Private ruling: Employee share schemes
Date of advice: 26 November 2021
Published: March 2022
Date scheme commenced: 1 January 20XX

Ruling: Q1: Did the employee share scheme (ESS) deferred taxing point for the ESS interests granted under a deferral scheme occur when the genuine selling restrictions were lifted on XX/XX/XXXX? | A1: No. | Q2: Did the ESS deferred taxing point for the ESS interests granted under a deferral scheme occur when you ceased employment on XX/XX/XXXX? | A2: Yes. This private ruling applies for the following period: Year ended 30 June 20XX

Relevant facts and circumstances: You were employed with Company A. Whilst employed with Company A, you were listed as a Key Management Person. The Company is an Australian company listed on the Australian Securities Exchange (ASX). While you were employed with the Company, you participated in the Company's deferral ESS being the Long Term Incentive Plan and Equity Incentive Plan. You were granted ESS interests in the form of rights (options) to acquire shares in the Company and provided a summary On XX/XX/XXXX your employment with the Company ended and you continued to hold the ESS interests granted to you. Your ESS interests, vested on XX/XX/XXXX before your employment ended, and were exercised for a total of XXX,XXX shares. A Blackout Period was approved by the Company's board and was in place while you held vested ESS interests (or shares acquired by exercising them). The ESS plan rules indicate at the time you acquired your ESS interests, there were conditions and restrictions on dealing in respect of shares allocated to you on vesting and exercise of your rights, subject to the Company's Securities Trading Policy. The Company's Securities Trading Policy applies to all restricted persons, including Key Management Personnel of the Company. Restrictions include no trading while in possession of inside information and no trading in Blackout Periods. There are serious consequences if the policy is breached such as termination of employment and penalties under the Corporations Act include financial penalties and imprisonment. You provided a copy of emails between you and the Company in relation to selling restrictions of your ESS interests existing at the time your employment ended with the Company and after you cease to be employed with the Company. The Company's closing share price on XX/XX/XXXX was $X.XX per share. The Company issued ESS Statements for the year ended 30 June 20XX which indicates the Discount from deferral schemes with a deferred taxing point arising during the year totals $X,XXX,XXX You subsequently sold a portion of the ESS interests (resulting shares acquired from exercising the rights)

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

Reasons for decision: Summary: The ESS provisions are contained in Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997). ESS interests acquired under a tax-deferred ESS will be assessed for tax purposes in the year in which the deferred taxing point occurs. This type of scheme allows an employee to defer paying tax in relation to their ESS interests, instead of paying tax in the year the interests are acquired. In accordance with subsection 83A-110(1) of the ITAA 1997, the amount assessed will be the market value of the ESS interests at the deferred taxing point, reduced by the cost base of the ESS interests. For an ESS interest that is a right (option) to acquire a share that is granted on or after 1 July 2015, the deferred taxing point will be the earliest of the times provided in subsections 83A-120(4) to (7) of the ITAA 1997, summarised as follows: • The first possible taxing point is when there is no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right (subsection 83A-120(4) of the ITAA 1997) • The second possible taxing point is when the employment ends in respect of which the right was acquired (subsection 83A-120(5) of the ITAA 1997) • The third possible taxing point is fifteen years from the grant date (when you acquired the ESS interest) (subsection 83A-120(6) of the ITAA 1997) • The fourth possible taxing point is exercise the right, and the resulting share is not at a real risk of forfeiture or subject to genuine selling restrictions (subsection 83A-120(7) of the ITAA 1997). Operation of subsection 83A-120(3) of the ITAA 1997 can change the deferred taxing point if an ESS interest (or the share acquired on exercise of the right) is sold within 30 days of the deferred taxing point. The deferred taxing point will instead be the date of that disposal. That is, the deferred taxing point is moved to the sale date if this occurs within 30 days of the date identified by the provision. This is called the 30-day rule. | Detailed Reasoning - Ceasing employment: The second possible taxing point under subsection 83A-120(5) of the ITAA 1997 will be when the employment ends in respect of which the right was acquired. The term 'employment' is not directly defined for the purposes of Division 83A of the ITAA 1997. However, section 83A-330 of the ITAA 1997 provides that for the purpose of Division 83A you will only be treated as ceasing employment when you are no longer employed by any of the following: (a) your employer in that employment; (b) a holding company (within the meaning of the Corporations Act 2001 ) of your employer; (c) a *subsidiary of your employer; (d) a *subsidiary of a holding company (within the meaning of the Corporations Act 2001 ) of your employer. The phrase ' that employment' in this section is not to be read as a requirement that an employee must remain on the same terms of employment if he/she is to ensure a taxing point will not arise under subsection 83A-115(5) of the ITAA 1997 or subsection 83A-120(5) of the ITAA 1997. Rather, section 83A-330 of the ITAA 1997 is to be read as a single requirement that the employee remain employed with the same employer, or employer group. This interpretation of section 83A-330 of the ITAA 1997 informs the operation of subsection 83A-120(5) of the ITAA 1997, such that a cessation of employment, and consequently a taxing point, would not arise where the employee remains employed with the employer. | Detailed Reasoning - Genuine selling restrictions: The fourth possible taxing point under subsection 83A-120(7) of the ITAA 1997 will be the first time that a participant can deal with the resulting share acquired from exercising the right, where there is no real risk of forfeiture and all genuine disposal restrictions ended. The term 'genuine selling restriction' is not defined for the purposes of Division 83A of the ITAA 1997. However, the Explanatory Memorandum (EM) to the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 states the following in relation to genuine selling restrictions for shares and rights to acquire shares: 1.192 Genuine restrictions preventing disposal could include a condition of the scheme that contractually prevents disposal of shares. If disposing of an ESS interest would be a criminal offence, for example under a law regulating insider trading, then the employee would also be considered genuinely restricted from disposing of the share. 1.193 A company's internal share trading policy is only considered to be a restriction preventing disposal for the purposes of deferring the taxing point if the penalty for breaking the policy constitutes an effective sanction. This means that if there is no legal prohibition on the disposal of the ESS interest, there must be serious and enforced consequences for breaching the policy. 1.194 A restriction that otherwise meets the conditions for a genuine restriction, but is able to be lifted in cases of severe financial hardship, is nonetheless considered to be a genuine restriction. 1.195 Restrictions preventing disposal are considered to be lifted once an opportunity arises in which a taxpayer can realise the share. 1.196 In the case of a trading window, or restrictions that may lift and then re-engage, if the employee does not avail themself of the opportunity to dispose of the share and the window subsequently closes, there is no further delay in the taxing point. The taxing point would still be at the commencement of the first trading window. 1.197 The restriction and conditions covered by the deferred taxing points are only those that existed when the employee acquired the ESS interest. Conditions and restrictions that have been added subsequent to acquisition are ignored for the purposes for determining the deferred taxing point. ... 1.200 The taxing point is the point at which the taxpayer can take some action to realise the benefit. It does not matter whether or not they chose to do so. | Detailed Reasoning - Application to your situation: For this private ruling the question is, did the deferred taxing point occur in relation to your ESS interests when you ceased being employed with the Company or when the genuine selling restrictions on the shares acquired on exercise of the right were subsequently lifted? When your ESS vested a Blackout Period was in place and you were unable to dispose of your shares acquired on exercise of the rights. You continued to hold your ESS interests past the date that your employment with the Company ended. When your employment ended the ESS interests were vested, however, as a Key Management Personnel, you were unable to dispose the shares (acquired on exercise of the rights) until you no longer held inside information. Based on the information provided, the particular insider trading restriction was lifted on XX/XX/XXXX. We acknowledge the first date on which you had the opportunity to dispose of your ESS interests was XX/XX/XXXX. However, you ceased employment with the Company on XX/XX/XXXX. With these circumstances, the ending of your employment is the first of the possible taxing points to occur outlined in section 83A-120 of the ITAA 1997. As the ESS interests were not disposed of within 30 days after the deferred taxing point of XX/XX/XXXX, the 30-day rule does not apply. Therefore, you will need to include in your assessable income for the year ended 30 June 20XX the ESS discount amount calculated upon the ending of your employment.