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1 Will the general anti-avoidance provisions under Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply for units you acquired under the employee share scheme offered by your employer, XXXX (Employer), where those units were acquired for nil consideration under either Subdivision 83A-B or Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 No. Question 2 If you acquire units at market value, should you include an amount of assessable income under section 6-5 of the ITAA 1997 for contributions made by you to acquire units in the XXXX Trust (Trust), an employee share trust run by the Employer? Answer 2 No. Question 3 Where Subdivision 83A-C applies to units you acquired for nil consideration, will you need to include an amount in your assessable income under section 6-5 or section 15-2 of the ITAA 1997 equal to the value of Units issued by the Trust? Answer 3 No. Question 4 If you are assessed on units issued under Subdivision 83A-C, is the amount included in your assessable income under section 83A-110 of the ITAA 1997 at the ESS deferred taxing point equal to the Employee Redemption Amount (as defined in the proposed the Trust Deed)? Answer 4 Yes. Question 5 Will you be able to disregard any capital gain or loss arising from the redemption of your units acquired for nil consideration (where the units are assessed under Subdivision 83A-C) pursuant to section 130-80 of the ITAA 1997? Answer 5 Yes. Question 6

Where you have paid market value to subscribe for and acquire additional units, will you make a capital gain or loss (which is not disregarded under section 130-80) under the section 104-10 (CGT Event A1) or section 104-25 (CGT Event C2) of the ITAA 1997 on redemption of those additional Units? Answer 6 Yes. Question 7 Will the broad availability requirement in subsection 83A-105(2) of the ITAA 1997 be met for an issue of Units to you if an invitation to participate (in the issue of Units) is made to at least 75% of the permanent employees of the Employer who have completed at least 3 years of service (whether continuous or non-continuous) with the Employer and who are Australian residents, even though those employees may elect not to actually participate in the issue of Units? Answer 7 Yes. Question 8 When you acquire Units in the Trust, and assuming the ESS deferred taxing point is not the 15th anniversary of the date of acquisition under subsection 83A-115(6) nor in accordance with the 30-day rules in subsection 83A-115(3) and that an Exit Event has not occurred, will the ESS deferred taxing point be on cessation of your employment under subsections 83A-115(4) of the ITAA 1997?

Answer 8 Yes. This ruling applies for the following periods: 1 July 2023 - 30 June 2024 1 July 2024 - 30 June 2025 1 July 2024 - 30 June 2026 1 July 2024 - 30 June 2027 1 July 2024 - 30 June 2028 The scheme commenced on: 2 December 2024

The Company, (also referred to herein as the Employer), is an Australian-incorporated company. The Employer has established an employee share scheme (Scheme). The Scheme utilises an employee share trust (Trust), the deed of settlement establishing the Trust has been provided to the Commissioner The Scheme is intended to attract, retain, motivate and reward employees for performance by conferring beneficial interests (ESS interests) in ordinary shares of the Employer upon its employees, which are funded by improved profitability performance. These ESS interests take the form of a unitised interest in the Trust. The persons invited to participate in the Scheme are all existing employees and new employees that have achieved at least 24 months of continuous employment. Employees in managerial positions are excluded from any decision by the Board as to their remuneration or from any decision as to their participation in the Scheme or an issue of ESS interests from the Trust.

Both the Employer, and one or more invited employees (who satisfy the qualifying criteria) will be able to make contributions to the Trust to enable the Trust to acquire ordinary shares in the Employer for the benefit of employees who are eligible to participate in the Scheme (Eligible Participants). The Scheme has a special purpose corporate trustee (Trustee), which has been established to be trustee of and manage the affairs of the Scheme. The Trustee's sole activities, as set out in the Deed are as follows: (a)           the investment powers of the Trustee are limited to obtaining shares, or rights to acquire shares, of the Employer (or a holding company of the Employer), allocate them to Units, and ensuring that those Units are provided to Eligible Employees under the Scheme; (b)           distributions of income or capital to Eligible Participants or associates of Eligible Participants under the terms and conditions of the trust deed; and (c)           any other activities that are merely incidental to the above mentioned activities.

The income of the trust will be distributed to each Eligible Participant unit holder on an annual basis, based on the cash dividends from ordinary shares allocated to Unit(s) held by the Eligible Participant. Under the terms of the Deed, no income or capital of the trust may be distributed to the Employer, and the Employer is excluded from any benefit under the Scheme. Issue of units The Employer will invite all existing employees to participate in the Scheme on an annual basis. An invitation to an employee will: (d)           entitle the employee (or an associate nominee) to acquire Units in the Scheme and being an Eligible Participant become a Unit Holder in the Scheme (e)           mean that the Eligible Participant (or their associate) becomes subject to conditions which would disentitle or forfeit the value of their rights and interest in the units (Disqualifying Event). (f)            redemption of a Unit is further subject to Disqualifying Discounts in value, which are to apply by reference to the length of time that the Eligible Participant has been employed with the Employer

(g)           mean that the Eligible Participant (or their associate) becomes subject to restrictions on their ability to sell, transfer or otherwise dispose of their Units (i.e. genuine restriction), and (h)           require the Employer to pay a contribution to enable the Trustee to acquire ordinary shares in the Employer (so as to support the issue of new Units to eligible employees). Only Eligible Participants (or their associates) may acquire Units. From time to time, additional Eligible Participant may be nominated by the Employer to participate in the Scheme. These include new employees that have achieved at least 24 months of continuous employment with the Employer. In relation to Eligible Participants: •                     the Employer will make an offer to a group of employees for them to participate in the Scheme •                     this group of employees will consist of at least 75% of the Employer's permanent employees who have completed at least 3 years of service (whether continuous or non-continuous) and who are Australian residents, and

•                     the outcome of the process is that 75% of those permanent employees may not end up participating in the Scheme and acquire Units, but an offer would've been made to them anyway. The market value of the Employer will be determined annually by an independent valuer. This valuation will be used to determine the underlying share price. The net asset backing of the Units will be based on that share price, the number of shares in the Employer held by the Trustee for the Scheme, and the number of Units on issue. Units will be issued at an issue price that reflects their market value. The market value of each Unit will be directly equivalent, on a one-for-one basis, to the market value of an underlying ordinary share in the Employer. Units may only be redeemed under the terms of the Deed. The Scheme does not involve any salary sacrifice arrangement other than salary sacrifice arrangements that comply with subsection 83A-105(4) of the ITAA 1997. The Scheme does not involve the Trustee making loans to employees (whether interest bearing or interest free and whether of a limited recourse nature or not).

The Scheme may also involve the employee subscribing for Units in the Scheme at market value, paid in full by the employee at the time of subscription. Redemption of units Upon redemption of Units, the relevant Eligible Participant (Unit Holder) will be entitled to direct the Trustee to sell the shares that are 'allocated' to the units remaining after applying a Disqualification Discount, if applicable) on the Eligible Participant's behalf (these are then defined as Allocated Shares) (and to receive the sale proceeds, net of the costs of sale (called the Employee Redemption Amount). The Eligible Participant may also, instead of having the Allocated Shares sold and receive the Employee Redemption Amount, direct the Trustee to have the Allocated Shares transferred to him or her, or to retain their Units in the Trust. If a Disqualifying Event occurs, the Units (or a proportion thereof) will be forfeited. A Disqualifying Event includes: (a)           the Eligible Participant becomes bankrupt;

(b)           the Eligible Participant transferring or assigning or attempting to transfer or assign a Unit or creating or attempting to transfer or assign a Unit or creating or attempting to create any equitable, contingent, future or partial interest or other security interest in a Unit; (c)           the Eligible Participant becomes of unsound mind or where his estate is liable to be dealt with under any law relating to mental health; (d)           the Eligible Participant's employment is Terminated for Cause; or (e)           such other events as may be nominated by the Employer. The Units are also subject to the Disqualification Discount in value. An Eligible Participant must hold the units for a designated time before they fully vest. If the designated time is not reached, then a Disqualification Discount in value applies. This discount will necessarily reduce the value of units (and therefore the underlying Allocated Shares) which are available to be redeemed and sold by the Trustee on behalf of the exiting Eligible Participant. This is set out in table 1: Table 1: Redemption value based on years units held Years Units Held Redemption value 1 Nil 2 Nil 3

As above plus 25% of incremental share value increase 4 As above plus 50% of incremental share value increase 5 As above plus 75% of incremental share value increase 6 Full current value at the time of redemption The Deed include both a restriction on sale or transfer of Units such that an Eligible Participant is only able to transfer, deal with or redeem their Units until the earlier of: (a)           cessation of employment (b)           sale (or listing) of the Employer (i.e. an Exit Event), and (c)           15 years (the maximum deferral period). The Deed also provides that if an employee attempts to deal with, transfer or redeem their units at any time before the abovementioned events, then the Units are forfeited. Dividends Eligible Participants (Unit Holders) will be entitled to receive any dividends paid on Allocated Shares referable to their Units. These dividends may be franked and any franking credits will "flow-through" to the Eligible Participant (Unit holder).

Income Tax Assessment Act 1936 Part IVA Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subsection 8-1(1) Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subsection 8-1(1) Income Tax Assessment Act 1997 section 15-2 Income Tax Assessment Act 1997 Subdivision 83A-B Income Tax Assessment Act 1997 Subdivision 83A-C Income Tax Assessment Act 1997 subsection 83A-105(2) Income Tax Assessment Act 1997 section 83A-110 Income Tax Assessment Act 1997 subsection 83A-115(3) Income Tax Assessment Act 1997 subsection 83A-115(4) Income Tax Assessment Act 1997 subsection 83A-115(6) Income Tax Assessment Act 1997 section 83A-210 Income Tax Assessment Act 1997 section 130-80 Income Tax Assessment Act 1997 subsecti

All legislative references are to the Income Tax Assessment Act 1997 , unless stated otherwise. Question 1 Detailed reasoning 1.      Broadly, Part IVA of the ITAA 1936 applies to deny tax benefits obtained through schemes for the sole or dominant purpose of achieving them. At a general level the core provisions provide: •                     Section 177D says Part IVA applies if an entity entered into or carried out a scheme for the purpose of obtaining a tax benefit. The effect of subsection 177A(5) is that where an entity has multiple purposes, 'purpose' means 'dominant purpose'. •                     Subsection 177C(1) says tax benefits include amounts not included in assessable income, and allowable deductions. •                     Subsection 177D(2) lists factors relevant to determining purpose. Broadly, they address the manner, form, substance, time, and tax outcome of the scheme, changes in financial position, and connections between the parties. •                     Where Part IVA applies, section 177F allows the Commissioner to disallow the tax benefit.

2.      Part IVA of the ITAA 1936 doesn't apply on the facts presented. The facts disclose an employee share scheme to attract, retain, motivate, and reward employees. Aspects of the scheme may attract tax benefits, such as allowable deductions for your Employer, or amounts not being included in your assessable income in particular income years. However, considering the relevant factors, the dominant purpose of the scheme is to establish an employee share scheme to attract, retain, motivate, and reward employees. Any tax benefits would be incidental to that purpose, so Part IVA won't apply. Question 2 Detailed reasoning This arrangement will be treated as an employee share scheme under Division 83A and employees will receive beneficial interests in rights. 3.             The ESS rules aren't relevant to this question. Where you purchase additional units at market value from your own after-tax salary (or other sources), you won't have acquired an ESS interest at a discount. 4.             Section 6-5 includes ordinary income in assessable income.

5.             There's ATO and academic guidance about ordinary income. Taxation Ruling TR 2006/3 at paragraph 85, Taxation Determination TD 2016/18 at paragraph 15, and various academic sources, list some considerations derived from case law. The nature of a payment is determined by the character of the payment in your hands. Characterising the payment is an objective test, considering all facts and a broad view of your total situation. Payments that are received periodically, are consideration for services or business activity, or from isolated profit-making transactions may be income. But there must be some sense of 'gain' derived beneficially by the taxpayer. Amounts received from surrendering capital assets, capital gains, windfall gains, and contributions of capital don't have the character of income.

6.             Your contributions from your own sources (that are not from your Employer as part of your remuneration) will not be assessed under section 6-5. The contribution is an outgoing by you, not a gain to them. From your perspective, the only thing you are receiving or gaining from the transaction is the unit you are buying with that contribution, and that unit would be a capital asset in your hands. 7.             Section 15-2 includes allowances, gratuities, compensation, benefits, bonuses, and premiums provided to you in respect of or in relation to (directly or indirectly) any employment or services rendered by you. This is so whether the things were provided in money or in other form. The value of ESS interests to which Subdivisions 83A-B or 83A-C isn't included in assessable income under section 15-2.

8.             Section 15-2 wouldn't be relevant because neither the contribution nor the purchased unit would be compensation, or a bonus or benefit, for employment or services rendered by the employee. You are only participating in the ESS because you are an employee, so arguably the purchased unit is 'in respect' or 'in relation to' your employment in an indirect sense. But it can't be characterised as a bonus or benefit - you've simply bought something at fair value from someone who happens to be your employer. 9.             We haven't identified any other provisions under which you could be assessed on contributions you make to acquire units in the trust. 10.          We conclude that you won't be assessed on contributions you make to acquire additional units in the trust. Question 3 Detailed reasoning 11.          Some foundation rules about your assessable income include the following. •                     section 6-5 includes ordinary income in assessable income •                     section 6-10 includes statutory income in assessable income

•                     subsection 6-25(1) says that amounts included as assessable income under two provisions (including as ordinary income) will only be included once in that income year, and won't be included in any other income year •                     subsection 6-25(2) says rules about statutory income prevail over rules about ordinary income unless a contrary intention appears •                     section 10-5 has a list of provisions about statutory income, which may vary or replace amounts which would otherwise be ordinary income, and •                     section 10-5 identifies that employee share schemes to which Subdivisions 83A-B and 83A-C applies replace amounts that would otherwise be ordinary income. 12.          Since statutory income rules prevail over ordinary income, we'll consider whether the employee share scheme rules in Division 83A apply.

13.          Very broadly, the ESS rules include the value of a discount under an ESS scheme in your assessable income. If Subdivision 83A-B applies, the discount is included in your assessable income immediately. However, if deferred taxation under Subdivision 83A-C applies, you include an amount in your assessable income at the deferred taxing point. 14.          We'll address some foundation concepts about the ESS rules. 15.          ESS interests are defined in two ways. Subsection 83A-10(1) says an ESS interest (in a company) is: •                     a beneficial interest in a share in the company, or •                     a beneficial interest in a right to acquire beneficial interests in a share in the company. 16.          Subsection 83A-10(2) says employee share schemes are schemes under which ESS interests in a company are provided to employees or associates, in relation to the employee's employment.

17.          The ESS rules apply to treat ESS interests held through trusts as being held by beneficiaries. Section 83A-320 says if you hold an interest in a trust whose assets include shares, and the interest corresponds to a particular number of the shares, then Division 83A treats them as holding a beneficial interest in the number of shares allocated to their interests. 18.          Here, section 83A-320 will treat shares held through the trust as being held directly by the participating employees. Once the Company issues shares to the Trust, the shares will be allocated to units, and units will be issued to employees. Each Unit will correspond to a particular number of shares, so Division 83A will apply to treat employee unitholders as having beneficial interests in the shares allocated to their Units. 19.          Employees under the scheme will acquire ESS interests. They receive beneficial interests in shares under the first limb of the definition in subsection 83A-10(1). If employees choose to subscribe for units, shares will be allocated to units, and the units will be issued to them, so they'll have beneficial interests in the underlying shares, rather than rights.

20.          For completeness, the scheme will also be an employee share scheme. The units are issued to employees in respect of employment because only employees are invited to subscribe for units, under a scheme which purports to be set up for the employees' benefit. Since beneficial interests in shares attach to those units, the trustee will be also providing ESS interests to employees under the scheme. The taxing point is deferred if employees meet conditions in Subdivision 83A-C; otherwise, the discount is taxed upfront under Subdivision 83A-B. 21.          Subdivision 83A-B applies by default where Subdivision 83A-C doesn't apply. Subdivision 83A-B applies where you acquire an interest under an ESS at a discount: subsection 83A-20(1). Subsection 83A-105(1) says that Subdivision 83A-C applies, and not Subdivision 83A-B, where the conditions to that subsection are met.

22.          Very broadly, Subdivision 83A-C gives deferred tax treatment to ESS interests where you are prevented from disposing of those interests, and other conditions are met. These conditions are set by section 83A-105. For ESS interests that are beneficial interests in shares, the taxing point happens at the earliest time when you are no longer prevented from disposing of them, or after 15 years (section 83A-115). While some conditions are common to all interests, some different conditions apply depending on whether the ESS interests are classified as rights or shares. 23.          Where Subdivision 83A-C applies, section 83A-110 includes the ESS interest's market value, worked out at the deferred taxing point (reduced by any cost base) in your assessable income. 24.          There's also a rule for forfeited interests. Section 83A-310 may apply so that Division 83A doesn't apply. Broadly, for section 83A-310 to apply you must forfeit the interest or lose a right (without disposing or exercising it). Further, that forfeiture or loss can't be a result of: •                     your own choice (except a choice to leave employment or to let a right lapse or be cancelled), or

•                     a scheme condition that protects you against a fall in the ESS interest's market value. The employer's scheme meets the common conditions in Subdivision 83A-C. 25.          For deferred tax treatment under Subdivision 83A-C, there are four conditions common to both rights and shares. •                     Subdivision 83A-B would (apart from section 83A-105) apply to the scheme: paragraph 83A-105(1)(a). •                     After applying section 83A-315, there's still a discount given in relation to the interest: paragraph 83A-105(1)(aa) •                     Section 83A-33, about start-ups, doesn't reduce the amount to be included in your assessable income: paragraph 83A-105(1)(ab). •                     Subsections 83A-45(1), (2), (3), and (6) apply to the interest: paragraph 83A-105(1)(b).

26.          Section 83A-315 is about market value. Section 83A-315 says that whenever Division 83A requires you to use market value, you should instead use the amount specified in regulations. The only relevant regulations are in Division 83A of the Income Tax Assessment Regulations 1997. Regulation 83A- 315.01 says where unlisted rights must be exercised within 15 years, you can choose market value, or amounts determined by regulations 83A-315.02 through 83A-315.09. 27.          Under the scheme, any units issued without consideration will meet the common conditions. The units are issued for no consideration, so you will have received them at a discount. We've assumed that the ESS interests will have a market value greater than nil under either the general concept or the regulations, so the ESS interests will still be issued at a discount after applying section 83A-315. We've assumed that the start-up rules won't apply, and the rules in subsections 83A-45(1), (2), (3), and (6) are met. 28.          In contrast, any units purchased at market value won't meet the common conditions: you will have purchased them at market value, so you won't have received them at a discount.

29.          Since we've concluded that the scheme ESS interests are beneficial interests in shares, (rather than rights to acquire beneficial interests in shares), we'll apply the conditions specific to shares. The employer meets the conditions applying to beneficial interests in shares: it meets the broad availability and real risk of forfeiture requirements. 30.          ESS interests that are beneficial interests in shares need to meet two conditions for the deferred tax treatment to apply. These are set by paragraph 83A-105(1)(c). First, when you acquire the ESS interest, at least 75% of permanent employees who have completed at least 3 years' service must be entitled to acquire ESS interests under the scheme (subsection 83A-105(2)). Second, either: •                     when you acquire the ESS interest, there's a real risk that you will forfeit it under the scheme conditions (subsection 83A-105(3)), or •                     broadly, the ESS interest is provided under a salary sacrifice arrangement (subsection 83A-105(4)).

31.          The word 'entitled', used in the first condition, isn't defined, but the Macquarie Dictionary says 'entitled' means having a legitimate claim to a right, title, etc. 32.          On the second condition, there's some ATO guidance on the requirement about a real risk of forfeiture. ATO ID 2010/61 and web-guidance explain the ATO view about when an ESS provides that ESS interests will be forfeited if the employee doesn't complete a minimum term of employment. We accept that there's a real risk of forfeiture where the minimum term of employment is: •                     at least 12 months, or •                     at least 6 months where the maximum deferral is no more than 3 years.

33.          The Employer will meet the first condition. Each year, the Employer will make an offer to a group of employees inviting them to subscribe for units. That group will form at least 75% of permanent employees who are Australian residents and have completed at least 3 years' service with the Employer or participating companies. While it's possible some of those employees might elect not to accept their units, they will be entitled to acquire units. When each employee acquires their interests, at least 75% of Australian resident permanent employees with at least 3 years' service will have been entitled to acquire ESS interests under the scheme.

34.          The employer will also meet the second condition. Employees under the scheme are at real risk of forfeiture when they acquire their ESS interests under the scheme. The rules mean that employees will effectively forfeit all of their units if they don't complete 3 years of employment after their units are issued. Further, having completed 3 years of service (employment) after acquisition of the Units, the Eligible Participant will forfeit a progressively decreasing proportion until they have completed 6 years of service after acquisition of the Units. 35.          Employees can redeem their units for cash or have units transferred to them when a redemption event happens, which includes leaving employment. However, clause 15.4 says the disqualification discount on leaving employment is 100% (bringing the entitlement to 0%) where the employee has held the units for less than 3 years. We accept the 100% disqualification discount amounts to forfeiture, because their ESS interests have no economic value if realised in that period. Following the ATO's guidance, the real risk of forfeiture condition is met because the ESS interests will be at risk for more than 12 months.

36.          For completeness, we don't think there's a real risk of forfeiture after the 3-year period ends. However, whilst there is no real risk of forfeiture of the Unit under paragraph 83A-115(4)(a), the scheme restricts an Eligible Participant from disposing of their unit under clause 15.1 of the Deed until the earliest of: •                     ceasing employment with the Employer •                     the 15th anniversary after acquisition of the Unit(s), or •                     an Exit Event as defined in the Deed. 37.          Both conditions applying to beneficial interests in shares are met, so the scheme will be eligible for deferred tax treatment under Subdivision 83A-C. 38.          It follows that section 83A-110 operates to include the market value of the interest in your assessable income at the deferred taxing point, reduced by the interest's cost base. 39.          For completeness, Division 83A wouldn't include amounts in your assessable income if you forfeit your interests under the scheme in circumstances covered by section 83A-310.

Conclusion: you (if you don't forfeit your intertest) will include the market value of your interests in assessable income for units issued at a discount and may have capital gains in some circumstances. 40.          For units issued for no consideration, the scheme qualifies for deferred tax treatment for the reasons given at paragraphs [23 - 37]. 41.          For those units, it follows that Subdivision 83A-C will apply this way. Section 83A-110 will include the market value of your interests in your assessable income in the income year of the deferred taxing point, less any cost base. Provided you were not in employment for 15 years (or more), and no Exit Event happens, then the deferred taxing point will be when you leave employment.

42.          We don't need to address whether any amounts from receiving their ESS interests could be assessable to you under other provisions. When you receive ESS interests Division 83-A will apply at the deferred taxing point (assuming section 83A-310 doesn't apply). If amounts from the same transaction could also be assessed under other provisions (whether ordinary income or statutory income), section 6-25 will apply so that the amounts are not assessed twice. 43.          You won't be subject to CGT if you receive their employee redemption amount on leaving employment (for the reasons to be discussed in Question 5) but might be subject to CGT if you dispose of their units after that point (for the reasons discussed in Question 4). 44. You may also have capital gains where you purchase units at market value. In that case, the ESS rules in Subdivision 83A won't apply because you haven't acquired those ESS interests at a discount. Question 4 Detailed reasoning 45.          As discussed above, units acquired for no consideration would qualify for deferred tax treatment under Subdivision 83A-C.

46.          You should include the market value of your ESS interests (determined at the deferred taxing point) in your assessable income, less cost base. 47.          We'll briefly cover 'cost base'. •                     The first element of cost base includes the money and market value of property paid to acquire a CGT asset (the remaining elements include incidental and ownership costs, and capital expenditure relating to the asset): section 110-25. •                     There's a market value substitution rule relevant to cost base. Where you didn't incur expenditure to acquire a CGT asset, the first element of cost base may be its market value where certain conditions apply: see section 112-20. •                     But this market value substitution rule doesn't apply to the extent it relates to you acquiring an ESS interest to which Subdivision 83A-C applies: see subsection 130-80(4). 48.          Under the scheme, you have a choice to either: •                     have the trustee transfer you the shares attached to your units, or •                     sell the shares and pay you the employee redemption amount.

49.          Your redemption amount reflects the cash value of the allocated shares sold, net of any selling costs. 50.          Very broadly, ATO guidance in other contexts suggests 'market value' means the price that fully informed buyers and sellers would reach, if bargaining at arm's length. See Taxation Determination TD 2007/1 at paragraphs 12 through 14, Taxation Determination TD 97/1, and the ATO website. 51.          Whether your redemption amount reflects market value will depend on whether the buyer and seller are bargaining at arm's length under normal market conditions, and whether any selling costs reduce the employee redemption amount below that amount. 52.          For completeness, cost base is likely to be 'nil' for units acquired for no consideration. As you won't have paid money or provided property to acquire your units, the first element of cost base will be nil. The market value substitution rule won't apply. Cost base would be limited to amounts (if any) which qualified under the other elements. 53.          Units acquired for market value may produce a capital gain or loss on redemption. Question 5 Detailed reasoning

54.          Very broadly, the CGT rules calculate gains and losses from CGT events, which usually relate to CGT assets. •                     Division 102 includes a net capital gain for an income year, determined by netting gains and losses from CGT events, in your assessable income. •                     Many CGT events happen in respect of CGT assets; one example is CGT event A1 in section 104-10. •                     CGT assets include shares in companies and units in trusts: see Note 1 to section 108-5. •                     CGT event A1 happens when you dispose of a CGT asset: subsection 104-10(1). •                     You dispose a CGT asset when there's a change of ownership from you to another entity, but not where there's a change in legal ownership without a change in beneficial ownership: subsection 104-10(2). (The ATO view is that CGT event A1 requires a change in beneficial ownership, but not necessarily legal ownership). •                     For CGT event A1, you calculate capital gains and losses by comparing the capital proceeds from a CGT event with the asset's cost base: subsection 104-10(4).

•                     Very broadly, capital proceeds are the money and the market value of property you receive in respect of a CGT event happening: section 116-20. •                     The first element of cost base includes the money paid and market value of property given to acquire a CGT asset (the remaining elements include incidental and ownership costs, and capital expenditure relating to the asset): section 110-25. •                     There's a market value substitution rule relevant to capital proceeds and cost base. Where you didn't incur expenditure to acquire a CGT asset, the first element of cost base may be its market value where certain conditions apply: see section 112-20. There's a similar rule for capital proceeds in section 116-25. •                     But these market value substitution rules don't apply to the extent they relate to you acquiring an ESS interest to which Subdivision 83A-C applies: see subsection 130-80(4). 55.          However, the CGT rules are modified for ESS interests by rules in Subdivision 130-D. For present purposes, we need only discuss one rule in section 130-80.

56.          This rule allows you to disregard any capital gain or capital loss to the extent that it results from a CGT event if certain conditions are met. Subsection 130-80(1) sets these conditions. •                     The event must happen in relation to an ESS interest you acquire under an employee share scheme; paragraph 130-80(1)(a). •                     It can't be CGT event E4, G1, or K8; paragraph 130-80(1)(b). •                     If Subdivision 83A-B applies, the time of the acquisition must be when the CGT event happens; paragraph 130-80(1)(c). •                     If Subdivision 83A-C applies, either the time of the acquisition must be when the CGT event happens, or the CGT event happens on or before the ESS deferred taxing point; paragraph 130-80(1)(d). 57.          But subsection 130-80(2) says that the rule doesn't apply if Subdivision 83A-C applies, and the CGT event happens because you forfeit or lose the ESS interest (other than by disposing of it) on or before the deferred taxing point. 58.          You may have had a capital gain under the basic CGT rules. •                     Units and shares under the ESS are both CGT assets and ESS interests.

•                     CGT event A1 will happen. You own units in the trust. When you redeem the units, there will be a change in ownership of those units from you to the trustee. You won't retain any rights that would make them either a legal or beneficial owner of your former units in the trust. 59.          You may have a capital gain. Your capital proceeds would be the money received or the market value of shares received for redeeming their units. You would have a capital gain to the extent the capital proceeds exceed your cost base. For units acquired for no consideration, the first element of cost base would be nil. The market value substitution rule doesn't apply to the acquisition of ESS interests.

60.          However, any capital gain is disregarded under the modified rule for ESS interests. The conditions in subsection 130-80(1) are met. CGT event A1 happens when you redeem your interests under the ESS. That disposal and CGT event directly relates to their ESS interests, and CGT event A1 isn't an excluded event. We concluded that Subdivision 83A-C applies to the ESS interests in Question 3 We conclude at Question 8 that the deferred taxing point will be when you leave employment (assuming it isn't after 15 years). You can't redeem your units until you leave employment, so the CGT event will happen at the deferred taxing point (again, assuming the deferred taxing point doesn't happen after 15 years). The exclusion for forfeiting or losing an ESS interest won't be relevant. 61.          For completeness, you may have a capital gain if the deferred taxing point is 15 years. If you redeem your units after that time, the CGT event will happen after the deferred taxing point. The conditions in subsection 130-80(1) won't be met, meaning that when you redeem your units after that time may have capital gains on redemption.

62.          This reasoning doesn't apply to units purchased for market value: see our reasoning to Question 6. Question 6 Detailed reasoning 63.          You may have a capital gain on redeeming units you acquired at market value. Units in the trust are CGT assets. You will dispose of your beneficial interest in that asset when you redeem the unit for cash or for shares. CGT event A1 will happen. You will have a capital gain if the money or market value of the shares exceeded their cost base for the unit. 64.          We also discussed the modified CGT treatment for ESS interests. To repeat, section 130-80 disregards capital gains and losses from CGT events where the conditions set out in subsection 130-80(1) are met. •                     The event must happen in relation to an ESS interest you acquire under an employee share scheme; paragraph 130-80(1)(a). •                     It can't be CGT event E4, G1, or K8; paragraph 130-80(1)(b). •                     If Subdivision 83A-B applies, the time of the acquisition must be when the CGT event happens; paragraph 130-80(1)(c).

•                     If Subdivision 83A-C applies, either the time of the acquisition must be when the CGT event happens, or the CGT event happens on or before the ESS deferred taxing point; paragraph 130-80(1)(d). 65.          In context, we think subsection 130-80(1) only applies to ESS interests covered either by Subdivision 83A-B or Subdivision 83A-C: it doesn't extend to ESS interests which aren't covered by those Subdivisions. •                     The purpose of section 130-80 is to avoid double taxation: arrangements taxed under Division 83A shouldn't be subject to capital gains tax to the extent Division 83A has already taxed that gain. Division 83A only taxes ESS interests if either Subdivision 83A-B or Subdivision 83A-C applies. •                     The 'and' after paragraph 130-80(1)(b), read together with the opening words in paragraphs 130-80(1)(c) and (d) ("if Subdivision 83A-B/83A-C applies"), implies that subsection 130-80(1) only operates where the arrangement qualifies for tax treatment under either of those Subdivisions.

•                     Any alternative reading which suggested paragraphs (c) and (d) don't apply to arrangements not covered by either Subdivision 83A-B or Subdivision 83A-C would defeat the purpose of the provision. 66.          Subdivision 83A-B applies where you have received their ESS interests at a discount: see section 83A-20. 67.          The same requirement applies to Subdivision 83A-C: see paragraph 83A-105(1)(a), which requires that Subdivision 83A-B would have applied to the interest. 68. It follows that section 130-80 won't disregard capital gains if you redeem units which you acquired at market value. Neither Subdivision 83A-B nor Subdivision 83A-C will apply because you haven't received their ESS interests at a discount. It follows that neither paragraph 130-80(1)(c) or (d) will apply, so you won't meet the conditions for section 130-80 to disregard any capital gain. Question 7 Detailed reasoning 69.          The broad availability requirement is a condition for deferred tax treatment under Subdivision 83A-C. 70.          We'll explain the broad availability requirement. Subsection 83A-105(2) requires that: •                     when you acquire your ESS interest

•                     at least 75% of your employer's Australian resident permanent employees who have completed at least 3 years of service are, or had been, •                     entitled to acquire ESS interests under the scheme or under another scheme. 71.          The broad availability requirement is only relevant to ESS interests which are rights to acquire beneficial interests in shares. Paragraph 83A-105(1)(c) says this is a requirement for interests that are beneficial interests in shares. However, paragraph 83A-105(1)(d), about ESS interests which are rights to acquire a beneficial interest in a share, doesn't list subsection 83A-105(2) as a condition. 72.          The Company's employees will meet the broad availability requirement. Provided offers have been made to subscribe for units under the scheme to more than 75% of the relevant group of employees, you will have met this requirement. 73.          The facts don't disclose any further requirements that you need to meet to be entitled to acquire units. Question 8 Detailed reasoning

74.          There are rules for determining the deferred taxing point where Subdivision 83A-C applies. Section 83A-115 applies to shares, while section 83A-120 applies to rights. 75.          In both cases, the deferred taxing point is modified to be the disposal (or exercise) date, if that happens within 30 days of that deferred taxing point: see subsections 83A-115(3) and 83A-120(3). 76.          We've assumed that the 30-day disposal rule won't apply here. The deferred taxing point for beneficial interests in shares will be the earliest time when there's no real risk of forfeiture and any genuine disposal restriction is lifted (or 15 years after acquisition if that happens to be earlier). 77.          We'll apply section 83A-115 to the scheme, as you will acquire beneficial interests in shares under this scheme. 78.          There are two possible deferred taxing points for shares. Subsection 83A-115(2) says the deferred taxing point is the earliest of the times mentioned in subsections (4) and (6). Note, subsection (5), about ceasing employment, was repealed effective 1 July 2022. 79.          Subsection (4) says the first taxing point is the earliest time when:

•                     there's no real risk that you will forfeit or lose the interest under the ESS conditions, other than by disposing it, and •                     when the scheme no longer restricted you immediately disposing of the ESS interest. 80.          Subsection (6) says the second taxing point is the end of the 15-year period starting when you acquired the interest. Under the scheme, the deferred taxing point will be when you leave employment: that's the earliest time when the genuine disposal restriction is lifted. 81.          The relevant taxing point will be when the Eligible Participant leave employment, unless an exit event happened. Only the first taxing point is relevant.

82.          You have asked to assume that you will leave your employment before the 15-year period expires. As discussed previously, you will be at risk of forfeiture for 3 years after acquisition of the Units, and to a diminishing risk of forfeiture until 6 years after acquisition of the Units (unless an exit event happens). The effect of the ESS rules is that the Company's employees can't dispose of their Units or redeem them until they leave employment. You will be genuinely restricted from disposing of the units until you leave employment, which will be earliest time when the two conditions in subsection (4) are met.

83.          For completeness, if you leave employment before the 3-year period there will be no deferred taxing point. Under section 83A-310, Division 83A is taken never to have happened in relation to an ESS interest if the employee forfeits the interest or loses it, unless the forfeiture or loss happens through a choice not to exercise a right or to allow it to lapse. Employees who leave during that 3-year period would forfeit their beneficial interest in shares (unless an exit event happened), in which case section 83A-310 would apply, and Division 83A won't operate. 84.          It follows that Subdivision 83A-C will apply this way. Section 83A-110 will include the market value of an Eligible Participant's Unit interests in their assessable income in the income year of the deferred taxing point, less any cost base. The deferred taxing point will be when the employee leaves employment. Conclusion: the deferred taxing point will be when employees leave employment. 85. It follows that the deferred taxing point will be when employees leave employment, assuming that happens before 15 years after acquisition, and that they leave before any exit event.