and

(iv)          the beneficiary's beneficial interest in the right was an ESS interest to which Subdivision 83A-B or 83A-C applied. Subsection 130-90(1) applies to the shares held by the Trustee for the Plan because: •                     CGT event E5 happens when the rights are granted to participants •                     CGT event E5 happens in relation to shares in the Company •                     Participants of the Plan acquire a beneficial interest in those shares when they exercise their rights, and •                     as explained earlier, Subdivision 83A-B or 83A-C would apply to those rights as they are acquired by participants of the Plan at a discount. Conclusion As the requirements under subsection 130-90(1) are met in relation to the shares held by the Trustee for the Plan, any capital gain or capital loss made by the Trustee as a result of CGT event E5 happening will be disregarded (provided that the Participants do not acquire the shares for more than their cost base in the hands of the Trustee at the time the CGT event happens). Question 3 Summary

To the extent the Company is a private company in a given income year, the irretrievable cash contributions that are made to the Trustee will not be treated as deemed dividends. 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 Fringe Benefits Tax Assessment Act 1986 (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 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 Company, or a subsidiary member of the group, to the Trustee would satisfy subsection 109C(1) 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). Accordingly, where the Company 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. > [1] Section 6 of the ITAA 1936 defines 'this Act' to include the ITAA 1997. [2] Scott v Federal Commissioner of Taxation [1966] HCA 48, The Federal Coke Company Pty Limited v The Commissioner of Taxation of the Commonwealth of Australia [1977] FCA 29. [3] Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18,

GP International Pipecoaters Pty Ltd v Commissioner of Taxation (Cth) [1990] HCA 25.