Private ruling: ESS minimum holding period discretion
Date of advice: 13 February 2026
Published: 30 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 83A-45(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the minimum holding period for the Options issued under the Company's employee share plans to end at an earlier time, namely, at the date on which the Company's shares are disposed of to the Purchaser under the Share Sale Deed? | A1: Yes.

Relevant facts and circumstances: The Company is an Australian proprietary limited company that is incorporated. The Company operates the Plan as part of its strategy, pursuant to the Rules. The Company's Plan Under the Plan, the Company has discretion to invite Participants to the terms in accordance with the Rules. The Company granted Options to Participants prior to the relevant date. Each Option entitles the Participant to acquire a share in the Company. Compliance The Company has stated that all Options were granted with the intention that they qualify for the ESS start-up concession under Subdivision 83A-B of the ITAA 1997. The Rules provide that the Participants are not permitted to dispose of their Options during the minimum holding period required under subsections 83A-45(4) and 83A-45(5) of the ITAA 1997. The Company has not allowed any Participant to dispose of their Options before the end of the relevant minimum holding period. At the time of granting the final tranche of Options, there was no indication that the Proposed Transaction would occur. Proposed Transaction The Company entered into negotiations with the Purchaser, who initiated the Proposed Transaction. Later, the Company entered into a non-binding contract with the Purchaser, under which it is proposed that the purchaser will acquire the issued and outstanding shares and options of the Company. The transaction will be negotiated on arm's length terms and will be documented between the Company and the Purchaser. Participants Under the terms of the Proposed Transaction, immediately prior to completion, all Participants must exercise their Options. Participants will be required to dispose of their shares to the Purchaser. Participants cannot retain either the Options or the shares following completion. Participants cannot prevent, delay or alter the Proposed Transaction. The disposal of their ESS interest is effectively compulsory in order for the Proposed Transaction to be completed. Timing The disposal of the Options in connection with the Proposed Transaction will occur within the minimum holding period issued under the Plan.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 83A-35 | Income Tax Assessment Act 1997 section 83A-45 | Income Tax Assessment Act 1997 section 83A-105

Reasons for decision: Summary: The Commissioner will exercise the discretion in paragraph 83A-45(5)(a) of the ITAA 1997 to allow the minimum holding period for Options acquired under the Option Plan to end on the completion date of the Proposed Transaction, on the basis that special circumstances exist and the Plan has otherwise been operated in accordance with Subdivision 83A of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: An employee share scheme (ESS) is a scheme under which ESS interests, being shares, stapled securities, or rights (including Options) to acquire such interests are provided to employees or their associates in relation to employment. An option grants the holder the right, but not the obligation, to acquire a share at a specified exercise price within a defined period. Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) contains the ESS tax rules. Where an ESS interest is acquired under a tax-deferred scheme, the discount is included in the employee's assessable income at the ESS deferred taxing point under section 83A-105 of the ITAA 1997 (rights). Valuation rules are contained in section 83A-120 of the ITAA 1997. Commissioner's Discretion Subsection 83A-45(5) of the ITAA 1997 provides the Commissioner with the discretion to allow a shorter minimum holding period in relation to an ESS interest where it is appropriate in the circumstances. 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. ESS start-up concessions Where the ESS interests are issued under the start-up concessions in Subdivision 83A-B of the ITAA 1997, the assessment of intention for subsection 83A-45(4) of the ITAA 1997 focuses on whether the operator intended, and in practice ensured, that the disposal restrictions required by section 83A-33 of the ITAA 1997 were observed throughout the minimum holding period. The requirement will be satisfied where it is reasonable to conclude that the operator of a scheme established under the start-up concessions, permitted no disposal of interests within the minimum holding period, or there is objective evidence that the scheme was administered to prevent such disposals and was not operated in a manner inconsistent with paragraph 83A-45(5)(a)(i) of the ITAA 1997. Application to circumstances The Company granted Options under its employee share scheme with the intention that the Options qualify for the start-up concessions in Subdivision 83A-B of the ITAA 1997. The Company states that the Plan has been operated consistently with the disposal restrictions and minimum holding period requirements in subsections 83A-45(4) and 83A-45(5) of the ITAA 1997, and that Participants were not allowed to dispose of their Options during the minimum holding period. The transaction was initiated entirely by the Purchaser. Completion of this transaction requires Option holders to exercise and dispose of their interests, even if this occurs within the minimum holding period. Participants cannot prevent, delay or alter the Proposed Transaction and disposal is effectively compulsory. The Commissioner generally accepts that early disposal resulting from a genuine arm's length corporate transaction that requires all shareholders or option holders to dispose of their interests constitutes a special circumstance. In such cases, compulsory disposal is regarded as outside the employee's control and is consistent with the policy intent underlying the minimum holding period rules. Given that, the Plan was operated in accordance with Subdivision 83A of the ITAA 1997, no disposals were permitted during the minimum holding period, the early disposal arises solely due to the arm's length Proposed Transaction, and all membership interests will be disposed of under a single scheme. It is appropriate for the Commissioner to allow the minimum holding period to end at Completion of the Proposed Transaction. Accordingly, the Commissioner will exercise the discretion under paragraph 83A-45(5)(a) of the ITAA 1997.