Private ruling: Employee share schemes
Date of advice: 22 March 2022
Published: June 2022
Ruling period: Income year ending 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1:  | A1:  | Q2:  | A2:  | Q3:  | A3: 

Relevant facts and circumstances: You were an employee of Company Xwhile you were a resident of an overseas country (Country A). After a period of time, you were employed by a subsidiary of Company X while remaining a resident of Country A. You came to Australia and became a resident of Australia for taxation purposes, which you have continued to be during the remainder of the ruling period. You commenced employment with Company Z as a contractor under a labour hire agreement, under which you worked solely for Company X on behalf of Company Z. You were provided with an employee number by Company X in relation to this role. You participated in employee share schemes offered by Company X prior to and after your arrival in Australia as outlined below. Company X accepted that your activities in Australia were a continuation of the duties that you had previously undertaken and allowed you to keep your unvested options. Prior to coming to Australia, and after arriving in Australia you did not hold more than: • a 5% beneficial interest and/or voting right, in Company X in relation to options granted in Grant A and/or Grant B: or • a 10% beneficial interest and/or voting rights in Company X in relation to the options granted in Grant C. During the ruling period, your employment with Company X on behalf of Company Z was terminated on Date 5. Documentation provided by Company X in relation to their employee share schemes Various documents were provided in relation to their equity incentive plans. Those documents formed the terms of the options and the resulting shares. The terms of Company X's Employee Share Scheme Agreement (the ESS Plan) are summarised below: Exercise period An option is considered to be vested when the option is exercisable. The option will become vested proportionally in accordance with the Vesting Schedule. Subject to any contrary provision in the Plan or this agreement to the contrary, on or after the optionee's termination date, the option may not be exercised with respect to any shares that are unvested shares on the optionee's termination date. Nontransferability of options Options cannot be transferred other than by will or by the laws of descent and distribution. With respect to options, by instrument to a testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor) or a revocable trust, or by gift to immediate family. Restrictions on transfer The optionee shall not dispose of any shares, other than permitted by this Agreement, unless and until: • the optionee had notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the disposal • the optionee had complied with all requirements of this Agreement applicable to the disposition of the shares • the optionee will provide the Company with written assurance that the proposed disposal does not require registration of the shares or all appropriate actions necessary for compliance with the registration requirements or any exemption from registration have been taken • the optionee will provide the Company with written assurances that the proposed disposition will not result in a contravention of any transfer restrictions applicable to the shares or adversely affect the Company's ability to rely on the exemption from registration or any other applicable securities laws for the grant of the options, the issuance of shares or any other issuance of securities under the Plan. The optionee shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of the share with are subject to the Company's right of first refusal, except as permitted by this Agreement. Company's right of first refusal Before any shares held by an optionee, or any transferee or such shares, may be sold or otherwise transferred, the Company will have the right of first refusal to purchase the shares to be sold or transferred. The following transfers of shares are exempt from the right of first refusal: • transfer of all or any of the shares during the optionee's lifetime by gift or on the optionee's death by will or intestacy to any member/s of the optionee's immediate family; or • any transfer of the shares pursuant to a statutory merger or consolidation; or • any transfer of shares pursuant to the winding up and dissolution of the Company. Country specific addendum - Australia Under current Australian tax laws governing equity plans, the option should likely qualify as a 'deferral scheme', in which case no tax will be due from optionee in relation to the options while there continues to be a 'real risk of forfeiture'. Due to the vesting conditions applicable to the options, which are generally considered to impose a real risk of forfeiture, tax should be deferred until there is no longer such real risk of forfeiture, tax should be deferred until there is no such real risk of forfeiture, such as when vesting conditions have been fulfilled. However, the option will then likely be subject to taxation upon vesting, even if the optionee cannot or does not yet exercise the option at such time and even if the optionee has not received shares or any other value from the option. Furthermore, because the Australian tax authorities have not provided full guidance, including with respect to the option's specific vesting conditions, there is some risk that the authorities may consider optionee subject to a taxing point upon termination of employment or when seven years have elapsed from the date of grant, if either occurs prior to vesting. The Company X Bylaws included the following information: Restrictions on transfer The holder of any security of the Corporation shall not transfer, assign, encumber or other dispose of any security of the Corporation, other than by a permitted transfer, or in compliance with or as permitted by the terms of any agreement/s currently in effect between the Corporation and any security holder (Security Holder Agreement/s). A permitted transfer includes: • the transfer of a shareholder who is a natural person, a transfer of any security by them for estate planning purposes either during their lifetime or on death by will or intestacy to specified family members • any transfer approved by the Corporation's Board. The Bylaws were amended after several years, with the amended version including the above information in relation to restrictions on transfer of securities, and the permitted transfers which included approval by the Corporation's Board. The Plan Rules included the following information: Transferability Except as permitted by the committee, awards and any interest therein is not transferable or assignable, other than by will or by the laws of descent and distribution, and, with respect to NQSOs by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to family members. The prohibition against assignment and transfer applies to stock options and, prior to exercise, the shares to be issued on exercise of a stock option. The following information was issued by Company X: • Unless the Company goes public, there is no public market for the stock. The Company's stock may be subject to certain restrictions on transfer as outlined in the Option Agreement Exercise Agreement, and Restricted Stock Purchase Agreement. If the Company goes public the 'market stand-off' or 'lock-up' has been released, vested shares would generally be able to be sold after the options are exercised • Except as permitted by the Board, awards granted under the Plan, and any interest therein, will not be transferable or assignable, other than by will or by the laws of descent and distribution and, with respect to options by instrument to an inter vivos or testamentary trust in which the nonqualified stock options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to a family member. • The Company's Bylaws contain additional restrictions on the transfer of any securities of the Company, including shares of the Company's stock issued pursuant to the Plan. Generally, shares of the Company's stock are not transferable without the approval of the Board, other than transfers made for bona fide estate planning purposes to immediate family members or relatives approved by the Board, or trusts, partnerships or limited liability companies for the benefit of such persons. Granting of employee share scheme options You were granted the following options under Company X's ESS Plan while you were a non-resident of Australia and after you arrived in Australia: Grant A You were granted options in relation to Grant A while you were a non-resident of Australia on Date 1as follows: Options Options granted to purchase shares of common stock of Company X (the Company) pursuant to the Company X's ESS Plan. Grant date Date 1

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 section 83A-120

Reasons for decision: Detailed Reasoning - Deferral employee share schemes: The employee share scheme (ESS) provisions are contained in Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997). ESS interests acquired under a tax-deferred ESS are assessed for tax purposes in the income year in which the deferred taxing point (DTP) occurs. Division 83A of the ITAA 1997 applies to shares, rights and stapled securities acquired under an ESS on or after 1 July 2009. The DTP for ESS interests that are rights to acquire shares is determined in accordance with section 83A-120 of the ITAA 1997 (as applicable to ESS interests granted between 1 July 2009 and 30 June 2015) as the earliest of the following: • The earliest time that there are no selling restrictions on the rights (subsection 83A-120(4) of the ITAA 1997) • Cessation of the taxpayer's employment (subsection 83A-120(5) of the ITAA 1997) • Seven years from the grant date (subsection 83A-120(6) of the ITAA 1997), or • The earliest date that all of the following conditions are met (subsection 83A-120(7) of the ITAA 1997): a) there is no real risk under the conditions of the ESS that you will forfeit or lose the ESS interest other than disposing of it, exercising the right, or letting the right lapse b) if the scheme genuinely restricted you from immediately exercising the right, any exercise restrictions end (if there were some when they were granted) c) there is no real risk under the conditions of the scheme that you will forfeit or lose the beneficial interest in the share, other than disposing of it; and d) if the scheme genuinely restricted you at the time you acquired the ESS interest from immediately disposing of the beneficial interest in the share if you exercised the right, the scheme no longer restricts you. Section 83A-120 of the ITAA 1997 changed in relation to ESS rights granted from 1 July 2015. The DTP for ESS interests that are rights to acquire shares is determined in accordance with section 83A-120 of the ITAA 1997 (as applicable to ESS interests granted from 1 July 2015) as the earliest of the following: • when there is no real risk that the ESS interest will be forfeited or lost other than by disposing of it, and there are no restrictions on you disposing of the ESS interest (subsection 83A-120(4) of the ITAA 1997), • when the employment in respect of which the interest was acquired ends (subsection 83A-120(5) of the ITAA 1997), • the end of the 15 year period starting when the ESS interest was acquired (subsection 83A-120(6) of the ITAA 1997), or • when the right is exercised and there is no risk that the resulting beneficial interest in the share will be forfeited or lost (other than by disposing of it) (subsection 83A-120(7) of the ITAA 1997). | Detailed Reasoning - Application to your situation: You participated in and received options under Grant A offered by Company X. While employed by a subsidiary of Company X you received options under Company X's Grant B. You moved to Australia and commenced employment with Company Z, working solely for Company X on behalf of Company Z. Company X accepted that your activities in Australia were a continuation of the duties that you had previously undertaken with them and allowed you to keep your options from Grants A and B. You participated in Grant C after your arrival in Australia and received options. The ESS Plan included a country specific addendum for Australia which outlined that: • the options should qualify as a 'deferral scheme' • the vesting conditions are generally considered to impose a real risk of forfeiture, with tax being deferred until there is not real risk of forfeiture, such as when the vesting conditions have been fulfilled, or alternatively if employment has been terminated or seven years had passed from the grant date if either occurred prior to vesting. Company X issued an ESS Statement for the income year covered by the ruling period for ESS discounts arising in relation to deferral ESS. For the ESS interests that are the subject of this private ruling, the amount of the discount is worked out and is assessable at the DTPs as outlined below: | Detailed Reasoning - Grant A: Your Grant A options were granted on Date 1, which was prior to 1 July 2015. Therefore, the provisions contained in section 83A-120 of the ITAA 1997 that applied to ESS interests granted between 1 July 2009 and 30 June 2015 will apply to those options. We have taken the following into consideration when determining when the earliest DTP occurred in relation to these options, and whether it occurred during the ruling period: • there were ongoing restrictions preventing you from selling the options • your employment ended during the ruling period on Date 4 • the seven year anniversary from the grant date would not occur until after the ruling period; and • all of the options vested before the start of the ruling period and all of the conditions in subsection 83A-120(7) of the ITAA 1997 were satisfied as at each vesting date. The final tranche of your Grant A options vested prior to the start of the ruling period and the DTPs for the Grant A options occurred in earlier income years. No DTP occurred in relation to them during the ruling period. | Detailed Reasoning - Grant B: Your Grant B options were granted on Date 2, which was prior to 1 July 2015. Therefore, the provisions contained in section 83A-120 of the ITAA 1997 that applied to ESS interests granted between 1 July 2009 and 30 June 2015 will apply to those options. The DTPs for the Grant B options that vested before the start of the ruling period will be similar to the Grant A options as outlined above, with the DTP occurring in earlier income years when those options had vested prior to the start of the ruling period. The last tranche of options vested prior to the beginning of the ruling period when there were no selling restrictions. They vested before selling restrictions were introduced in association with the merger of Company X and Company Y on Date 4. Note: As at the beginning of the ruling period some of the Grant B options had not vested. DTPs occurred during the ruling period in relation to these options with the ESS discount arising in relation to them being assessable in the income year covered by the ruling period. | Detailed Reasoning - Grant C: Your Grant C options were granted on Date 3, which was after 1 July 2015. Therefore, the provisions contained in section 83A-120 of the ITAA 1997 that applied to ESS interests granted on and from 1 July 2015 will apply to those options. On Date 4, restrictions were implemented on and from that date as a result of the merger in relation to the selling of Company X and Company Y shares. When considering the conditions for a DTP to occur, the following occurred during the ruling period in relation to all of the Grant C options: • there were ongoing restrictions preventing you from selling the options • the 15 year anniversary from the grant date would occur after the ruling period • your employment ended during the ruling period on Date 5; and • some vested options were exercised during the ruling period. The earliest possible DTP is when the options were exercised (assuming there were no genuine selling restrictions on the shares under the exercise). The latest possible DTP is when your employment ended during the ruling period on Date 5. Both of these dates are within the ruling period. Therefore, the DTPs for these Grant C options must have occurred during the ruling period.

Subject: Employee share schemes: Question 1: Did the deferred taxing point happen during the ruling period for any of the employee share scheme (ESS) interests granted on Date 1? | Answer: No. All of these ESS interests vested prior to the start of the ruling period and there were no selling restrictions when they vested. | Question 2: Did the deferred taxing point happen during the ruling period for any of the ESS interests granted on Date 2 that vested before the starting date of the ruling period? | Answer: No. All of these ESS interests vested prior to the ruling period and there were no selling restrictions when they vested. However, the discount amounts arising in relation to Grant B options that vested during the ruling period will be assessable in that income year. | Question 3: Did the deferred taxing point happen during the ruling period income year for all of the ESS interests granted on Date 3? | Answer: Yes. Company X had determined that Grant C was a deferral scheme and in accordance with the 2015 changes to section 83A-120(7) of the ITAA 1997 the deferred taxing points for these ESS interests occurred during the ruling period. | Maximum number of shares subjection to this option (the shares): Specified number of options | Vesting start date: Specified vesting start date provided as being prior to Date 1 | Exercise schedule: Option becomes exercisable in accordance with the vesting schedule | Expiration date: The date ten years after the date of grant, subject to earlier expiration in the event of termination | As long as the optionee continuously provides services to the Company, or any Subsidiary or Parent of the Company, as an employee, officer, director, contractor or consultant without being terminated, the option will vest and become exercisable as follows: | a) prior to the first one year anniversary of the Vesting Start Date | b) the Option will become vested and exercisable to ¼ of the shares on the one year anniversary of the Vesting Start Date | c) thereafter, the Option will vest and become exercisable with request to 1/48 th of the shares at the end of each successive full month after the first one year anniversary of the Vesting Start Date. | Some of the vested Grant A options were disposed of under a buyback as a result of a cashless exercise several years after Date 1. | The final tranche of the Grant A options vested prior to the start of the ruling period. | You participated in Grant B while employed by the subsidiary of Company X when you were a non-resident of Australia and were granted options on Date 2as follows: | Options granted to purchase shares of common stock of Company X (the Company) pursuant to the Company's ESS Plan | Vesting start date: Specified vesting start date provided as being prior to Date 2 | Exercise schedule: Option becomes exercisable in accordance with vesting schedule | As long as the optionee continuously provides services to the Company, or any Subsidiary or Parent of the Company, as an employee, officer, director, contractor or consultant without being terminated, the option will vest and become exercisable with respect to 1/48 th of the shares at the end of each successive full month on the monthly anniversary of the vestment commencement date. | The majority of the Grant B options vested before the start of the ruling period. | During the ruling period the following occurred in relation to your Grant B options: | • some Grant B options vested in accordance with the vesting schedule, and they together with the options that vested prior to the ruling period were exercised | • there was an accelerated vesting of the remainder options with vesting dates occurring during 20XX, which included the first half of the ruling period. The accelerated vesting options were cashed out and were reported in your employment income statement as employment income; and | • the options that were to vest in the second half of the ruling period were forfeited | You participated in Grant C after your arrival in Australia, while being contracted to undertake work with Company X on behalf of Company Z. You were granted options on Date 3 as follows: | Vesting start date: Specified vesting start date provided as being prior to Date 3 | Expiration date: Date around ten years after Date 3, subject to earlier expiration in the event of termination | As long as the optionee continuously provides services to the Company, or any Subsidiary or Parent of the Company, as an employee, officer, director, contractor or consultant without being terminated, the option will vest and become exercisable with respect to 1/48 th of the total number of shares shall vest on each monthly anniversary of the vestment commencement date. | You were required to sign and submit a document to Company X to exercise the options. | Some of the Grant C options vested before the start of the ruling period. | • some of the Grant C options vested in accordance with the vesting schedule, and those options and the options that vested prior to the ruling period were exercised | • there was an accelerated vesting of the remainder of the vesting dates occurring during 20XX, which included the first half of the ruling period, with the accelerated vesting options being cashed out and were reported in your employment income statement as employment income; and | • the options that were to vest during the second half of the ruling period were forfeited. | Exercising of options: The options were exercised as follows: | The remaining options out of the original Grant A options following the buyback were exercised during both the income year prior to the ruling period, and during the ruling period. | The majority of the original Grant B options were exercised during the ruling period | Some of the original Grant C options were exercised during the ruling period | Prior to the ruling period, the merger of Company X and Company Y was announced on Date 4, and restrictions were implemented on and from that date as a result of the merger in relation to the selling of Company X and Company Y shares. | The merger came into effect several months after Date 4, during the ruling period, when Company X became a wholly owned subsidiary of Company Y. At that time, you held Company X resulting shares consisting of the following: | • shares from Grant A as a result of exercising options exercised both prior to and during the ruling period | • shares from Grant B as a result of exercising options during the ruling period; and | • shares from Grant C as a result of exercising options during the ruling period. | Under the merger you exchanged your Company X shares for a lesser number of Company Y shares with some shares being sold to fund your escrow obligations in accordance with the condition of sale of Company X to Company Y. | The conditions attached to the takeover are such that the ESS rollover in section 83A-130 of the ITAA 1997 will apply to treat the Company Y shares as a continuation of the Company X shares. | During the ruling period you received a cash payment (which was reported in a payslip) on the accelerated vesting and cashless exercise of options from both Grant B and Grant C. | ESS Statements: Company X reported ESS discount amounts for income year prior to the ruling period in relation to ESS interests acquired under a deferral ESS. Company X issued an ESS statement for this income year. You were later advised that this ESS statement was later cancelled and reissued for the income year that is the ruling period. | Company X issued an ESS statement for the ruling period declaring that the DTP had occurred for all of the options during the ruling period.