Private ruling: Commissioner's discretion - shares
Date of advice: 28 October 2022
Published: 9 January 2023
Ruling period: Year ending 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 and any shares that result from the exercise of those options held by the Qualifying Optionholders to end immediately prior to the on the date of completion of the Share Sale? | A1: Yes

Relevant facts and circumstances: Company A Pty Ltd (Company A) is an Australian proprietary limited company. Company A is in the business of information technology. Company A's aggregated turnover does not exceed $50 million. Employee Share Option Plan Company A adopted an Employee Share Option Plan with the primary objective of incentivising and retaining key employees and contractors. The Plan was managed by Company A's board who had discretion with respect to which employees, consultants and directors may participate in the Plan and the terms of offers made to those participants. Options issued to participants in the Plan only vest while the participant is an employee, contractor or director of one or more of the Group companies elected to participate in the Plan, and only where vesting conditions or other vesting events occur. The Plan prevented the vesting of an Option until the earlier of X years after its issue (or such earlier time as the Commissioner of Taxation allows in accordance with section 83A-45(5) of the Tax Act) and the date the person ceases to be employed by the Group Company. Prior to the Share Sale (outlined below), the Board has never exercised their discretion to allow for the disposal of an Option or Option Share within the X year holding period. Prior to the Share Sale, there was no disposal of Options or Option Shares as a result of an Exit Event. You have advised that Company A and the Plan are compliant with the conditions for the start-up concession under section 83A-33 of the Income Tax Assessment Act 1997 (ITAA 97). Share Sale Company B acquired all issued shares in Company A under a Share Purchase Agreement (the Share Sale). As part of the Share Sale the Plan was cancelled and termination and: • all unvested Company Options are accelerated and fully vested as of the Closing; • Company A issued the Optionholders the resulting shares and received consideration for their shares under the Share Sale (less the exercise price payable for the options); Company B is an unrelated party to the Company A Shareholders and the Share Sale has been entered into on an arm's length basis. Qualifying Optionholders As part of the Share Sale some of the vested Options were held by their respective Optionholders for less than X years. The term Qualifying Optionholders in this private ruling refers to employees/ contractors of Company A who: • acquired Options (or are treated as having acquired Options for the purposes of Division 83A by the application of section 83A-305 of the ITAA 1997) under the Plan; • were Australian tax residents within the meaning of subsection 6(1) of the Income Tax Assessment Act 1936 at the time they acquired the Options, and remained Australian tax residents until completion of the Share Sale; • were not temporary residents within the meaning of subsection 995-1 of the ITAA 1997; • were employed by Company A at all times from the acquisition date of the Options until completion of the Share Sale; • upon acquiring the Options did not hold (for the purposes of Division 83A) a beneficial interest in more than 10 percent of the shares, or rights to acquire shares, in Company A; • were not in a position to cast, or control the casting of, more than 10 percent of the maximum number of votes that might be cast at a general meeting of Company A; and • held their Options or exercised their Options and held the resultant shares (for the purposes of Division 83A) at all times from the date of acquisition of the Options until the completion of the Share Sale

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-45(5) | Income Tax Assessment Act 1997 Paragraph 83A-45(5)(a) | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Detailed Reasoning - The Law: Subsection 83A-45(4) of the ITAA 1997 provides: 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. Subsection 83A-45(5) of the ITAA 1997 provides: 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 the 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: (b) when the acquirer of the interest ceases being employed by the relevant employer. | Detailed Reasoning - Application to your circumstances: All the membership interests in Company A were disposed of under the Share Sale. The discretion may be exercised where the Commissioner considers the operators of the scheme intended for subsection 83A-45(4) of the ITAA 1997 to apply to the scheme interests during the 3 years after the acquisition of the interest. The operators of the scheme would fail the test 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. The rules of the Plan prevent disposals except in specific circumstances. There is no evidence that any such disposal has occurred. Objectively the Commissioner considers that the scheme was operated to prevent the participants from disposing of their interests before the end of the minimum holding period. Therefore, the Commissioner will exercise his discretion to allow the minimum holding period for Options, and any shares that resulted from the exercise of those shares, to be disposed of by Qualifying Optionholders immediately prior to the completion of the Share Sale.