Private ruling: Employee share scheme - minimum holding period
Date of advice: 31 March 2026
Published: 15 June 2026
Ruling period: Year ending 30 June 2026
Date scheme commenced: 1 July 2025

Ruling: Q1: Will the Commissioner exercise his discretion under paragraph 83A-45(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the minimum holding period for all ESS interests that qualify for concessional treatment under section 83A-33 to be reduced? | A1: Yes.

Relevant facts and circumstances: Company X an Australian resident company. Acquisition Company is a global company. Employee Share Option Plan (the ESOP) On (date), Company X introduced the ESOP for the purpose of incentivising and rewarding employees of the company. Company X granted employees options to acquire ordinary shares in Company X ( Options ), which were subject to the terms of the employees' individual offer letters and the ESOP Rules ( Plan Rules ). There have been various allotments of Options since the Plan Rules were introduced. Some of these Options have been exercised for shares ( Option Shares ). The ESOP operated in a way that prevented employees from disposing of their Options and Option Shares within 3 years of acquiring the Options unless: a) the Options were disposed of under section 83A-130; b) the relevant employee ceased their employment; or c) the Commissioner allowed an earlier time in accordance with section 83A-45(5). Share Purchase Agreement (SPA) On (date), the shareholders of Company X entered into an arrangement, pursuant to the SPA, for the sale of 100% of the shares in Company X to an unrelated party, Acquisition Company (the Purchaser). The arrangement is referred to as the Takeover. The Takeover was completed on (date). The Company X shares sold in the Takeover constituted all the issued shares in Company X. Pursuant to the terms of the SPA, each of the Option holders were required to exercise all of their Options shortly before completion of the Takeover and the resulting shares comprised a portion of the sale shares under the SPA. The Company was not approached by Acquisition Company until some time after the options were issued. Therefore, at the time all the ESS interests were granted, there was no indication that a sale would occur. Prior to the takeover, a number of offers were made to Company X, but none of which progressed. There were 2 individuals who held their Options for less than the minimum holding period of 3 years, but had held their interests for more than 2 years before the takeover. The Options acquired under the ESOP by the participants were ESS interests subject to Division 83A.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 section 83A-25 | Income Tax Assessment Act 1997 section 83A-33 | Income Tax Assessment Act 1997 subsection 83A-45(4) to (6) | Income Tax Assessment Act 1997 subparagraph 83A-45(5)(a) | Income Tax Assessment Act 1997 section 83A-130

Reasons for decision: Summary: Section 83A-25 operates to include the discount the participant receives in relation to their Options in their assessable income for the year in which they acquired the Options. Section 83A-33 operates to reduce the amount included in the participants' assessable income under section 83A-25 if certain conditions are met. One of the conditions that must be met is the minimum holding period outlined in subsections 83A-45(4) to (6). The minimum holding period is the earlier of 3 years from when the Options were acquired or when the acquirer of the interest ceased employment with Company X. However, the Commissioner can allow an earlier period if the Commissioner is satisfied that: • Company X intended that the requirements as set out in subsection 83A-45(4) would apply to the Options during the 3 years (subparagraph 83A-45(5)(a)(i)), and • at the earlier time that the Commissioner allows, all Company X shares were disposed of under a particular scheme (subparagraph 83A-45(5)(a)(ii)). The Commissioner is satisfied that Company X, being the operator of the scheme, intended the requirements as set out in subsection 83A-45(4) would apply to the Options during the 3 years. This is reflected in, for example: • the Plan Rules which prevented the participants from disposing of the Options until the earlier of the 3 year anniversary of the date the Options were acquired or the day after the date they ceased to be employed; • the fact that Company X was not approached by Acquisition Company until some time after the options were issued; and • that most of the employees with interests under the Plan Rules did in fact hold their interests for more than 3 years; and that the remaining 2 employees that did not had held their interests for more than 2 years. It is accepted that at the time all the ESS interests were granted, there was no indication that a sale would occur. Under the SPA, all the shares in Company X were purchased by Acquisition Company. Accordingly, the Commissioner is satisfied that the requirements of subparagraphs 83A-45(5)(a)(i) and (ii) are met and will allow the minimum holding period in respect of the vested Options to end at the earlier time of (date).