Private ruling: ESS - minimum holding period
Date of advice: 20 February 2026
Published: 20 April 2026
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under paragraph 83A-45(5)(a) of the Income Tax Assessment Act 1997 to allow the minimum holding period for Options granted under the Employee Share Option Plan to end on the date of completion of the Share Purchase Agreement? | A1: Yes.

Relevant facts and circumstances: The Company is an Australian resident private company. The Company has been incorporated for less than 10 years. The Company's predominant business is not the acquisition, sale or holding of shares, securities or other investments. The Company's equity interests are not listed on a stock exchange in Australia or overseas. The Company's aggregated turnover was less than $50 million for the relevant income year. The Company established an Employee Share Option Plan (ESOP) to incentivise and retain key employees. The ESOP is governed by the ESOP rules (Rules). The Company has periodically granted Options over ordinary shares to employees (Participants) under the ESOP. No Participant has been issued with Options that are equivalent to 10% or more shareholding and voting power. The Rules contain vesting conditions that must be met before the Options can be exercised. The amount that must be paid to exercise each Option is greater than or equal to the market value of an ordinary share in the Company when the Options were acquired. The Rules allow Participants to dispose of the Options upon the occurrence of an Exit Event, such as a takeover, but contains an overriding restriction on disposal in the first 3 years after the Options were issued, or such earlier time as the Commissioner allows. Acquisition of the Company The Company started negotiations with a purchaser (the Purchaser) in 20XX in relation to the proposed sale of its business. Before commencing sale negotiations, the Company considered a number of possible alternatives including an initial public offering (IPO) but ultimately decided that a 100% sale was the best pathway. The Company and the Purchaser entered into a Share Purchase Agreement (SPA) in 20XX for the acquisition of 100% of the share capital of the Company (Proposed Acquisition). It is anticipated that the SPA will complete during 20XX (Completion). On Completion, all membership interests in the Company will be disposed of under the SPA.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-33 | Income Tax Assessment Act 1997 subsection 83A-33(1) | Income Tax Assessment Act 1997 subsection 83A-45(4) | Income Tax Assessment Act 1997 subsection 83A-45(5) | Income Tax Assessment Act 1997 section 83A-130

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997. In order to qualify for the ESS start-up concessions under section 83A-33, the ESS interest must meet all of the conditions set down in subsection 83A-33(1). One of the further conditions that must be met is the minimum holding period condition set out in subsections 83A-45(4) and 83A-45(5) as follows: | Detailed Reasoning - 83A-45(4): This subsection applies to an ESS interest you acquire under an employee share scheme if, at all times during the interest's minimum holding period, the scheme is operated so that every acquirer of an ESS interest (the scheme interest ) under the scheme is not permitted to dispose of: (a) the scheme interest; or (b) a beneficial interest in a share acquired as a result of the scheme interest; during the scheme interest's minimum holding period. | Detailed Reasoning - 83A-45(5): An ESS interest's minimum holding period is the period starting when the interest is acquired under the employee share scheme and ending at the earlier of: (a) 3 years later, or such earlier time as the Commissioner allows if the Commissioner is satisfied that: (i) the operators of the scheme intended for subsection (4) to apply to the interest during the 3 years after that acquisition of the interest; and (ii) at the earlier time that the Commissioner allows, all membership interests in the relevant company were disposed of under a particular scheme; and (b) when the acquirer of the interest ceases being employed by the relevant employer. The Explanatory Memorandum for the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 explains the introduction of the Commissioner's discretion in subsection 83A-45(5) as follows: 1.82 This Bill makes slight improvements to the existing minimum holding period condition by allowing the Commissioner to reduce the minimum holding period in situations in which all employees are effectively required to exercise and/or dispose of their ESS interests. For example, where there is an initial public offering of the company, or the company is subject to a full trade sale and employees have agreed to a 'tag along' clause in relation to holding of minority interests. The Commissioner in applying the discretion will need to have regard to whether, when employees acquired their interest, there was a genuine intention for the interests to be held for the minimum holding period. The operators of the scheme would not satisfy the requirement in subparagraph 83A-45(5)(a)(i) if they had either allowed a participant to dispose of their interest prior to the end of its minimum holding period or there was objective evidence that the scheme was not operated to prevent the participants from doing so. Objectively the Commissioner would not accept that that the scheme was operated to prevent the participants from disposing of their interests before the end of the minimum holding period where interests were allocated after the time that it became clear that a takeover was imminent. | Detailed Reasoning - Application to the Company's circumstances: The Company has issued Options to Participants under its ESOP for a number of years. The Options are ESS interests subject to Division 83A and qualify for concessional treatment under section 83A-33. The Company and the Purchaser entered into a SPA in 20XX. If the Proposed Acquisition takes place, all membership interests in the Company will be disposed of on Completion. This will mean that Participants will dispose of their Options within 3 years of acquiring them. The Company has asked the Commissioner to allow the 3-year minimum holding period to end at an earlier time, being Completion. The final tranche of Options were issued to Participants during 20XX. At that time the Proposed Acquisition was not known about, contemplated, or under discussion by the parties. The Commissioner is satisfied that in early 20XX, the Company was only just considering the possibility of a sale with no buyer having been identified and no negotiations or active discussions having commenced. Under the relevant clause of the Rules, all Participants are unable to dispose of their Options (and any shares received on exercise of an Option), unless three years had passed from the time of issue; their employment ceased, or the disposal was under an arrangement which met the requirements of section 83A-130. The 3-year disposal restriction has been strictly adhered to by the Company at all times since the ESOP was established. There is no objective evidence to suggest that the Company, as the operators of the ESOP, did not intend for the minimum holding period to apply to all Options. The Commissioner is satisfied that the requirements in subparagraphs 83A-45(5)(a)(i) and (ii) are met. Accordingly, the Commissioner will allow the minimum holding period for Options acquired by Participants to end at the earlier time of Completion.