Private ruling: Employee share scheme - deferred taxing point
Date of advice: 2 October 2023
Published: 13 November 2023
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did the deferred taxing point for your Performance Rights shares (ESS interest) occur on XX February 20XX under section 83A-120 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: Background 1. You were employed by an ASX listed entity (the Company) on XX November 20XX as an executive. 2. The Company is an Australian resource company with three operating sites (Site A, Site B and Site C). 3. There are two near-term development projects (Project X and Project Y) 4. As part of your employment and pursuant to your Employment Contract (the Contract), you were issued certain performance rights (Performance Rights) in the Company's Employee Share Scheme (ESS, the Scheme) under the Performance Rights Plan Rules (the Rules). 5. The Performance Rights entitled you to ordinary shares in the Company subject to satisfaction of performance criteria and the vesting conditions. The corresponding obligation of the Company was to provide the shares if those criteria were met, pursuant to a binding contract made by the Company and you in the manner set out in the Performance Rights Plan. Performance Rights 6. You had Performance Rights issued in two tranches. The main condition under both of these tranches was remaining employed for a specified period of time (XX months from commencement for Tranche one and XX months from commencement for Tranche two). In addition, there was a holding lock in place when Tranche one was vested. 7. You are restricted by clause X of the Performance Rights plan such that any share acquired by a participant on the vesting of a Performance Right may only be disposed of or dealt with in any way by you subject to the terms of the Company's Securities Trading Policy (Trading Policy). 8. The Trading Policy indicates in clause X that non-compliance with the Trading Policy, Listing Rules and the Corporations Act 2001 (Cth) may lead to penalties for breach of insider trading laws and investigation by the Company which may lead to disciplinary or remedial action by the Company. 9. The restrictions imposed by the Trading Policy include: • a prohibition of dealing in the Company securities if you are in possession of inside information relating to that company, whether it be in relation to the Company or another company pursuant to clause X.X; and • the Trading Policy also applies additional restrictions of trade for senior executives. Trading can only occur in specified trading windows and if written clearance is given by the Company Secretary pursuant to clause X. Securities Trading 10. Pursuant to the Trading Policy clause X.X; any potential securities trading for executives was limited to specific trading windows following particular events. A number of trading windows arose, with relevant periods extracted below where you held inside information. 11. In addition to the securities trading windows, employees were further prohibited from trading when they held information according to the Trading Policy that was inside information/price-sensitive information pursuant to clause X.X of the Trading Policy. 12. The Trading Policy outlined the definitions of inside information/price sensitive information. 13. You were in possession of information that would affect the price or value of the Company securities on a regular and reoccurring basis. 14. You received weekly direct reporting from the head of business development and exploration for the Company relating to sensitive information. 15. The projects you managed attached with the information that would have a material effect on the price or value of the shares in the Company. 16. By receiving this information, in accordance with the Trading Policy you were prohibited from participating in trading in securities in the Company, even during the securities trading windows. 17. A non-exhaustive summary of information that you were privy to during your employment with the Company was provided. Project X 18. The Company released an ASX announcement on XX August 20XX relating to the exploration results at Project X. The ASX announcement details that the Company had been performing a feasibility study, which you were at all times receiving information on, producing and finalising this announcement. 19. An additional announcement occurred on XX October 20XX concluding the outcomes of Project X's feasibility study and releasing the findings of the study. 20. The period preceding the initial ASX announcement on XX August 20XX prohibited you from trading due to price-sensitive information held from the initial stages of the report through to the completion of the feasibility study, being prohibited from trading from March 20XX to October 20XX. Site C 21. Prior to your resignation, you were involved in a task for Site C operations. As a result, you had price sensitive and detailed information relating to an ASX announcement. 22. The period preceding the initial ASX announcement from May 20XX and continuing until a financial report, released on XX February 20XX, restricted you from trading as you held price sensitive information. 23. The information also restricted you from trading until the financial results were public information, being the release of a report on XX February 20XX. Cessation of employment 24. You provided your notice of resignation on XX November 20XX. 25. Upon resignation the Board of the Company exercised their right to not retain you for all of the notice period required under the Contract, and made a payment in lieu of notice for the period which you were not retained, pursuant to clause XX of the Contract. You were still bound by the continuing obligations of the Contract particularly clause XX relating to confidential information. 26. Upon giving notice, you were not privy to further new information, however you still retained price sensitive information relating to certain information which the Company faced and were not disclosed until XX February 20XX. 27. The first time you were not prohibited from trading was XX February 20XX. 28. No directors, senior executives or designated employees traded during this period.

Relevant legislative provisions: Section 83A of the Income Tax Assessment Act 1997 | Section 83A-10 of the Income Tax Assessment Act 1997 | Section 83A-105 of the Income Tax Assessment Act 1997 | Section 83A-110 of the Income Tax Assessment Act 1997 | Section 83A-120 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: The deferred taxing point of your ESS interest occurred XX February 20XX for the purposes of section 83A-120 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: The ESS provisions are contained in Division 83A of the ITAA 1997. In summary, the ESS provisions recognise the dual nature of grants of shares and rights to acquire shares, defined as ESS interests, as both remuneration and investments. To this end, the ESS provisions provide a mechanism for recognising an appropriate value for remuneration purposes and an adjustment to the purchase price for investment purposes to reflect the amount treated as remuneration. The ESS provisions achieve this outcome by: • determining when a taxpayer needs to include any discount received in relation to a share or right to acquire the share in their assessable income; • calculating the amount of this discount using the market value of the share or right to acquire the share at this date ignoring any selling restrictions or forfeiture conditions; and • using this date and the market value of the share or right as the acquisition date and amount paid for it for all other income tax purposes. Subdivision 83A-C of the ITAA 1997 provides that when certain conditions are satisfied, the discount in relation to an ESS interest is not included in the employee's assessable income in the income year they acquire the ESS interest but will be included when the deferred taxing point occurs. The deferred taxing point for an ESS interest that is a beneficial interest in a right to acquire a share that was granted on or after 1 July 2015 will be the earliest of the times in accordance with subsections 83A-120(4), (6) and (7) of the ITAA 1997, summarised as follows: • when the ESS interest has not been exercised, there is no real risk of forfeiting the ESS interest, and the scheme no longer genuinely restricts disposal of the ESS interest (subsection 83A-120(4) of the ITAA 1997); or • the end of the 15-year period starting when the employee acquired the ESS interest (subsection 83A-120(6) of the ITAA 1997); or • when the ESS interest is exercised and there is no real risk of forfeiting the share and the scheme no longer genuinely restricts disposal of the share (subsection 83A-120(7) of the ITAA 1997). For the purposes of Division 83A of the ITAA 1997, the term 'genuinely restricted' is not defined, therefore takes on its ordinary meaning. The term is explained in Taxation Determination 2022/4 income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? (TD 2022/4) which sets out the Commissioner's view for working out when a scheme's disposal restrictions were genuine disposal restrictions and when the taxpayer would no longer be 'genuinely restricted' by the scheme for the purposes of determining the deferred taxing point. Paragraph 21 of TD 2022/4 states in order for a genuine disposal restriction to occur, the scheme's restriction must control or limit the power or right to (voluntarily or compulsorily) sell, transfer, assign, deal with, make over or part with the ESS interest (whether legally or beneficially). Under paragraph 26 of TD 2022/4, the scheme's genuine disposal restrictions may prevent the disposal of ESS interest when the taxpayer possess price-sensitive information. To be a genuine restriction the taxpayer must: Paragraphs 28 to 30 of TD 2022/4 further state that a scheme's genuine disposal restrictions may operate for either a fixed or variable period of time. The period of time can be determined by many ways, including the vesting conditions, internal share trading policies, insider trading prohibitions or by any other means listed under the Corporations Act 2001 (Cth). The genuine disposal restrictions will no longer be restrictive at the commencement of the first date of which there is an opportunity to dispose of the ESS interest by way of sale, transfer or gift even if they are lifted only temporarily. Further, the examples 2 and 4 from TD 2022/4 provided guidance on: | Detailed Reasoning - Application to the current circumstances: Based on the information provided, the Performance Rights you held in respect of your employment with the Company are ESS interests, as they are beneficial interests in rights to acquire beneficial interests in shares in the Company. As such your ESS interests will have the benefit of a deferred taxing point if the conditions under Subdivision 83A-C of the ITAA 1997 are satisfied. You were provided your ESS interests in two tranches. The main condition under both of these tranches was remaining employed for a specified period of time (XX months from commencement for Tranche one and XX months from commencement for Tranche two). In addition, there was a holding lock period in place when Tranche one was vested. You were further genuinely restricted from disposing of the shares until a trading window arose pursuant to clause X.X of the Trading Policy and in line with the Corporations Act 2001 (Cth) regarding insider trading, when both Tranche one and two ESS interests were vested. You satisfied the conditions under subsection 83A-105(3) based on the vesting conditions that applied to your ESS interests there was a real risk under the conditions of the scheme that you would forfeit or lose the rights, other than by disposing of it, exercising it, or letting it lapse. You would have forfeited the interests if your employment did not last for XX months for Tranche one interests, and XX months for Tranche two interests respectively. The relevant deferred taxing point is that set out in subsection 83A-120(7) of the ITAA 1997. This is because the Performances Rights were exercised automatically on vesting. In addition, there was no real risk of forfeiture or loss of the ESS interest. Further, based on the guidance provided in TD 2022/4, you were genuinely restricted from disposal, not just due to your positions within the Company, but contemporaneous evidence was provided that price-sensitive information was held during your period of employment with the Company and there were no trading windows available for you to dispose of your ESS interests until certain information was released on XX February 20XX. The conditions for the other possible deferred taxing points were not met as you had exercised the right (subsection 83A-120(4) of the ITAA 1997), and the relevant 15-year period had not ended (subsection 83A-120(6) of the ITAA 1997). After considering the above, the ESS deferred taxing point occurred on XX February 20XX under subsection 83A-120(7) of the ITAA 1997.

have, or be able to obtain, objective evidence that reasonably shows how the information held prevented the immediate disposal of the ESS interest, and | show that the information was held at all times when otherwise able to dispose of the interest. | receiving emails with detailed information relating to financial results, is price sensitive and confidential information which genuinely restricts disposal; | a holding lock and securities dealing policy, restricting trading when in possession of price sensitive information, are genuine disposal restrictions as the company can strictly enforce breaches of the securities dealing policy.