Private ruling: Employee share schemes - reporting obligations
Date of advice: 29 July 2022
Published: November 2022
Ruling period: Income years ending 30 June 20XX to 30 June 20XY
Date scheme commenced: A particular date.

Ruling: Q1: Will the Company have reporting obligations under paragraph 392-5(1)(b) of Schedule 1 to the Taxation Administration Act 1953 in relation to Restricted Shares granted under the Employee Equity Plan (EEP) on (subject to the '30 day rule' in subsection 83A-115(3) of the Income Tax Assessment Act 1997 ) the earliest of the following events occurring: (a) when the Restricted Shares vest and any disposal restrictions cease to apply; or (b) 15 years from when the Restricted Shares are granted? | A1: Yes.

Relevant facts and circumstances: Overview of the Employee Equity Plan 1. The Company is a public company that is listed on the Australian Securities Exchange (ASX). 2. The Company adopted the EEP which is governed by the Plan Rules. 3. The Plan Rules provide the Board with absolute discretion to invite Eligible Employees to participate in a grant of Incentive Securities, which can be any one or more of Rights, Options and Restricted Shares. 4. An 'Eligible Employee' is an employee of the Group (being the Company or one of its subsidiaries within the meaning set out in the Corporations Act 2001 ), including a director of the Company employed in an executive capacity. An Eligible Employee can also be any other person who is declared by the Board to be eligible to receive a grant of Incentive Securities under the EEP. 5. Acceptance of an offer must be made by the Eligible Employee in accordance with the instructions that accompany the offer, or in any other way the Board determines. Offers of Restricted Shares 6. A Restricted Share is a fully paid ordinary share in the Company that is allocated in accordance with the Plan Rules and subject to dealing and/or vesting conditions. 7. Currently, the EEP operates on an 'opt-out' basis whereby an Eligible Employee is not required to do anything to accept an offer of Restricted Shares but must complete and return an accompanying rejection form to decline. Going forward, the EEP may operate on an 'opt-in' basis. 8. The terms and conditions of an offer of Restricted Shares is set out in the Plan Rules and the Offer Booklet (which comprises the Offer letter and the Booklet). Where there are inconsistencies between the Plan Rules and the Offer Booklet, the terms in the Offer letter, followed by the terms of the Booklet, takes precedence over the Plan Rules. 9. The Booklet states that Restricted Shares will only be granted if participants are still an employee of the Group on the date the Restricted Shares are allocated. 10. The offer of Restricted Shares will be in respect of any deferred component of employees' variable remuneration as approved by the Board. 11. The Restricted Shares will be granted free of charge. 12. Restricted Shares will be held directly in the participant's name, subject to the holding lock until the Vesting Date(s) occurs. This means that the Restricted Shares will not be held via the ESS Trust on behalf of the participants and the holding lock will be implemented outside of the trust. However, the grant of Restricted Shares may be from unallocated shares that are held by that trust. 13. The Restricted Shares carry full dividend and voting rights. 14. The Restricted Shares are not subject to ongoing performance hurdles. Rather, the Restricted Shares will be subject to disposal restrictions that will be lifted on the 'Vesting Date', subject to the 'Vesting conditions' being met. The precise term of the disposal restrictions will be considered at the time of grant of each tranche of Restricted Shares. It is open to the Board to impose performance hurdles on future grants of Restricted Shares. 15. Vesting Date(s) for the Restricted Shares will be determined by the Board and stated in the relevant Offer letter. 16. The Vesting conditions of the Restricted Shares include: • the participant being an employee of the Group on the relevant Vesting Date • any expected performance outcomes on which the original offer of Restricted Shares was based have been realised, or can still reasonably be expected to be realised on the relevant Vesting Date; and • the participant has met the minimum risk and compliance requirements applicable to their role over the applicable Vesting period. 17. When the Restricted Shares vest, the holding lock will be lifted and participants will be able to Deal with the shares, subject to the Group Securities Trading Policy. 18. A breach of the Group Securities Trading Policy may be regarded as misconduct, which may lead to disciplinary action (including termination of employment or engagement). 19. Restricted Shares may be forfeited in certain circumstances. Cessation of employment 20. Unless the Board determines otherwise, if the participant ceases to be employed by a Group company before their Restricted Shares vest, the following consequences will apply to the participant's Restricted Shares: • if the participant resigned or is summarily terminated (a 'bad leaver'), all of their Restricted Shares will automatically be forfeited; and • if the participant ceases to be employed in any other circumstances (a 'good leaver'), all of their Restricted Shares will remain on foot and will vest in the ordinary course (that is, the condition that they be an employee of the Group on the relevant Vesting Date will no longer apply). 21. The Board can impose other service conditions, in addition to those outlined above, which would be set out in the relevant Offer Booklet as required by the Plan Rules. If the participant fails these other service conditions, the Board can appropriately determine whether some or all of the participant's Restricted Shares will be automatically forfeited. For example, in addition to an automatic forfeiture as a bad leaver, the Board may determine that a pro-rata forfeiture of shares occurs in the event of a redundancy. 22. Where the participant retires in accordance with the Group Redundancy and Separation Policy and Procedure, they would not be considered to be resigning or being summarily terminated and will be treated as a good leaver. 23. The Group Redundancy and Separation Policy and Procedure provides that an employee may elect to terminate their employment for reasons of retirement at any time if that employee does not intend to become permanently employed on a full-time or part-time basis in the future by the Group or any other employer, other than to provide ad hoc/casual services for or to the Group from time to time after their employment with the Group ends (for example, as a consultant, director or otherwise). 24. The Group retains the absolute discretion to determine whether the cessation of employment meets the definition of 'Retirement', including in circumstances where an Employee has indicated that they intend to continue participating in the workforce following their separation from the Group for the purposes of determining entitlements and any ongoing obligations. 25. The Board would only exercise its discretion to determine alternative consequences (than those set out above) for a participant's Restricted Shares in exceptional circumstances. 26. The Plan Rules contain post cessation discretions that allow the Board to deem all or any shares, including Restricted Shares, which are still held by the participant to be forfeited where the Board has determined in good faith that the participant has breached a Post Cessation Covenant, or a change in the participant's circumstances since they ceased to be employed by the Group means it is no longer appropriate for them to retain the benefits. This may include, for example, where the participant commences employment with a competitor, or where the participant purported to retire from the workforce and subsequently recommences employment. 27. No participant will hold a beneficial interest in more than 10% of the shares in the Company, nor will be able to cast, or control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the Company after the allocation of Restricted Shares under the EEP. 28. The Company also offers a number of other employee share schemes to its employees. Under one of these schemes, employees with at least one year of service will receive a free grant of up to a certain amount in the Company shares every year, subject to any negative adjustment by the Board. Such reductions could apply in relation to material risk incidents, financial or non-financial performance.

Relevant legislative provisions: Paragraph 392-5(1)(b) of Schedule 1 to the Taxation Administration Act 1953 Subsection 83A-10(1) of the Income Tax Assessment Act 1997 | Subsection 83A-10(2) of the Income Tax Assessment Act 1997 | Subsection 83A-20(1) of the Income Tax Assessment Act 1997 | Subsection 83A-33(1) of the Income Tax Assessment Act 1997 | Subsection 83A-33(2) of the Income Tax Assessment Act 1997 | Subsection 83A-45(1) of the Income Tax Assessment Act 1997 | Subsection 83A-45(2) of the Income Tax Assessment Act 1997 | Subsection 83A-45(3) of the Income Tax Assessment Act 1997 | Subsection 83A-45(6) of the Income Tax Assessment Act 1997 | Subsection 83A-105(1) of the Income Tax Assessment Act 1997 | Subsection 83A-105(2) of the Income Tax Assessment Act 1997 | Subsection 83A-105(3) of the Income Tax Assessment Act 1997 | Section 83A-115 of the Income Tax Assessment Act 1997 | Subsection 83A-115(2) of the Income Tax Assessment Act 1997 | Subsection 83A-115(3) of the Income Tax Assessment Act 1997 | Subsection 83A-115(4) of the Income Tax Assessment Act 1997 | Subsection 83A-115(6) of the Income Tax Assessment Act 1997 | Section 83A-315 of the Income Tax Assessment Act 1997 | Subsection 995-1(1) of the Income Tax Assessment Act 1997 | Subsection 83A-315.01(1) of the Income Tax Assessment (1997 Act) Regulations 2021 | All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Reasons for decision: Summary: Under subsection 392-5(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA), an entity (the provider) must give a statement to the Commissioner and to an individual for a financial year if: (a) both of the following subparagraphs apply: (i) the provider provides ESS interests to the individual during the year; (ii) Subdivision 83A-B or 83A-C of the ITAA 1997 applies to the interests; or (b) all of the following subparagraphs apply: (i) the provider has provided ESS interests to the individual (whether during the year or during an earlier year) (ii) Subdivision 83A-C applies to the interests; and (iii) the ESS deferred taxing point for the interests occurs during the year. | Detailed Reasoning - The Company has provided ESS interests to employees under the EEP: Subsection 995-1(1) defines 'ESS interest', in a company, as having the meaning given by subsection 83A-10(1). [1] Under subsection 83A-10(1) an ESS interest, in a company, is a beneficial interest in a share in the company or a right to acquire a beneficial interest in a share in the company. Under the EEP, Restricted Shares are provided to Eligible Employees. These Restricted Shares are fully paid ordinary shares in the Company that are allocated in accordance with the Plan Rules and subject to dealing and/or vesting conditions. The Restricted Shares provide Eligible Employees with a beneficial interest in the shares in the Company and are, therefore, ESS interests. Accordingly, subparagraph 392-5(1)(b)(i) of Schedule 1 to the TAA is satisfied. | Detailed Reasoning - Subdivision 83A-C of the ITAA 1997 applies to the Restricted Shares: Subsection 83A-105(1) provides that Subdivision 83A-C applies, instead of Subdivision 83A-B, to an ESS interest in a company if: (a) Subdivision 83A-B would, apart from section 83A-105, apply to the interest (aa) after applying section 83A-315, there is still a discount given in relation to the interest (ab) section 83A-33 does not reduce the amount to be included in a participant's assessable income in relation to the interest (b) subsections 83A-45(1), (2), (3) and (6) apply to the interest (c) if the interest is a beneficial interest in a share: (i) subsection 83A-105(2) applies to the interest (ii) subsections 83A-105(3) or (4) applies to the interest; and (d) if the interest is a beneficial interest in a right to acquire a beneficial interest in a share - subsection 83A-105(3) or (6) applies to the interest. As the Restricted Shares granted under the EEP are beneficial interests in shares, paragraph 83A-105(1)(d) will not be relevant. | Detailed Reasoning - Subdivision 83A-B would, apart from section 83A-105, apply to the Restricted Shares: Subsection 83A-20(1) states that Subdivision 83A-B applies to an ESS interest if you acquire the interest under an employee share scheme at a discount. As explained earlier, the Restricted Shares are ESS interests. An 'employee share scheme' is a scheme under which ESS interests in a company are provided to employees of the company or subsidiaries of the company in relation to their employment (subsection 83A-10(2)). The EEP is considered an employee share scheme as Restricted Shares are provided to Eligible Employees, being employees of the Group which include the Company and its subsidiaries. As the Restricted Shares are provided to participants free of charge, they are acquired by participants at a discount. Accordingly, Subdivision 83A-B would, apart from section 83A-105, apply to the Restricted shares. | Detailed Reasoning - There is still a discount given in relation to the Restricted Shares after applying section 83A-315: Section 83A-315 provides that, where applicable, the amount specified in the regulations is to be used as the market value for an ESS interest. Subsection 83A-315.01(1) of the Income Tax Assessment (1997 Act) Regulations 2021 applies in relation to an ESS interest that is an unlisted right. As the Restricted Shares are not unlisted rights, section 83A-315 will not apply and there will still be a discount given in relation to the Restricted Shares. | Detailed Reasoning - Section 83A-33 does not reduce the amount to be included in a participant's assessable income in relation to the Restricted Shares: Subsection 83A-33(1) sets out the conditions that need to be satisfied before section 83A-33 can apply - one condition is subsection 83A-33(2) which applies to an ESS interest in a company if no equity interests of the company are listed for quotation in the official list of any approved stock exchange. As the Company is a public company with its shares listed on the ASX, subsection 83A-33(2) will not apply. [2] Accordingly, section 83A-33 does not apply to reduce the amount to be included in a participant's assessable income in relation to the Restricted Shares. | Detailed Reasoning - Subsections 83A-45(1), (2), (3) and (6) apply to the Restricted Shares: Subsection 83A-45(1) applies to an ESS interest in a company if, when you acquire the interest, you are employed by the company or a subsidiary of the company. Under the EEP, Restricted Shares will only be granted to participants who are Eligible Employees (being employees of the Group which include the Company and its subsidiaries). Accordingly, subsection 83A-45(1) will apply to the Restricted Shares. Subsection 83A-45(2) applies to an ESS interest you acquire under an employee share scheme if, when you acquire the interest, all the ESS interests available for acquisition under the scheme relate to ordinary shares. The Restricted Shares granted under the EEP are ordinary shares in the Company. Accordingly, subsection 83A-45(2) will apply to the Restricted Shares. Subsection 83A-45(3) applies to an ESS interest in a company unless, when you acquire the interest: (a) the predominant business of the company (whether or not stated in its constituent documents) is the acquisition, sale or holding of shares, securities or other investments (whether directly or indirectly through one or more companies, partnerships or trusts) (b) you are employed by the company; and (c) you are also employed by any other company that is: (i) a subsidiary of the first company (ii) a holding company (within the meaning of the Corporations Act 2001 ) of the first company; or (iii) a subsidiary of a holding company (within the meaning of the Corporations Act 2001 ) of the first company. As the Company's business is not predominantly in the acquisition, sale or holding of shares, securities or other investments, subsection 83A-45(3) will apply to the Restricted Shares. Subsection 83A-45(6) applies to an ESS interest in a company if, immediately after you acquire the interest: (a) you do not hold a beneficial interest in more than 10% of the shares in the company; and (b) you are not in a position to cast, or to control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the company. No participant will hold a beneficial interest in more than 10% of the shares in the Company, nor will be able to cast, or control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the Company after the allocation of Restricted Shares under the EEP. Accordingly, subsection 83A-45(6) will apply to the Restricted Shares. | Detailed Reasoning - Subsection 83A-105(2) applies to the Restricted Shares: Subsection 83A-105(2) applies to an ESS interest you acquire under an employee share scheme if, when you acquire the interest, at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or non-continuous) with your employer and who are Australian residents are, or at some earlier time had been, entitled to acquire: (a) ESS interests under the scheme; or (b) under another employee share scheme, ESS interests in: (i) your employer; or (ii) a holding company (within the meaning of the Corporations Act 2001 ) of your employer. The Company operates other employee share schemes, including one which provides eligible employees with at least one year of service with the Group to receive a free grant of up to a certain amount in the Company's shares every year, subject to any negative adjustment by the Board. Accordingly, subsection 83A-105(2) applies to the Restricted Shares. | Detailed Reasoning - Subsection 83A-105(3) applies to the Restricted Shares: If an ESS interest is a beneficial interest in a share, subsection 83A-105(3) applies if, when you acquire the interest, there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it). Paragraph 1.156 of the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 states the following: The 'real risk of forfeiture' test does not require employers to provide schemes in which their employee share scheme benefits are at a significant or substantial risk of being lost. However, 'real' is regarded as something more than a mere possibility. Something is not a real risk if a reasonable person would disregard the risk as highly unlikely to occur or as nothing more than a rare eventuality or possibility. Restricted Shares under the EEP may be forfeited in certain circumstances. Further, the Restricted Shares are forfeited if the Vesting conditions are not satisfied, which in addition to continuing employment, include: • any expected performance outcomes on which the original offer of Restricted Shares was based have been realised, or can still reasonably be expected to be realised on the relevant Vesting Date; and • the participant has met the minimum risk and compliance requirements applicable to their role over the applicable Vesting period. The real risk of forfeiture test is satisfied for the following reasons: • where a participant resigns or is summarily terminated, they will forfeit their Restricted Shares; and • whilst a participant's Restricted Shares remain on foot if they cease their employment in any other circumstances, those Restricted Shares remain at risk as they will continue to be subject to other Vesting conditions and post cessation discretions (such as the participant breaching a Post Cessation Covenant, or there is a change in their circumstances that make it no longer appropriate for them to retain the Restricted Shares). Accordingly, subsection 83A-105(3) applies to the Restricted Shares. | Detailed Reasoning - Conclusion: As each condition under subsection 83A-105(1) is satisfied, Subdivision 83A-C will apply to the Restricted Shares and, accordingly, subparagraph 392-5(1)(b)(ii) of Schedule 1 to the TAA is satisfied. | Detailed Reasoning - The ESS deferred taxing point for the Restricted Shares occurs during the year: Subsection 995-1(1) defines 'ESS deferred taxing point', for an ESS interest, as having the meaning given by sections 83A-115 and 83A-120. Section 83A-115 applies to the Restricted Shares as they are beneficial interests in shares (subsection 83A-115(1)). Under subsection 83A-115(2), the ESS deferred taxing point for the ESS interest is the earlier of the times mentioned in subsections 83A-115(4) and (6). Subsection 83A-115(4) states that the first possible taxing point is the earliest time when: (a) there is no real risk that, under the conditions of the employee share scheme, you will forfeit or lose the ESS interest (other than by disposing of it); and (b) if, at the time you acquired the interest, the scheme genuinely restricted you immediately disposing of the interest - the scheme no longer so restricts you. Subsection 83A-115(6) states that the second possible taxing point is the end of the 15 year period starting when you acquired the interest. However, subsection 83A-115(3) states that the ESS deferred taxing point for the ESS interest is instead the time you dispose of the interest, if that time occurs within 30 days after the time worked out under subsection 83A-115(2). | Detailed Reasoning - Conclusion: The Company will have reporting obligations under paragraph 392-5(1)(b) of Schedule 1 to the TAA in relation to the Restricted Shares granted under the EEP in the year the ESS deferred taxing point for the Restricted Shares occurs. Subject to the '30 day rule' in subsection 83A-115(3) , this will be at the earlier of when the Restricted Shares vest and any disposal restrictions cease to apply; or 15 years from when the Restricted Shares are granted. [1] Subsection 3AA(2) of the TAA provides that an expression has the same meaning in Schedule 1 to the TAA as in the ITAA 1997. [2] The ASX is as an 'approved stock exchange'. Subsection 995-1(1) defines 'approved stock exchange' to mean a stock exchange named in the regulations. Section 995-1.02 of the Income Tax Assessment (1997 Act) Regulations 2021 provides that the stock exchanges specified in Schedule 3 to the regulations are named for the purposes of the definition of 'approved stock exchange' in subsection 995-1(1) - the ASX is listed in the table at Schedule 3.