Class Ruling CR 2021/84

What this ruling is about: 1. This Ruling sets out the income tax consequences for employees of Faethm Holdings Pty. Limited (Faethm) who were granted options under the Faethm Employee Option Plan (FEOP) which were subsequently disposed of pursuant to the scheme of arrangement initiated on 19 May 2021. 2. Full details of this scheme are set out in paragraphs 7 to 30 of this Ruling. 3. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Who this Ruling applies to 4. This Ruling applies to you if you: When this Ruling applies 5. This Ruling applies from 1 July 2020 to 30 June 2022. 6. The Commissioner will exercise the discretion under paragraph 83A-45(5)(a) to allow the minimum holding period for all options that qualify for concessional treatment under section 83A-33 and acquired under the FEOP to end at the earlier time of 21 September 2021. 7. The following description of the scheme is based on information provided by the Applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. 8. Other information referenced is the Faethm Employee Option Plan Rules (FEOP Rules). Faethm Holdings Pty. Limited 9. Faethm is an Australian-resident company incorporated on 4 October 2018. It does not have, and has never had, equity interests listed on a stock exchange. 10. Faethm is the head company of an income tax consolidated group. It has two wholly-owned subsidiaries both of which have never been listed on a stock exchange: 11. Faethm and its wholly-owned subsidiaries conduct a business of developing management software. 12. Faethm has 758,253 ordinary shares and 235,594 preference shares on issue (Faethm Shares). Faethm Holdings Pty. Ltd Employee Option Plan Rules 13. In July 2020, Faethm established the FEOP. 14. The FEOP provides for options to subscribe for fully-paid ordinary shares in Faethm to be granted where vesting conditions are satisfied. 15. As at November 2020, Faethm has issued a total of 213,580 options under the FEOP, of which 73,127 were unvested, 114,501 vested and 25,952 have lapsed. 16. The FEOP is an employee share scheme for the purposes of section 83A-10. 17. The purpose of the FEOP is to provide employees with an opportunity to share in the growth in value of the shares of Faethm and to encourage them to improve the performance of the Faethm Group's return to shareholders. It is intended that the plan will enable the Faethm Group to retain and attract skilled and experienced employees and provide them with the motivation to make the Faethm Group more successful. 18. The FEOP Rules detail the default vesting conditions which specify that: 19. Where there is an exit event, the FEOP Rules stipulate that all unvested options granted at least one year prior to the date of the exit event will automatically vest immediately prior to the exit event. Any other unvested options granted less than one year prior may vest at the Board's discretion. 20. The FEOP describes an exit event as a listing, a business sale, or a share sale, other than a restructure. 21. Rule 7.4 of the FEOP Rules imposes a restriction on the disposal of options stipulating that a legal or a beneficial interest in an option may not be disposed of until the earlier of: 22. Faethm has always operated in accordance with the FEOP's primary objective to retain staff and any options provided in accordance with the FEOP were required to be held by employees for a minimum of three years. 23. Faethm and the FEOP satisfy the requirements under section 83A-33 allowing employees to access the start-up concession with respect to how the options are treated. 24. Specifically, the FEOP satisfies subparagraphs 83A-45(5)(a)(i) and (ii) as: 25. If the scheme had not proceeded the option holders would continue to be bound by the disposal prohibition in Rule 7.4 of the FEOP Rules. Share Purchase Agreement 26. Faethm's initial strategy for raising funds was to complete a capital raise during the middle of 2021. 27. During the process of discussions with potential investors, Pearson Australia Holdings Pty Ltd (Pearson) expressed an interest in acquiring the shares in Faethm. 28. Specifically, on 19 May 2021 discussions with Pearson shifted from the perspective of Faethm raising capital to the commencement of discussions with Pearson of a share sale. Following discussions and negotiations, an eventual completion of this proposed transaction took place on 21 September 2021. 29. Pursuant to the terms of the Share Purchase Agreement (SPA), all of Faethm's ordinary and preference shares on issue were sold to Pearson. This transaction did not apply to options and essentially Faethm was required to buy-back all vested options on issue for an amount determined with reference to the definition of the Option Holder Cash Payment Amount as defined in the SPA. This transaction was considered an exit event under the FEOP. 30. Under Rule 10.2 of the FEOP Rules, the Board notified option holders of the exit event and provided reasonable details of the event. The Board also enacted Rule 10.2(b)(i) of the FEOP Rules which required the Board to cancel some or all of the vested options by paying the option holder the amount per ordinary share that will be paid under the exit event, less the option holder's proportionate share of transaction costs. Commissioner of Taxation 1 December 2021 Minimum holding period 31. The options acquired under the FEOP were ESS interests subject to Division 83A. 32. Section 83A-25 operates to include the discount a participant receives in relation to their options in their assessable income in the year in which they acquired the options. 33. Section 83A-33 operates to reduce the amount included in a participant's assessable income under section 83A-25 if certain conditions are met. One of the conditions that must be met and relevant to the current scheme relates to the minimum holding period requirements which are set out in subsections 83A-45(4) and (5) as follows: 34. Under Rule 7.4 of the FEOP Rules, option holders are unable to dispose of their options unless three years had passed from the time of acquisition, the employment ceased or the disposal was under an arrangement which met the requirements of section 83A-130. 35. The Commissioner is satisfied that Faethm had intended, at the time that the options were acquired by the employees, that the employees would be unable to dispose of the options during the three years following their acquisition unless the employee ceased to be employed by Faethm. Relevantly, no options were issued to employees after the discussions with Pearson for a share sale commenced on 19 May 2021. 36. The purchase of the options by Faethm took place at the same time as the disposal of shares to Pearson took place. 37. Accordingly, the Commissioner is satisfied that the requirements in subparagraphs 83A-45(5)(a)(i) and (ii) are met. Thus, for the options that qualify for concessional treatment under section 83A-33, the Commissioner will allow the minimum holding period to be the period starting from the time the options were acquired on or around 10 July 2020 until the time the scheme was completed on 21 September 2021. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Class of entities or scheme: 7. The following description of the scheme is based on information provided by the Applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. 8. Other information referenced is the Faethm Employee Option Plan Rules (FEOP Rules). | Faethm Holdings Pty. Limited: 9. Faethm is an Australian-resident company incorporated on 4 October 2018. It does not have, and has never had, equity interests listed on a stock exchange. 10. Faethm is the head company of an income tax consolidated group. It has two wholly-owned subsidiaries both of which have never been listed on a stock exchange: 11. Faethm and its wholly-owned subsidiaries conduct a business of developing management software. 12. Faethm has 758,253 ordinary shares and 235,594 preference shares on issue (Faethm Shares). | Faethm Holdings Pty. Ltd Employee Option Plan Rules: 13. In July 2020, Faethm established the FEOP. 14. The FEOP provides for options to subscribe for fully-paid ordinary shares in Faethm to be granted where vesting conditions are satisfied. 15. As at November 2020, Faethm has issued a total of 213,580 options under the FEOP, of which 73,127 were unvested, 114,501 vested and 25,952 have lapsed. 16. The FEOP is an employee share scheme for the purposes of section 83A-10. 17. The purpose of the FEOP is to provide employees with an opportunity to share in the growth in value of the shares of Faethm and to encourage them to improve the performance of the Faethm Group's return to shareholders. It is intended that the plan will enable the Faethm Group to retain and attract skilled and experienced employees and provide them with the motivation to make the Faethm Group more successful. 18. The FEOP Rules detail the default vesting conditions which specify that: 19. Where there is an exit event, the FEOP Rules stipulate that all unvested options granted at least one year prior to the date of the exit event will automatically vest immediately prior to the exit event. Any other unvested options granted less than one year prior may vest at the Board's discretion. 20. The FEOP describes an exit event as a listing, a business sale, or a share sale, other than a restructure. 21. Rule 7.4 of the FEOP Rules imposes a restriction on the disposal of options stipulating that a legal or a beneficial interest in an option may not be disposed of until the earlier of: 22. Faethm has always operated in accordance with the FEOP's primary objective to retain staff and any options provided in accordance with the FEOP were required to be held by employees for a minimum of three years. 23. Faethm and the FEOP satisfy the requirements under section 83A-33 allowing employees to access the start-up concession with respect to how the options are treated. 24. Specifically, the FEOP satisfies subparagraphs 83A-45(5)(a)(i) and (ii) as: 25. If the scheme had not proceeded the option holders would continue to be bound by the disposal prohibition in Rule 7.4 of the FEOP Rules. | Share Purchase Agreement: 26. Faethm's initial strategy for raising funds was to complete a capital raise during the middle of 2021. 27. During the process of discussions with potential investors, Pearson Australia Holdings Pty Ltd (Pearson) expressed an interest in acquiring the shares in Faethm. 28. Specifically, on 19 May 2021 discussions with Pearson shifted from the perspective of Faethm raising capital to the commencement of discussions with Pearson of a share sale. Following discussions and negotiations, an eventual completion of this proposed transaction took place on 21 September 2021. 29. Pursuant to the terms of the Share Purchase Agreement (SPA), all of Faethm's ordinary and preference shares on issue were sold to Pearson. This transaction did not apply to options and essentially Faethm was required to buy-back all vested options on issue for an amount determined with reference to the definition of the Option Holder Cash Payment Amount as defined in the SPA. This transaction was considered an exit event under the FEOP. 30. Under Rule 10.2 of the FEOP Rules, the Board notified option holders of the exit event and provided reasonable details of the event. The Board also enacted Rule 10.2(b)(i) of the FEOP Rules which required the Board to cancel some or all of the vested options by paying the option holder the amount per ordinary share that will be paid under the exit event, less the option holder's proportionate share of transaction costs. Commissioner of Taxation 1 December 2021

Ruling: 1. This Ruling sets out the income tax consequences for employees of Faethm Holdings Pty. Limited (Faethm) who were granted options under the Faethm Employee Option Plan (FEOP) which were subsequently disposed of pursuant to the scheme of arrangement initiated on 19 May 2021. 2. Full details of this scheme are set out in paragraphs 7 to 30 of this Ruling. 3. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. | Who this Ruling applies to: 4. This Ruling applies to you if you: | When this Ruling applies: 5. This Ruling applies from 1 July 2020 to 30 June 2022. 6. The Commissioner will exercise the discretion under paragraph 83A-45(5)(a) to allow the minimum holding period for all options that qualify for concessional treatment under section 83A-33 and acquired under the FEOP to end at the earlier time of 21 September 2021. 7. The following description of the scheme is based on information provided by the Applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. 8. Other information referenced is the Faethm Employee Option Plan Rules (FEOP Rules). | Faethm Holdings Pty. Limited: 9. Faethm is an Australian-resident company incorporated on 4 October 2018. It does not have, and has never had, equity interests listed on a stock exchange. 10. Faethm is the head company of an income tax consolidated group. It has two wholly-owned subsidiaries both of which have never been listed on a stock exchange: 11. Faethm and its wholly-owned subsidiaries conduct a business of developing management software. 12. Faethm has 758,253 ordinary shares and 235,594 preference shares on issue (Faethm Shares). | Faethm Holdings Pty. Ltd Employee Option Plan Rules: 13. In July 2020, Faethm established the FEOP. 14. The FEOP provides for options to subscribe for fully-paid ordinary shares in Faethm to be granted where vesting conditions are satisfied. 15. As at November 2020, Faethm has issued a total of 213,580 options under the FEOP, of which 73,127 were unvested, 114,501 vested and 25,952 have lapsed. 16. The FEOP is an employee share scheme for the purposes of section 83A-10. 17. The purpose of the FEOP is to provide employees with an opportunity to share in the growth in value of the shares of Faethm and to encourage them to improve the performance of the Faethm Group's return to shareholders. It is intended that the plan will enable the Faethm Group to retain and attract skilled and experienced employees and provide them with the motivation to make the Faethm Group more successful. 18. The FEOP Rules detail the default vesting conditions which specify that: 19. Where there is an exit event, the FEOP Rules stipulate that all unvested options granted at least one year prior to the date of the exit event will automatically vest immediately prior to the exit event. Any other unvested options granted less than one year prior may vest at the Board's discretion. 20. The FEOP describes an exit event as a listing, a business sale, or a share sale, other than a restructure. 21. Rule 7.4 of the FEOP Rules imposes a restriction on the disposal of options stipulating that a legal or a beneficial interest in an option may not be disposed of until the earlier of: 22. Faethm has always operated in accordance with the FEOP's primary objective to retain staff and any options provided in accordance with the FEOP were required to be held by employees for a minimum of three years. 23. Faethm and the FEOP satisfy the requirements under section 83A-33 allowing employees to access the start-up concession with respect to how the options are treated. 24. Specifically, the FEOP satisfies subparagraphs 83A-45(5)(a)(i) and (ii) as: 25. If the scheme had not proceeded the option holders would continue to be bound by the disposal prohibition in Rule 7.4 of the FEOP Rules. | Share Purchase Agreement: 26. Faethm's initial strategy for raising funds was to complete a capital raise during the middle of 2021. 27. During the process of discussions with potential investors, Pearson Australia Holdings Pty Ltd (Pearson) expressed an interest in acquiring the shares in Faethm. 28. Specifically, on 19 May 2021 discussions with Pearson shifted from the perspective of Faethm raising capital to the commencement of discussions with Pearson of a share sale. Following discussions and negotiations, an eventual completion of this proposed transaction took place on 21 September 2021. 29. Pursuant to the terms of the Share Purchase Agreement (SPA), all of Faethm's ordinary and preference shares on issue were sold to Pearson. This transaction did not apply to options and essentially Faethm was required to buy-back all vested options on issue for an amount determined with reference to the definition of the Option Holder Cash Payment Amount as defined in the SPA. This transaction was considered an exit event under the FEOP. 30. Under Rule 10.2 of the FEOP Rules, the Board notified option holders of the exit event and provided reasonable details of the event. The Board also enacted Rule 10.2(b)(i) of the FEOP Rules which required the Board to cancel some or all of the vested options by paying the option holder the amount per ordinary share that will be paid under the exit event, less the option holder's proportionate share of transaction costs. Commissioner of Taxation 1 December 2021 | Minimum holding period: 31. The options acquired under the FEOP were ESS interests subject to Division 83A. 32. Section 83A-25 operates to include the discount a participant receives in relation to their options in their assessable income in the year in which they acquired the options. 33. Section 83A-33 operates to reduce the amount included in a participant's assessable income under section 83A-25 if certain conditions are met. One of the conditions that must be met and relevant to the current scheme relates to the minimum holding period requirements which are set out in subsections 83A-45(4) and (5) as follows: 34. Under Rule 7.4 of the FEOP Rules, option holders are unable to dispose of their options unless three years had passed from the time of acquisition, the employment ceased or the disposal was under an arrangement which met the requirements of section 83A-130. 35. The Commissioner is satisfied that Faethm had intended, at the time that the options were acquired by the employees, that the employees would be unable to dispose of the options during the three years following their acquisition unless the employee ceased to be employed by Faethm. Relevantly, no options were issued to employees after the discussions with Pearson for a share sale commenced on 19 May 2021. 36. The purchase of the options by Faethm took place at the same time as the disposal of shares to Pearson took place. 37. Accordingly, the Commissioner is satisfied that the requirements in subparagraphs 83A-45(5)(a)(i) and (ii) are met. Thus, for the options that qualify for concessional treatment under section 83A-33, the Commissioner will allow the minimum holding period to be the period starting from the time the options were acquired on or around 10 July 2020 until the time the scheme was completed on 21 September 2021. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft


Appendix: Minimum holding period: 31. The options acquired under the FEOP were ESS interests subject to Division 83A. 32. Section 83A-25 operates to include the discount a participant receives in relation to their options in their assessable income in the year in which they acquired the options. 33. Section 83A-33 operates to reduce the amount included in a participant's assessable income under section 83A-25 if certain conditions are met. One of the conditions that must be met and relevant to the current scheme relates to the minimum holding period requirements which are set out in subsections 83A-45(4) and (5) as follows: 34. Under Rule 7.4 of the FEOP Rules, option holders are unable to dispose of their options unless three years had passed from the time of acquisition, the employment ceased or the disposal was under an arrangement which met the requirements of section 83A-130. 35. The Commissioner is satisfied that Faethm had intended, at the time that the options were acquired by the employees, that the employees would be unable to dispose of the options during the three years following their acquisition unless the employee ceased to be employed by Faethm. Relevantly, no options were issued to employees after the discussions with Pearson for a share sale commenced on 19 May 2021. 36. The purchase of the options by Faethm took place at the same time as the disposal of shares to Pearson took place. 37. Accordingly, the Commissioner is satisfied that the requirements in subparagraphs 83A-45(5)(a)(i) and (ii) are met. Thus, for the options that qualify for concessional treatment under section 83A-33, the Commissioner will allow the minimum holding period to be the period starting from the time the options were acquired on or around 10 July 2020 until the time the scheme was completed on 21 September 2021. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | during the scheme interest's minimum holding period. | Note: This subsection is taken to apply in the case of a takeover or restructure: see subsection 83A-130(3).


Legislative references: ITAA 1936 6(1) ITAA 1997 Div 83A ITAA 1997 83A-10 ITAA 1997 83A-25 ITAA 1997 83A-33 ITAA 1997 83A-45(4) ITAA 1997 83A-45(5) ITAA 1997 83A-45(5)(a) ITAA 1997 83A-45(5)(a)(i) ITAA 1997 83A-45(5)(a)(ii) ITAA 1997 83A-130 ITAA 1997 83A-130(3) ITAA 1997 83A-305 ITAA 1997 83A-325 ITAA 1997 Div 230 ITAA 1997 995-1(1) TAA 1953 Corporations Act 2001