Employee share schemes - indeterminate rights

What is an indeterminate right?

Division 83A of the Income Tax Assessment Act 1997 (Division 83A) contains employee share scheme rules (ESS rules) that apply to shares, rights and stapled securities acquired on or after 1 July 2009. Division 83A also introduces the concept of an indeterminate right being a beneficial interest in a right that may later become a right to acquire a beneficial interest in a share. Where such a right is acquired after 30 June 2009, Division 83A is taken to have applied as if the right had always been an ESS interest (a right to acquire a share). For information about rights acquired before 1 July 2009, see Indeterminate rights before 1 July 2009.

For example, a company may grant rights to acquire:

• shares with a specified total value, rather than a specified number of shares
• an indeterminate number of shares, the number being dependent on the share price at a time in the future
• either shares or cash (at the discretion of your employer).

These rights are known as indeterminate rights.

The indeterminate rights may become rights to acquire shares upon the occurrence of certain events, including:

• when shares are provided in satisfaction of the rights
• when the company makes a decision to satisfy the rights with shares
• when the number of shares that will be provided in satisfaction of the rights can be determined.

Sections within What is an indeterminate right?

• Example 1: Employer's discretion to satisfy rights with shares or cash - employee receives shares
• Example 2: Employer's discretion to satisfy rights with shares or cash - employee receives cash
• Example 3: Indeterminate rights where an employee has a deferred taxing point in earlier income year
• Example 4: Indeterminate rights are forfeited or lapse
• Example 5: Indeterminate rights - number of shares cannot be determined at grant
• Example 6: No indeterminate rights - rights to shares vest subject to performance conditions
• Example 7: Indeterminate rights - rights to shares subject to shareholder approval
• Example 8: No indeterminate rights - shareholder approval to grant rights to shares