Private ruling: Employee share schemes
Date of advice: 14 January 2022
Published: April 2022
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can the discount on the vested portion of the employee share schemes (ESS) interests granted to you under a deferred ESS be assessed in the income year ended 30 June 20XX? | A1: Yes. This private ruling applies for the following periods: Year ended 30 June 20XX Year ended 30 June 20XX

Relevant facts and circumstances: You are an employee of an Australian subsidiary of a foreign listed company. You participated in the Company's ESS and received ESS interests in the form of Restricted Stock Units (RSUs) under a tax deferral scheme. You provided a copy of the Notice of Grant and Exhibits You provided a copy of the Release Confirmation The Company issued an ESS Statement for the income year ended 30 June 20XX which indicates the Discount from deferral schemes with a deferred taxing point arose during the income year. The deferred taxing point being the vesting date. You provided a copy of the Company's Insider Trading Policy (the Policy) that applies to you. The Policy indicates any violation of law or the Policy may lead to severe sanctions by the Company as well as the government. Restrictions include no transactions of Company securities during quarterly trading backout periods. The relevant clauses state: To limit the likelihood of trading at times when there is a significant risk of insider trading exposure, the Company has instituted quarterly trading blackout periods and may institute special trading blackout periods from time to time. ... Quarterly blackout periods Except as described in the section entitled "Limited Exceptions", directors, executive officers and other employees and agents identified by the Company must refrain from conducting transactions involving the Company's securities during quarterly blackout periods, you should exercise caution when engaging in transactions during quarterly blackout periods because the heightened risk of insider trading exposure. Quarterly blackout periods for those individuals listed on Schedule I......begin at the end of the trading day two weeks prior to the end of each fiscal quarter and end at the start of the second full trading day following the date of public disclosure of the financial results for that fiscal quarter. ... Limited Exceptions Receipt and vesting of stock options, restricted stock units, restricted stock awards and stock appreciation rights The trading restrictions under this Policy do not apply to the grant or award to you of stock options, restricted stock units, restricted stock awards and stock appreciation rights by the Company. The trading restrictions under this Policy also do not apply to the vesting, cancellation or forfeiture of stock options, restricted stock units, restricted stock awards or appreciation rights in accordance with applicable plans and agreements. However the trading restrictions do apply to any subsequent sales of any such securities, except as specifically provided below under the heading "Sale of shares to cover tax withholdings" You provided a copy of two relevant emails both received by you on XX/XX/XXXX. The first email notifies you the trading blackout period has begun. The second email was received approximately XX hours later, confirms the registry received confirmation from the Company, shares of the RSU were released (RSUs have vested). You advised the trading blackout period lifted on XX/XX/XXXX. The ESS interests that vested during the income year ended 30 June 20XX (or the resulting Company shares) were then immediately sold after the blackout period and after the vesting date. You provided a copy of the Securities Trade Confirmation certificate You are still employed with the Company.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 83A | Income Tax Assessment Act 1997 Division 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. 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 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 - 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, that is, 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. On 15 October 2021 the Commissioner of Taxation released draft Taxation Determination TD 2021/D5 Income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? (TD 2021/D5). The draft determination sets out the principles for working out when a scheme's disposal restrictions were 'genuine disposal restrictions' and, if they were, when you are no longer genuinely restricted by the scheme for the purposes of determining the ESS deferred taxing point. Paragraph 28 and 29 of TD 2021/D5 are particularly relevant and provide: A scheme's genuine disposal restrictions will no longer restrict you on the first date on which you have an opportunity to dispose of your ESS interest. This will be the first time you can take some action to deal with or realise your ESS interest (paragraph 28) Further, It does not matter whether you in fact take action or whether the lifting of trading restrictions only occurs temporarily (for example, during a short-term trading window after which restrictions are reimposed). The scheme will no longer restrict you at the commencement of the first trading window, or the first trading day after the restrictions are lifted, even if they are lifted only temporarily (paragraph 29) | Detailed Reasoning - Application to your situation: The Company has reported that the deferred taxing point happened on the vesting date, in line with the vesting schedule. The vesting date appears to be the last day of an open trading window. The Company did not impose the blackout period until normal trading hours on the exchange ended. Based on our analysis, we are satisfied the restriction on trading Company shares during quarterly blackout periods is a genuine selling restriction under the ESS provisions. For this private ruling we considered whether you could take action to sell your ESS interest (or resulting shares) on vesting date, prior to the close of trade and commencement of the blackout period. You were aware upon the grant of your ESS interests of the vesting date and start date of the relevant blackout period. The registry is an electronic trading platform allowing online access 24 hours a day. This would provide you the opportunity to arrange sale of your resulting shares whilst residing in a different Time Zone. However, you did not receive confirmation the vested RSUs were paid (resulting shares were released) until after commencement of the trading blackout period. Upon weighing up these factors we believe you were genuinely restricted from selling the shares at vesting date until the blackout period was subsequently lifted. Therefore, we consider the deferred taxing point occurred in the following income year when you first had the opportunity to take action to dispose of your ESS interest. As you disposed of your shares within 30 days of the time worked out under subsection 83A-120(7), the time of disposal of shares will be the ESS deferred taxing point. Under section 83A-110, the amount to be included as assessable income, in the income year in which the ESS deferred taxing point occurs, is the market value of the ESS interest at the ESS deferred taxing point, reduced by the cost base of the ESS interest.