Employee share scheme

1 Will irretrievable cash contributions made by Company X to Company Y (the Trustee) as trustee for Company X Employee Share Trust (the Trust) to fund the acquisition of shares issued pursuant to the Company X Equity Incentive Plan (EIP) and the Company X Non Executive Director Share Plan (NED Plan) (collectively, the Plans) be assessable income of the Trust pursuant to sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 No. Question 2 Will any capital gain or capital loss made by the Trustee arising as a result of CGT event E5 happening in respect of Shares allocated to a Participant be disregarded under section 130-90 of the ITAA 1997 if the Participants acquire the Company X Shares at a price that is the same as, or less than, the cost base of the Company X Shares in the hands of the Trustee? Answer 2 Yes. Question 3 If the Trustee receives and accumulates distributions on unallocated Shares held in the Trust, will the distributions and any franking credits be assessed under section 95 and section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) in relation to the Trustee? Answer 3 Yes. Question 4 If the Trustee receives and accumulates distributions on unallocated Shares held in the Trust, will the Trustee be entitled to a tax offset for any franking credits attaching to the distributions under Subdivision 207-B of the ITAA 1997? Answer 4 Yes. Question 5

If the Trustee receives a distribution on allocated Shares held for a Participant in the Trust during an income year, and applies the Trust property representing it for the benefit of the Participant by the end of the income year, will the distribution and any franking credit calculated and included under section 95 of the ITAA 1936 be assessed under section 99A of the ITAA 1936 in relation to the Trustee? Answer 5 No, provided the relevant share of the distribution and any allowable franking credit is included in the Participant's assessable income. Question 6 If the Trustee receives a distribution on allocated Shares in the Trust during an income year and applies Trust property representing it for the benefit of the Participant by the end of the income year, will the Trustee be entitled to a tax offset for any franking credits attaching to the distribution under Subdivision 207-B of the ITAA 1997? Answer 6 No, on the basis that Participants will be entitled to the relevant tax offset for any franking credits attaching to the distribution, provided that they hold their interest at-risk for the required qualification period. This ruling applies for the following period:

1 July 20XX to 30 June 20XX The scheme commenced on: In a particular income year

Company X Limited Company X is listed on the Australian Securities Exchange (ASX). Company X is the head company of an income tax consolidated group comprising itself and a number of wholly owned Australian resident subsidiaries. Company X carries on a business for the purpose of gaining or producing assessable income. Company Plans Company X operates the following two plans (collectively, the Plans) which form part of its remuneration strategy: •                     Company X Equity Incentive Plan (EIP), and •                     Company X Non Executive Director Share Plan (NED Plan). The Plans facilitate opportunities to align the interests of employees with, and to enable employees to be involved and participate in, the future growth and profitability of Company X. Company X has implemented the EIP whereby rights, options and restricted shares (collectively, Plan Securities) will be issued for no consideration, which upon vesting or exercise of the rights will entitle Participants to receive shares in Company X.

Company X has also implemented the NED Plan, which invites non executive directors of Company X to elect to sacrifice part or all of the fees for their services as a director to acquire share rights. On vesting of the share rights, the Participant will receive shares which are subject to dealing restrictions for a period of time (Restricted Shares). The Restricted Shares issued pursuant to the NED Plan may be sourced through on-market acquisitions, issued from the capital of Company X or allocated from the Company X Limited Employee Share Trust (the Trust). EIP Company X has implemented the Equity Incentive Plan (EIP) for the granting of Plan Securities, which will typically take the form of Company X ordinary shares (Shares) when vesting, to Eligible Employees. The purpose of the EIP is, among other things, to align the interests of Participants with Company X shareholders through the sharing of personal interest in the future growth and development of Company X. The EIP operates broadly to provide Participants with the opportunity to acquire Shares. All Participants are currently Australian residents for tax purposes.

In order to receive Shares, the Participant must satisfy all relevant criteria outlined in the: •                     relevant offer letters and documentation; and •                     EIP Rules, adopted by the board of directors of Company X (Board) on XX June 20XX. When the relevant criteria are satisfied, the Participant will be entitled to the Shares allocated to them. Subject to the EIP Rules, the Board may invite 'Eligible Employees' of Company X to participate in a grant of Plan Securities, which may comprise any one or more of: •                     an entitlement to a Share or, in certain circumstances, to a cash payment, subject to satisfaction of applicable conditions (including any Vesting Condition) and compliance with any applicable exercise procedure (Rights). Rights also include Share Appreciation Rights, which entitle a Participant to a number of Shares determined in accordance with a formula notified to the Participant at the time of an Offer, where the formula relates to the appreciation (if any) in value of Shares between the grant date and the date of Vesting;

•                     an entitlement to receive a Share or, in certain circumstances, to a cash payment subject to satisfaction of applicable conditions (including any Vesting Condition) and compliance with the applicable exercise procedure (including payment of any applicable Exercise Price or compliance with any procedures set by the Board for cashless exercise) (Options); and •                     Shares allocated to Participants that are subject to restrictions on Dealing, Vesting Conditions and/or other restrictions or conditions (Restricted Shares), (together, an Offer) (Rule X). An 'Eligible Employee' for the purposes of the EIP is an employee of the Group (including a Director employed in an executive capacity) or any other person who is declared by the Board to be eligible to receive a grant of Plan Securities under the EIP. Company X, when granting the Plan Securities, should advise Eligible Employees of the following: •                     the type and number of Plan Securities being offered, or the method by which the number will be calculated; •                     the amount (if any) that will be payable for the grant of Plan Securities;

•                     any Vesting Conditions or other conditions that apply, including any Vesting Period; •                     the terms of exercise for an Option or a Right (where exercisable), including the period(s) during which exercise is permitted; •                     that Rights or Options will only be settled through an allocation of Shares or by making a cash payment (as applicable) where the Board has made a determination pursuant to Rules X or X at the time of the Offer; •                     the circumstances in which Rights and/or Options may lapse, Shares (including Restricted Shares) allocated under the EIP may be forfeited or a Participant's entitlement to Plan Securities may be reduced; •                     how Plan Securities may be treated if the Eligible Employee ceases employment with a Group company and any discretions retained by the Board under Rule X; and •                     any restrictions (including the period of restriction) on Dealing in relation to a Restricted Share or Share allocated to the Eligible Employee under the EIP.

Company X will grant the Rights to Participants. No amount is payable by the Participant in respect of the grant of a Right unless the Board determines otherwise (Rule X) While the vesting of a Right will typically be satisfied by Company X allocating Shares to the Participant (Rule X), Company X may decide to satisfy the vesting of that Right by way of a cash payment in lieu of an allocation of Shares. Company X will grant Options to Participants with a pre-determined Exercise Price per Option. No amount is payable by the Participant in respect of the grant of an Option unless the Board determines otherwise (Rule X). As soon as practicable following vesting (and, if applicable, exercise) of Plan Securities, the Board must issue to, procure the transfer to or procure the setting aside for, the Participant the number of Shares in respect of which the Plan Securities have vested or have been exercised (Rules X and X). No further action is required on the part of the Participants (Rules X and X). The amount of the cash payment will be calculated with reference to the Current Market Price (Rules X) and X).

The Current Market Price is the arithmetic average of the daily weighted average market price (rounded to the nearest cent) of all Shares traded on the ASX during the previous five trading days, or any other calculation as determined by the Board (Rule X). Both the Rights and the Options may lapse on the occurrence of the events prescribed in Rules X and X. Company X will allocate Restricted Shares in accordance with the terms of the relevant Offer to the Participant by way of either: •                     issuing Restricted Shares; •                     procuring the transfer of Restricted Shares; or •                     procuring the setting aside of Restricted Shares. Where Company X allocates Restricted Shares to Participants, the Shares will only cease to be Restricted Shares (i.e. Vest) where (Rule X): •                     the vesting period and each other relevant condition advised to the Participant have been satisfied or waived by the Board; and •                     Company X notifies the Participant that the restrictions in respect of the Restricted Shares no longer apply.

Restricted Shares may be forfeited on the occurrence of the events prescribed in Rule X. Broadly, forfeiture of the Restricted Shares will result in one of the following occurring: •                     where the Shares (including Restricted Shares) are held by the Participant, the Participant is deemed to have agreed to dispose of their legal and/or beneficial interest (as appropriate) in such Shares for nil consideration for all of their Shares and the Shares will be transferred into the name of Company X's nominee who will then hold full legal and beneficial title to those Shares; •                     where Shares (including Restricted Shares) are forfeited in accordance with the EIP Rules and the Shares are held by the Trustee, the Participant's rights in the Shares will be extinguished for nil consideration and the Shares will be held as general trust property in accordance with the terms of the Trust Deed. The Board may, at any time in the future, direct the Trustee to hold the Shares for the benefit of a different Participant; and

•                     where a Participant forfeits Shares allocated to them on exercise of Options pursuant to the Rules, Company X may, but need not, repay to the Participant any Exercise Price paid by the Participant in respect of the forfeited Shares. Certain Dealings with respect to the Plan Securities are prohibited in accordance with Rule X, including with respect to Dealings prior to vesting (subject to the Company X Securities Policy). The Board is empowered with discretion to determine the consequences for a Participant's Plan Securities upon cessation of his or her employment (Rule X). The Options and Rights carry no entitlement to participate in new issues of Shares prior to the Vesting (and, if applicable, exercise) of the Right or Option (Rule X). The Board is empowered to grant additional Rights or Options or make any adjustments it considers appropriate to the terms of the Rights or Options in certain circumstances (Rule X). Subject to the terms of the Trust Deed or Offer, the following rules apply to the Shares allocated to Participants under the EIP (Rule X):

•                     the Participant is entitled to receive all dividends and other distributions or benefits payable to the Participant or to the Trustee in respect of the Shares; •                     the Participant is entitled to make an application to participate in Company X's Dividend Reinvestment Plan in respect of Shares allocated to, or on behalf of the Participant, subject to the terms and conditions of the Dividend Reinvestment Plan Rules; •                     the Participant is entitled to exercise, or to direct the Trustee in writing, how to exercise, the voting rights attaching to the Shares, either generally or in a particular case; •                     any bonus Shares that are issued in respect of the Shares will be issued to the Participant, or to the Trustee on the Participant's behalf, and will be held by the Participant or Trustee as Shares subject to the same terms, conditions and restrictions on Dealing (if any) as the Shares in respect of which they were issued; and

•                     if rights arise on a rights issue in respect of the Shares, the Participant may Deal with or exercise those rights, or instruct the Trustee (if applicable) in relation to those rights in accordance with the Trust Deed. If the Shares are held by the Trustee on the Participant's behalf and the Participant does not instruct the Trustee how to Deal with the rights, the rights will be Dealt with in accordance with the Trust Deed. Unless or until the Shares are allocated to a Participant following Vesting or exercise of their Rights or Options (as applicable), the Participant has no interest in those Shares in respect of which the Right or Option was granted (Rule XX). However, the Board is empowered to determine that a dividend equivalent payment is payable to a Participant in certain circumstances. The payment will be (Rule XX): •                     approximately equal to the amount of dividends that would be payable to the Participant if they had been the owner of the Shares during the relevant Vesting Period; •                     will not be grossed up or otherwise adjusted for tax; and

•                     may be satisfied through the allocation of Shares or the payment of cash. Where an employee transfers overseas but continues to hold an office or remain an employee of Company X, the Board has the discretion to determine the consequences of the transfer on the Participant's Shares in accordance with Rule XX. The Board is empowered to exercise its discretion under Rule X so as to prevent inappropriate benefits being granted to employees pursuant to the EIP. Subject to Rule XX, the EIP is to be administered by the Board, who has the power to: •                     determine the relevant procedures for the administration of the EIP consistent with the EIP Rules, including to implement an employee share trust or impose a holding lock for the purpose of delivering and holding Shares on behalf of Participants upon the grant of Restricted Shares or the Vesting (and, if applicable, exercise) of Rights or exercise of Options; and •                     delegate to any one or more persons the exercise of any functions, powers or discretions arising under the EIP Rules.

Except as expressly stated otherwise, the Board has absolute and unfettered discretion to exercise any power or discretion under the EIP. NED Plan Under the NED Plan Rules, a non executive director of Company X may salary sacrifice up to 50% of base Director fees (excluding Committee fees) in order to acquire an entitlement to Shares, subject to conditions specified by the Board (Share Rights). On vesting of the Share Rights, the Participants will receive Restricted Shares. The Participant is able to select the relevant Restriction Period under which the Shares will be subject to dealing restrictions. All Participants in the NED Plan are currently residents of Australia for tax purposes. In order to receive Share Rights, and eventually Restricted Shares, the Participant must satisfy the relevant criteria prescribed in the: •                     NED Plan Rules; and •                     relevant Invitations and documentation. The Board is to provide non executive directors of Company X with an Invitation to elect to sacrifice part or all of their fees for service as a director in order to acquire Share Rights (Rule X).

Share Rights will be awarded on a Grant Date, subject to any allocation deferral as determined by the Board (Rules X and X). Unless determined otherwise by the Board, Share Rights awarded to each Participant are to be calculated in accordance with the formula at Rule X. Share Rights are non-transferrable and carry no dividends or other rights, other than those set out in the NED Plan Rules (Rule X). Subject to Board discretion, Share Rights will vest and Participants will be allocated Restricted Shares on their Vesting Date, being the date as set out in the relevant Invitation (Rule X). The Board has the discretion to source Restricted Shares through on-market acquisitions, issued from the capital of Company X or from allocation from the Trust (Rule X). However, Share Rights must be satisfied by Shares that have been purchased on-market unless Company X shareholders have approved the Participant's participation in the NED Plan to the extent required under the ASX Listing Rules (Rule X).

The Board also has the discretion to implement any restriction it considers appropriate to enforce the Restriction Period, including the imposition of a holding lock on the Restricted Shares, or by having the Restricted Shares held by the Trust on behalf of the Participant until the end of the Restriction Period (Rule X). Restricted Shares are non-transferrable until the end of the Restriction Period (Rule X). Until the Restricted Shares have been allocated to, or on behalf of, the Participant, he or she has no interest in the underlying Shares for which the Share Rights have been granted (Rule X). Restricted Shares will be quoted on the ASX and rank equally with other Shares (Rule X). Subject to the terms of the Trust Deed (if applicable) (Rule): •                     the Participant is entitled to receive all dividends and other distributions or benefits payable to the Participant or to the Trustee in respect of the Restricted Shares; •                     the Participant is entitled to exercise, or to direct the Trustee in writing how to exercise, the voting rights attaching to the Restricted Shares;

•                     any bonus Shares that are issued with respect to the Restricted Shares will be issued to the Participant, or to the Trustee on his or her behalf, and will be held by the Participant or Trustee as Shares subject to the same terms as the Restricted Shares; and •                     if rights arise on a rights issue in respect of the Restricted Shares, the Participant may deal with or exercise those rights, or instruct the Trustee in relation to those rights in accordance with the Trust Deed. Restricted Shares cannot be dealt with by the Participant until the earlier of (Rule X): •                     the Participant ceasing to be a director of Company X; •                     the time period set pursuant to the Invitation; •                     the Board determining that the Restriction Period should end (e.g. in exceptional circumstances); and •                     XX years from the Grant Date. Restricted Shares that are held on Trust on behalf of a Participant and cease to be subject to any restriction will be transferred from the Trust to the Participant and cease to be subject to the NED Plan Rules (Rule X).

Unless determined otherwise by the Board, Share Rights granted to a Participant who ceases to hold office and which have not vested will remain onfoot subject to their original terms, and will automatically vest on the relevant Vesting Date (Rule X). Share Rights do not carry any entitlement to participate in new issues of Shares prior to vesting (Rule X). Each Participant is responsible for all taxes payable in respect of their Share Rights, Restricted Shares and Shares (as the case may be), in addition to all costs and expenses in relation to the disposal of the Shares (Rule X). The Board has the absolute discretion to (Rule X): •                     amend the NED Plan Rules at any time; •                     make additional rules for the operation, control and administration of the NED Plan, or any matter incidental to the NED Plan; •                     resolve all questions of fact or interpretation in connection with the NED Plan; and •                     determine any matters falling for determination in connection with the NED Plan. If there is any inconsistency between the Rules and an Invitation, the Invitation will prevail (Rule X).

Subdivision 83A-C of the ITAA 1997 applies to the Share Rights (subject to the requirements of the Act) (Rule X). Company X Limited Employee Share Trust (the Trust) The Amended Trust Deed was amended on XX February 20XX replacing the former Trust Deed. In accordance with the Plan Rules, Company X established the Trust for the benefit of the Participants of the Plans. The Board has nominated the Trust for the purposes of administering the Plans. Company X established the Trust to facilitate opportunities to align the interests of its employees with, and to enable employees to be involved and participate in, the future growth and profitability of Company X, including by administering and holding Shares for the benefit of employees who participate in the EIP. Those Shares acquired under the EIP, in addition to certain Restricted Shares acquired under the NED Plan, will be held on trust on behalf of the Participants subject to the conditions outlined in the Plan Rules. When those conditions are satisfied, the Participants can withdraw the allocated Shares (or the cash equivalent) from the Trust. Company Y is the current Trustee for the Trust.

The Trust provides capital management flexibility for Company X, in that the Trust can use contributions made by Company X to either acquire Shares on-market, or subscribe for new Shares. The Trust provides an arm's length vehicle through which Shares can be acquired and held on behalf of Participants. In accordance with clause X of the Amended Trust Deed, the Trustee: •                     agrees to comply with the relevant Plan Rules; •                     subject to its obligations under clause X, will give consideration to any request given to it by the Board, but will not be bound to act in accordance with any such request; and •                     agrees that its activities, and exercise of its discretions under the Amended Trust Deed will comply with subsection 130-85(4) of the Tax Act. Shares acquired by the Trustee are held on trust for all Participants as beneficiaries in accordance with the Amended Trust Deed. The Trustee must not charge any fees or charges for administering the Trust unless they are reasonable disbursements charged to the Trust, or amounts charged to Company X (clause X of the Amended Trust Deed).

The activities of the Trustee are limited to managing the employee share schemes (as defined in the Corporations Act 2001 (Cth)) of Company X and the Group (clause X of the Amended Trust Deed). Upon termination of the Trust, the Trustee must apply the trust assets in whole or part towards the full repayment of any outstanding loan from a Group company, any other trust established for the purposes of the relevant Plan, any trust established for the benefit of Employees or Participants, a superannuation fund or similar established or maintained by Company X, or a charity nominated by Company X (clause X of the Amended Trust Deed). The Trust Fund comprises of the Settlement Sum and all other property (including but not limited to, money or Shares) that may be paid, transferred or credited (whether by way of income or capital) to the Trust from time to time (clause X of the Amended Trust Deed). The Trustee will hold the Trust Fund on trust for all the Participants as beneficiaries in accordance with the relevant Plan Rules and the Amended Trust Deed (clause X of the Amended Trust Deed).

The Trustee must comply with any direction of the Board to acquire Shares in accordance with the Plan Rules and must apply any amount paid to it by Company X pursuant to the Plan Rules in accordance with any direction of the Board (clause X of the Amended Trust Deed). At the request of the Board, the Trustee will set aside and hold Shares allocated to identified Beneficiaries (i.e. Participants) in accordance with the Plan Rules (each an Allocated Trust Property Beneficiary) or for all the Beneficiaries of the Trust generally (General Trust Property) (clauses X and X of the Amended Trust Deed). Subject to the terms and conditions imposed by the Board and the Plan Rules, the Trustee must transfer the allocated Shares into the name of the Participant (i.e. legal title) (clause X of the Amended Trust Deed). Company X acknowledges that neither it, nor each Group company, is a beneficiary of the Trust, has entitlement to any Shares forming part of the Trust Fund, and has no entitlement to any return of contributions made to the Trust (clause X of the Amended Trust Deed).

Participants who are Allocated Trust Property Beneficiaries are entitled to receive all distributions, bonus issues and other benefits in relation to the Shares allocated to them (clause X of the Amended Trust Deed). The Trustee may direct Company X to pay dividends and other benefits directly to the Allocated Trust Property Beneficiaries in relation to the Shares allocated to them (clause X of the Amended Trust Deed). Any dividends payable on allocated Shares may be reinvested under Company X's dividend reinvestment plan (if any) where the Trustee is requested to do so by the Allocated Trust Property Beneficiary (clause X of the Amended Trust Deed).

If rights arise under a rights issue with respect to Shares held as part of the Allocated Trust Property, the Allocated Trust Property Beneficiary's rights and any new Shares acquired by the Trustee on exercise of the rights, and any proceeds from the sale of those rights will be held by the Trustee on a separate trust as bare trustee for the benefit of that beneficiary (Participant's Bare Trust) (clause X) of the Amended Trust Deed). The relevant Allocated Trust Property Beneficiary is the sole beneficiary of the Participant's Bare Trust and is absolutely entitled to the rights and any new Shares acquired as against the Trustee. The balance of any Distributable Income of the Trust to which no Beneficiary is presently entitled immediately prior to the end of that Year of Income will be accumulated by the Trustee and form part of the Trust Fund (clause X of the Amended Trust Deed). The Amended Trust Deed amended clauses X, X and X of the Trust Deed. The Trustee did not exercise any of the broad discretionary powers contained in clauses X, X and X of the Trust Deed.

Income Tax Assessment Act 1936 Division 6 Income Tax Assessment Act 1936 subsection 44(1) Income Tax Assessment Act 1936 section 95 Income Tax Assessment Act 1936 section 97 Income Tax Assessment Act 1936 subsection 97(1) Income Tax Assessment Act 1936 section 98 Income Tax Assessment Act 1936 section 99A Income Tax Assessment Act 1936 paragraph 99A(4)(a) Income Tax Assessment Act 1936 paragraph 99A(4A)(a) Income Tax Assessment Act 1936 paragraph 99A(4)(b) Income Tax Assessment Act 1936 paragraph 99A(4A)(b) Income Tax Assessment Act 1936 paragraph 99A(4)(c) Income Tax Assessment Act 1936 paragraph 99A(4A)(c) Income Tax Assessment Act 1936 former Division 1A of Part III Income Tax Assessment Act 1936 former section 160APHO Income Tax Assessment Act 1936 Part IVA Income Tax Assessment Act 19

All legislative references are to provisions of the ITAA 1936 or to provisions of the ITAA 1997, unless otherwise indicated. Question 1 Will irretrievable cash contributions made by Company X to the Trustee to fund the acquisition of shares issued pursuant to the Plansbe assessable income of the Trust pursuant to sections 6-5 and 6-10 of the ITAA 1997? Detailed reasoning Assessable income includes both ordinary income and statutory income according to sections 6-5 and 6-10 of the ITAA 1997. Ordinary income is income according to ordinary concepts. Statutory income is income that is not ordinary income but is included in assessable income because of a specific provision of the ITAA 1997 or ITAA 1936. As Chief Justice Jordan noted in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 ( Scott ):

.. what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of receipts. Ordinary income Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. The expression ' income according to ordinary concepts ' is not a defined term. However, case law has identified certain factors which may assist in determining whether a receipt is properly characterised as income according to ordinary concepts. As a general rule, amounts received as a result of carrying on a business should represent ordinary income. However, receipts of a capital nature do not constitute income according to ordinary concepts, whether or not incurred in carrying on a business. In GP International Pipecoaters v Federal Commissioner of Taxation [1990] HCA 25 ( Pipecoaters

), the High Court of Australia found that: To determine whether a receipt is of an income or of a capital character, various factors may be relevant. Sometimes, the character of receipt will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by 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. The contributions made by Company X to the Trust forms part of the corpus of the Trust (clause X of the Amended Trust Deed) that will be applied for the sole purpose of acquiring, or subscribing for, shares for the benefit of the Participants under the Plans (clause X of the Amended Trust Deed). The cash contributions received by the Trustee are therefore of a capital nature.

It is irrelevant that, from Company X's perspective, the cash contribution may be deductible under section 8-1 of the ITAA 1997 because whether a receipt is income or capital depends on its objective character in the hands of the recipient, rather than the payer. This is made clear in Pipecoaters , where the High Court held that: ...although the amount expended on the construction of the plant was a capital expenditure, it does not follow that the taxpayer's receipt of the establishment costs was a receipt of capital. From the Trustee's perspective, the irretrievable cash contributions made by Company X are capital in nature and therefore not assessable to the Trust under section 6-5 of the ITAA 1997. Statutory income Section 10-5 of the ITAA 1997 provides a list of provisions of assessable income for section 6-10 purposes. None of the provisions listed apply to a cash contribution made by an employer to a trust established under an employee share scheme (ESS).

Therefore, the irretrievable cash contributions made by Company X to the Trustee of the Trust to fund the acquisition of shares issued pursuant to the Plans are also not assessable income of the Trust pursuant to section 6-10 of the ITAA 1997. This view is consistent with ATO ID 2002/965 Income Tax - Trustee not assessable on employer contributions made to it under the employer's employee share scheme, which found that: The funds provided to the Trustee are used in accordance with the Trust Deed and Plan Rules for the sole purpose of and under the employee share scheme. The contributions constitute capital receipts to the Trustee, and are not assessable under sections 6-5 or 6-10 of the ITAA 1997. Question 2 Will any capital gain or capital loss made by the Trustee arising as a result of CGT event E5 happening in respect of Shares allocated to a Participant be disregarded under section 130-90 of the ITAA 1997 if the Participants acquire the Company X Shares at a price that is the same as, or less than, the cost base of the Company X Shares in the hands of the Trustee? Detailed reasoning

If CGT event E5 happens, any capital gain or loss that the Trustee makes is disregarded if section 130-90 of the ITAA 1997 applies. Section 130-90 provides as follows: 1(A)        (1A) Disregard any *capital gain or *capital loss made by an *employee share trust to the extent that it results from a *CGT event, if: (a)           immediately before the event happens, an *ESS interest is a *CGT asset of the trust; and (b)           either of the following subparagraphs applies: (i)            the event is CGT event E5, and the event happens because a beneficiary of the trust becomes absolutely entitled to the ESS interest as against the trustee; (ii)            the event is CGT event E7, and the event happens because the trustee *disposes of the ESS interest to a beneficiary of the trust; and (c)           Subdivision 83A-B or 83A-C (about employee share schemes) applies to the ESS interest. (1)           Disregard any *capital gain or *capital loss made by an *employee share trust, or a beneficiary of the trust, to the extent that it results from a *CGT event, if: (a)           the CGT event is CGT event E5 or E7; and (b)           the CGT event happens in relation to a *share; and

(c)           the beneficiary had acquired a beneficial interest in the share by exercising a right; and (d)           the beneficiary's beneficial interest in the right was an *ESS interest to which Subdivision 83A-B or 83A-C (about employee share schemes) applied. (2)        Subsection (1A) or (1) does not apply if the beneficiary acquired the beneficial interest in the *share for more than its *cost base in the hands of the *employee share trust at the time the *CGT event happens. To qualify for the exemption in section 130-90, there must be an 'employee share trust' and an 'ESS interest'. Subsection 130-85(4) of the ITAA 1997 defines an employee share trust 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).

An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 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 Plans, and subsequently allocated to Company X's Participants pursuant to the Plans, are ESS interests for the purposes of subsection 83A-10(1). An 'employee share scheme' is defined in subsection 83A-10(2) of the ITAA 1997 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. Company X's Plans each constitute an 'employee share scheme' because each is a scheme under which ESS interests in Company X are provided to the employees of Company X in relation to their employment with Company X. Therefore, paragraphs 130-85(4)(a) and (b) of the definition of an employee share trust are satisfied because: a.             The Trust acquires Shares in a company, namely Company X; and

b.             The Trust ensures that ESS interests as defined in subsection 83A-10(1) are provided under an employee share scheme by allocating those Shares to the employees of Company X in accordance with the Amended Trust Deed and the Plans. Paragraph 130-85(4)(c) of the definition of an employee share trust provides that a trustee can engage in activities that are merely incidental to those described in paragraphs 130-85(4)(a) and (b) of the ITAA 1997. The Commissioner's views on the types of activities that are merely incidental and not merely incidental are set out in Taxation Determination TD 2019/13: Income tax: what is an 'employee share trust'? (TD 2019/13). Whilst the relevant trust documents may include powers and/or duties that are broad reaching, the mere existence of those powers or duties in the trust document does not, of itself, mean that the trustee has breached the requirements to be an employee share trust. In examining whether the requirements of subsection 130-85(4) are met, it is necessary to examine the actual activities that the trustee has undertaken (paragraph 6 of TD 2019/13).

However, as per paragraph 45 of TD 2019/13, in terms of the Commissioner providing advice in the form of a private ruling for a future period, the correctness of the ruling may depend on whether or not the trustee will act on the relevant clauses in the trust documents, as the scheme will include the existence of the powers and duties in the trust documents. In these circumstances, the Commissioner can either make an appropriate assumption (or assumptions) or decline to rule (subsection 357-110(1) of Schedule 1 to the Taxation Administration Act 1953 ). If the Commissioner decides to make an assumption, given the powers and duties are specifically included in the trust documents, the most appropriate assumption will generally be that the power will be exercised or the duty undertaken. The Commissioner was of the view that clauses X, X and X in the Trust Deed would require the Trustee to undertake activities that were not merely incidental, thereby breaching paragraph 130-85(4)(c).

Following amendments to these clauses, the Commissioner is now satisfied that the Amended Trust Deed contains only powers and/or duties that are merely incidental, as required by paragraph 130-85(4)(c) of the ITAA 1997. Therefore, the Trust established pursuant to the Amended Trust Deed satisfies the definition of an employee share trust in subsection 130-85(4) of the ITAA 1997. As the rights granted under the Plans will be acquired by the employees at a discount, they are ESS interests to which Subdivision 83A-B of the ITAA 1997 applies. As such, a capital gain or capital loss that arises for the Trustee of the Trust established pursuant to the Amended Trust Deed at the time when CGT Event E5 happens in relation to Company X Shares held by the Trustee will be disregarded under section 130-90 of the ITAA 1997, if the employees acquire the Shares for the same or less than the cost base of the Shares in the hands of the Trustee. Question 3 If the Trustee receives and accumulates distributions on unallocated Shares held in the Trust, will the distributions and any franking credits be assessed under section 95 and section 99A of the ITAA 1936 in relation to the Trustee?

Detailed reasoning Section 95 Net income is defined by section 95 to mean the total assessable income of the trust estate calculated under Division 6 of the ITAA 1936 as if the trustee were a resident taxpayer in respect of that income, less allowable deductions. Under subsection 44(1) of the ITAA 1936, the assessable income of a resident shareholder in a company includes dividends that are paid to the shareholder by the company out of profits derived by it from any source. Under clause X of the Trust Deed, unallocated Shares are held by the Trustee for the general purpose of the Trust, and under clause X, if the Trustee receives any distributions derived from unallocated Shares, the income is held by the Trustee for the general purpose of the Trust and as an accretion to the Trust. As such, distributions received by the Trustee in respect of unallocated Shares will be included in the calculation of the net income of the Trust under section 95. Section 99A Under section 99A, the trustee of a trust estate is assessed and liable to pay tax on the part of the net income of the trust estate:

•                     that is not included in the assessable income of a beneficiary of the trust estate under section 97 (paragraphs 99A(4)(a) and 99A(4A)(a)) •                     in respect of which the trustee is not assessed and is not liable to pay tax under section 98 (paragraphs 99A(4)(b) and 99A(4A)(b)), and •                     that does not represent income to which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident of, and is also attributable to sources out of, Australia (paragraphs 99A(4)(c) and 99A(4A)(c)). The critical requirement for these three exclusion categories is that a beneficiary is presently entitled to a share of the income of a trust estate. Under clause X of the Trust Deed, a Participant is absolutely entitled to allocated Shares only and under clause X, a Participant only has a right to receive income, including any distributions, deriving from allocated Shares.

Therefore, as a Participant is not presently entitled to any income derived from unallocated Shares, none of the three exclusion categories apply, and the Trustee will be assessed and liable to pay tax under section 99A on any distributions and other income received by the Trustee in respect of unallocated Shares. Question 4 If the Trustee receives and accumulates distributions on unallocated Shares held in the Trust, will the Trustee be entitled to a tax offset for any franking credits attaching to the distributions under Subdivision 207-B of the ITAA 1997? Detailed reasoning Tax offset Section 207-45 of the ITAA 1997 provides that trustees, who are liable to be assessed under section 99A of the ITAA 1936 and to whom a franked distribution flows indirectly, are entitled to a tax offset for that income year equal to its share of franking credit attached to the distribution. Pursuant to subsection 207-50(4) of the ITAA 1997, a franked distribution will be taken to flow indirectly to the trustee of a trust where, relevantly, the trustee is liable to be assessed on all or part of the trust's net income for that year under section 99A of the ITAA 1936.

As determined above, the Trustee will be liable to be assessed under section 99A of the ITAA 1936 in relation to distributions received by the Trustee in respect of unallocated Shares. Therefore, the requirements of section 207-45 are satisfied, and the Trustee will be entitled to a tax offset equal to its shares of the franking credits attached to the distributions. Qualified Person However, subsection 207-150(1) of the ITAA 1997 denies a tax offset otherwise available under section 207-45 where the person is not a qualified person for the purposes of Division 1A of the former Part IIIAA of the ITAA 1936. Broadly, a person will be taken to be a qualified person in respect of a distribution paid on shares if the shares are held at risk for a period of 45 days and the person or an associate does not make a related payment in respect of the distribution (former section 160APHO of the ITAA 1936).

It is accepted that no related payment will be made by the Trustee in respect of the distribution. It is also accepted that the Trustee will hold the unallocated Shares at risk for a period of not less than 45 days during the period beginning the day after the Trustee acquires the unallocated Shares and ending on the 45th day after the unallocated Shares become ex-dividend. Therefore, it is accepted by the Commissioner that the Trustee will be a 'qualified person' for the purposes of Division 1A of the former Part IIIAA of the ITAA 1936. Conclusion The Trustee will be entitled to a tax offset under Subdivision 207-B equal to the franking credits attached to the distributions received in respect of the unallocated Shares. Question 5 If the Trustee receives a distribution on allocated Shares held for a Participant in the Trust during an income year, and applies the Trust property representing it for the benefit of the Participant by the end of the income year, will the distribution and any franking credit calculated and included under section 95 of the ITAA 1936 be assessed under section 99A of the ITAA 1936 in relation to the Trustee? Detailed reasoning

As per Question 3 which considered the application of both section 95 and section 99A, subsection 97(1) of the ITAA 1936 determines that the assessable income of the beneficiary of a trust estate amounts to so much of the net income of the trust estate as the beneficiary is presently entitled. Under clause X of the Trust Deed, a Participant is absolutely entitled to allocated Shares only and under clause X, a Participant only has a right to receive income, including any distributions, deriving from allocated Shares. Hence, distributions on allocated Shares must be held and applied by the Trustee for the benefit of the Participant. Therefore, the distribution and any attached franking credit on allocated Shares will not be assessed under section 95 in relation to the Trustee provided the relevant share of the distribution and any allowable franking credit is included in the Participant's assessable income.

In addition, under section 99A, the trustee of a trust estate is assessed and liable to pay tax on the part of the net income of the trust estate that is not included in the assessable income of a beneficiary of the trust estate under section 97 (paragraphs 99A(4)(a) and 99A(4A)(a)). As a Participant is presently entitled to any income derived from allocated Shares, the Trustee will not be assessed and liable to pay tax under section 99A on any distributions and other income received by the Trustee in respect of allocated Shares provided the relevant share of the distributions and other income is included in the Participant's assessable income. Question 6 If the Trustee receives a distribution on allocated Shares in the Trust during an income year and applies Trust property representing it for the benefit of the Participant by the end of the income year, will the Trustee be entitled to a tax offset for any franking credits attaching to the distribution under Subdivision 207-B of the ITAA 1997? Detailed reasoning

If the Trustee receives a distribution on allocated Shares in the Trust during an income year and applies Trust property representing it for the benefit of the Participant by the end of the income year, the Trustee will not be entitled to a tax offset for any franking credits attaching to the distribution under Subdivision 207-B of the ITAA 1997. This is because, as per Question 4 (including the reference to Division 1A of the former Part IIIAA of the ITAA 1936), the Participant will be entitled to a tax offset for any franking credits attaching to the distribution on Shares allocated to them, provided they have held the interest in those Shares at risk for a continuous period of at least 45 days, not counting the day of acquisition or disposal.