When you acquire a right from an employer, your entitlement to a share or a specific number of shares may be uncertain. This is known as an indeterminate right. For example, you could be given a right to acquire, at a future time any of the following:
When it becomes clear that the right will result in you receiving a share or a specified number of shares, that right is treated as if it was always a right to acquire a share (or the specified number of shares).
Example: Indeterminate rights
Vesna is employed by Bright Heart Ltd. On 14 April 2010, Bright Heart Ltd provides Vesna with a right to acquire either shares in the company or cash, to be determined by Bright Heart Ltd at some time in the future. Vesna pays no consideration for this right. Vesna does not receive any other ESS interests in 2009–10.
The right is not subject to a real risk of forfeiture.
When Vesna acquires the right she doesn't have rights to shares, as her employer has not determined that she will definitely receive shares.
On 10 May 2013, Bright Heart Ltd decides to give Vesna 600 shares to satisfy her right. Her original right is now treated as if it had always been rights to acquire 600 shares from the time it was acquired on 14 April 2010. Those rights were acquired under a taxed-upfront scheme eligible for reduction.
As the rights to shares were acquired under a taxed upfront scheme eligible for reduction, and the discount must be included in Vesna's assessable income in the acquisition year, Bright Heart Ltd must give Vesna an amended ESS statement for the 2009–10 financial year, within 30 days of Bright Heart Ltd determining that Vesna will definitely receive shares. Ordinarily, Vesna's assessments can only be amended within a two-year period. However, the ESS rules for indeterminate rights provide that Vesna's assessment can be amended at any time to include the discount in the 2009–10 financial year.
Vesna amends item 12 Employee share schemes on her 2010 tax return. Vesna can reduce her discount by $1,000 if eligible.
End of example