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Edited version of private ruling
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Ruling
Subject: Employee Share Scheme
Reasons for decision
Question 1
Will the Commissioner confirm that the grant by taxpayer of the Rights to the employees will not constitute a "fringe benefit" for the purposes of section 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Answers
Yes
Detailed reasoning
1. A "fringe benefit" is defined in section 136(1) of the FBTAA as, broadly, a benefit provided to an employee by their employer in respect of their employment. The definition also contains a number of exclusions; in particular, section 136(l)(h) states that a "fringe benefit" does not include a benefit constituted by the acquisition of an "ESS interest" under an employee share scheme to which Subdivision 83A-B or 83A-C of the ITAA 1997 applies.
2. Division 83A of the ITAA 1997 provides the specific regime for the taxation of "ESS interests" acquired at a discount under an "employee share scheme". It applies to ESS interests acquired on or after 1 July 2009 and replaced the previous regime contained in Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).
3. "ESS interest" is defined in section 83A-10(1) of the ITAA 1997 to mean a beneficial interest in either:
(i) a share of the company; or
(ii) a right to acquire a beneficial interest in a share in the company
4. When the Rights are granted to Employees, the precise number of shares to which the Employee is entitled cannot be determined and will be determined at a future time when the Determination is made. A right will not fall within the definition of ESS interest in section 83A-10(1) of the ITAA 1997, where the number of company shares the Employee is entitled to acquire cannot be determined at the time of grant but will be determined at a future time.
5. Section 83A-340 of the ITAA 1997 states that, if a beneficial interest in a right is acquired and that right later becomes a right to acquire a beneficial interest in a share, Division 83A applies as if the right had always been a right to acquire the beneficial interest in the share (that is, it is treated as having always been an "ESS interest").
6. Section 83A-340 of the ITAA 1997 provides the example of a right to acquire, at a future time, shares with a specified total value rather than a specified number of shares or rights to acquire an indeterminate number of shares. However, the right is only treated as if it had always been an 'ESS interest" if and when it becomes clear that it will ultimately be satisfied by the issue of a definite number of shares.
7. The above is further explained in the Explanatory Memorandum (EM) to the Tax Laws Amendment (2009 Budget Measures No 2) Bill 2009 at paragraphs 1.367 as follows:
At the time of acquisition it may be unclear whether a right to an employment benefit will result in the receipt of an ESS interest, or it may be unascertainable how many ESS interests will be received. In such circumstances, that right will be considered to have been an ESS interest from the time that the original right to an employment benefit was acquired, if and when it becomes clear that the right to the employment benefit will result in the receipt of a definite number of ESS interests.
8. The grant of Rights constitutes a "benefit" for FBT purposes, having regard to the definition of that term in section 136(1) of the FBTAA.
9. At the time the Rights are granted it may be considered unclear if paragraph (h) of the definition of fringe benefit in section 136(1) of the FBTAA applies because, at that time, the Employee has not acquired rights that are ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997.
10. Although the Rights are not ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997 at the time they are granted, when the Determination is made:
· the Rights will, pursuant to section 83A-340 of the ITAA 97, be treated as if they had always been ESS interests; and
· as they will constitute the acquisition of ESS interests acquired under an employee share scheme (within the meaning of the ITAA 1997) to which Subdivision 83A-C of the ITAA 97 applies (see reasoning in question 4), they will be excluded from the definition of fringe benefit by paragraph 136(1)(h) of the FBTAA.
11. Therefore, the grant of the Rights to Employees in relation to their employment will be excluded from the definition of fringe benefit by paragraph 136(1)(h) of the FBTAA.
Question 2
Will the Commissioner confirm that taxpayer is not required under section 392-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to provide a statement to the Commissioner and to the Employees in the circumstances and within the time limits outlined in that section for the financial in which the Rights are provided to the Employees?
Answer
Yes
Detailed reasoning
12. Section 392-5 of Schedule 1 to the TAA imposes a requirement on the provider of an "ESS interest" under an "employee share scheme" to provide statements to the Commissioner and the Employee who acquires (or whose associate acquires) the ESS interests.
13. Taxpayer is the provider of Rights.
14. When the Rights are granted to the Employees, the precise number of shares to which the Employee is entitled cannot be determined. At that time, the Employee has not acquired rights that are ESS interests within the meaning of subsection 83A-10(1) of the ITAA 1997. It is only once the Determination has been made by the Taxpayer that the Employee will be able to ascertain the number of shares they will receive on exercise of their Rights.
15. Accordingly, taxpayer is not required under section 392-5 of Schedule 1 to the TAA to provide a statement to the Commissioner or to the Employees in the circumstances and within the time limits set out in that section for financial year in which the Rights are provided to the Employees, because at that time, taxpayer has not provided ESS interests to the Employees.
Question 3
Will the Commissioner confirm that, in respect of the Rights, taxpayer is required under section 392-10(1)(b) of the TAA to notify the Commissioner and the Employees of the information required under section 392-5(3)(d) of Schedule 1 to the TAA following the making of the Determination and that that notification will be required no later than 30 days after the making of the Determination?
Answer
No.
Detailed reasoning
16. Paragraph 392-5(1)(a) of Schedule 1 to the TAA requires an entity (the provider) to give the Commissioner and an Employee a statement where the entity provides ESS interests to which Subdivision 83A-C of the ITAA 1997 applies during the financial year.
17. Paragraph 392-5(1)(b) of Schedule 1 to the TAA requires the provider to give the Commissioner and an Employee a statement where the provider had provided ESS interests to which Subdivision 83A-C of the ITAA 1997 applies and the ESS deferred taxing point for the interests occurs during the financial year.
18. Subsection 392-5(2) of Schedule 1 to the TAA requires the statement to be in the approved form. Subsection 392-5(3) of Schedule 1 to the TAA sets out information that may be included in the approved form. In particular, paragraph 392-5(3)(d) of Schedule 1 to the TAA lists some information that may be required about interests to which paragraph 392-5(1)(a) of Schedule 1 to the TAA applies.
19. Subsection 392-10 of Schedule 1 to the TAA requires a provider who becomes aware or any material change or omission in any information given to the Employee or Commissioner under Division 392 of Schedule 1 to the TAA to tell the individual or Commissioner of the change, or to give the omitted information, in the approved form within 30 days of becoming aware of the change or omission.
20. Statements are to be provided by 14 July (to Employees) and 14 August (to the Commissioner) after the end of the relevant financial year (see subsection 392-5(5) of Schedule 1 to the TAA). The note to this subsection advises that section 388-55 of Schedule 1 to the TAA allows the Commissioner to defer the time for giving an approved form.
21. In certain circumstances, the Commissioner has deferred the time to give the statement to himself and to the Employee pursuant to section 388-55 of Schedule 1 to the TAA. The time within which to give a statement to the Commissioner and to an individual under paragraph 392-5(1)(a) of Schedule 1 to the TAA for ESS interests to which Subdivision 83A-C of the ITAA 1997 applies is deferred until the time required for giving a statement under paragraph 392-5(1)(b) of the TAA.
22. The Commissioner has combined both the statements required under paragraphs 392-5(1)(a) and 392-5(1)(b) of Schedule 1 to the TAA into the same approved form pursuant to subsection 388-50(2) of Schedule 1 to the TAA. The approved form for employees is the Pro-forma ESS statement and for the Commissioner is the ESS annual report. The giving of these statements for the year in which the ESS deferred taxing point occurs satisfies both the requirements under paragraph 392-5(1)(a) and 392-5(1)(b) for ESS interests to which Subdivision 83A-C of the ITAA 1997 applies.
23. The deferral of the time for giving the approved form to the Commissioner and to an Employee only applies where the provider is required to provide a statement under paragraphs 392-5(1)(a) of Schedule 1 to the TAA only in relation to ESS interests to which Subdivision 83A-C of the ITAA 1997 applies.
24. The Commissioner will still require a statement to be given to the Commissioner and to the Employee under paragraph 392-5(1)(a) of Schedule 1 to the TAA if the provider provides ESS interests to which Subdivision 83A-B of the ITAA 1997 applies during the financial year. However, this statement is provided on a different basis to that required in relation to ESS interests provided during the financial year to which Subdivision 83A-C of the ITAA 1997 applies, see paragraph 392-5(3)(c) of Schedule 1 to the TAA.
25. The Rights are not ESS interests at the time they are provided (see the reasoning for Question 1). However, they are retrospectively treated as ESS interests to which Subdivision 83A-C of the ITAA 1997 applies upon the making of the Determination pursuant to section 83A-340 of the ITAA 1997, (see the reasoning for Question 4).
26. This means that taxpayer will retrospectively meet the requirements of paragraph 392-5(1)(a) of Schedule 1 to the TAA. However, as explained above, the time for giving the approved form in relation to that paragraph has been deferred. As a result taxpayer is not required to give the statement in relation to paragraph 392-5(1)(a) until they are required to give a statement concerning the rights pursuant to paragraph 392-5(1)(b) of Schedule 1 to the TAA.
27. As the time for giving of an approved form under paragraph 392-5(1)(a) of Schedule 1 to the TAA is deferred there will be no omission in information for the financial year in which the Rights are provided to the Employees, for the purposes of section 392-10 of Schedule 1 to the TAA.
28. Therefore, in respect of the Rights, taxpayer is not required under section 392-10 of Schedule 1 to the TAA to notify the Commissioner and the Employees of information specified under section 392-5(3)(d) of Schedule 1 to the TAA following the making of the Determination.
Question 4
Will the Commissioner confirm that, in respect of the Rights, taxpayer is required under section 392-5(1) of the TAA to provide a statement to the Commissioner and to the Employees in the circumstances outlined in that section for the financial year in which the Determination is made, unless one of the following applies:
(a) an Employee is treated as ceasing employment within the meaning of section 83A-330 of the ITAA 1997 in an earlier financial year, and retained their Rights, in which case the statement must be provided for that earlier financial year following the Determination being made; or
(b) an Employee is subject to restrictions in respect of the Rights imposed under the taxpayer's Trading Policy and those restrictions are first lifted in a financial year after the financial year in which the Determination is made, in which case the statement must be provided following that subsequent financial year (unless the employee ceases employment in a financial year after the Determination but before the restrictions are lifted, in which case taxpayer will provide the statement following the financial year in which the Employee ceases employment)?
Answer
Yes
Detailed reasoning
29. Paragraph 392-5(1)(b) of Schedule 1 to the TAA states that the provider of an "ESS interest" must give a statement to the Commissioner and to an employee for a financial year if:
(i) the provider has provided "ESS interests" to the employee (whether during the year or during an earlier year); and
(ii) subdivision 83A-C of the ITAA 1997 applies to the "ESS interests"; and
(iii) the "ESS deferred taxing point" for the "ESS interests" occurs during the year.
ESS interests have been provided
30. "ESS interest" in a company is defined in subsection 83A-10(1) of the ITAA 1997 to mean a beneficial interest in either:
(i) a share in the company; or
(ii) a right to acquire a beneficial interest in a share in the company.
31. Section 83A-340 of the ITAA 1997 states that, if a beneficial interest in a right is acquired and that right later becomes a right to acquire a beneficial interest in a share, Division 83A of the ITAA 1997 applies as if the right had always been a right to acquire the beneficial interest in the share (i.e it is treated as having always been an "ESS interest").
32. Section 83A-340 of the ITAA 1997 provides the example of a right to acquire, at a future time, shares with a specified total value rather than a specified number of shares) or rights to acquire an indeterminate number of shares. The right is treated as if it had always been an 'ESS interest" if and when it becomes clear that it will ultimately be satisfied by the issue of a definite number of shares.
33. The above is further explained in the EM at paragraphs 1.367 as follows:
At the time of acquisition it may be unclear whether a right to an employment benefit will result in the receipt of an ESS interest, or it may be unascertainable how many ESS interests will be received. In such circumstances, that right will be considered to have been an ESS interest from the time that the original right to an employment benefit was acquired, if and when it becomes clear that the right to the employment benefit will result in the receipt of a definite number of ESS interests.
34. At the time the Rights are granted to the Employees, they will not constitute an "ESS interest" for the purposes of Division 83A of the ITAA 1997. It is only once the Determination is made in the 2015 income year that the Rights will:
· become rights to acquire a beneficial interest in that number of shares that are specified in the Determination for the purposes of subsection 83A-340(1) of the ITAA 1997; and
· will be retrospectively treated as "ESS interests" under subsection 83A-340(2) of the ITAA 1997 provided to the Employees by taxpayer during the income year in which the Rights are provided to the Employees (paragraph 392-5(b)(i) of Schedule 1 to the TAA).
Subdivision 83A-C applies
35. Section 83A-105 in Subdivision 83A-C of the ITAA 97 sets out the conditions that must be satisfied to be able to defer the inclusion in assessable income of any discount received on the acquisition of ESS interest until the financial year in which the ESS deferred taxing point occurs. These conditions are as follows:
(i) the "ESS interest" is acquired at a discount under an "employee share scheme" (paragraph 83A-105(1)(a) and section 83A-20 of the ITAA 1997);
(ii) the Employee is, at that time, employed by the company or a subsidiary of the company (paragraph 83A-105(1)(b) and subsection 83A-35(3) of the ITAA 1997);
(iii) all the "ESS interests" under the employee share scheme relate to ordinary shares (paragraph 83A-105(1)(b) and subsection 83A-35(4) of the ITAA 1997);
(iv) the predominant business of the company in which the "ESS interest" is acquired is not the acquisition, sale or holding of shares, securities or other investments or if it is, you are not employed by the company and employed by another company that is a subsidiary or holding company of that company, or a subsidiary of the holding company (paragraph 83A-105(1)(b) and subsection 83A-35(5) of the ITAA 1997);
(v) immediately after acquiring the "ESS interest", the employee does not hold beneficial interest in more than 5% of the shares in the company or is not in a position to cast or control the casting of more than 5% of the maximum number of votes that might be cast at a general meeting of the company (paragraph 83A-105(1)(b) and subsection 83A-35(9) of the ITAA 1997);
(vi) if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a share, at the time the employee acquired the "ESS interest" there is a real risk of forfeiting or losing the right (other than by disposing of the right, exercising the right or letting the right lapse) or there is a real risk of forfeiting the underlying share (paragraphs 83A-105(1)(d) and 83A-105(3)(b) of the ITAA 1997).
36. The conditions in section 83A-105 of the ITAA 1997 are satisfied as follows:
(i) The Rights (which are treated as ESS interests) are acquired under the plan which constitutes an "Employee Share Scheme" for the purposes of subsection 83A-10(2) of the ITAA 1997 in that it is a scheme under which Rights (that are treated as ESS interests) are provided only to certain employees of taxpayer in relation to their employment;
(ii) the Employees are not required to provide any consideration to acquire the Rights. The Rights are therefore acquired at a discount under an "Employee Share Scheme" for the purposes of section 83A-20 of the ITAA 1997;
(iii) the Rights acquired under the employee share scheme are treated as rights of the Employee to acquire fully paid ordinary shares;
(iv) the predominant business of taxpayer is not the acquisition, sale or holding of shares, securities or other investments;
(v) no Employee will hold a beneficial interest in more than 5% of shares immediately after acquiring the Rights, or be in a position to cast or control the casting of more than 5% of the maximum number of votes that may be cast at a general meeting;
(vi) there is real risk of forfeiting the Rights, for the following reasons.
37. The EM explains the real risk of forfeiture test at 1.156 as follows:
The 'real risk of forfeiture test' does not require employers to provide schemes in which their employee share scheme benefits are at a significant or substantial risk of being lost. However, real is regarded as something more than a mere possibility. Something is not a real risk if a reasonable person would disregard the risk as highly unlikely to occur or as nothing more than a rare eventuality or possibility.
38. It is further explained at paragraph 1.158 of the EM that the 'real risk of forfeiture test' is intended to provide for deferral of tax when there is a real alignment of interests between the employee and employer, through the employee's benefits being at risk.
39. In order for the 'real risk of forfeiture test' to be satisfied, in relation to an ESS interest acquired by an employee under an employee share scheme, a reasonable person must consider that there is an actual possibility of forfeiture. Furthermore the risk of forfeiture must be 'real', not nominal, artificial or contrived. There must be more than a mere possibility.
40. In considering whether a condition in a scheme imposes a real risk of forfeiture, we will have regard to whether a reasonable person would consider that there is a genuine connection between the forfeiture condition and aligning the interests of the employee and employer.
41. We consider that a condition of an employee share scheme that imposes a minimum term of employment of at least 12 months provides more than a 'mere' or 'rare' possibility of forfeiture.
42. Under the plan, the Rights will lapse if the Employee ceases employment within the vesting period other than for a reason specified in paragraph 66 or if the Taxpayer exercises its discretion in exceptional circumstances to allow the Employee to retain the rights.
43. If an employee share scheme has good leaver conditions that allow ESS interests to be retained in certain circumstances such as death, invalidity or bona fide redundancy we consider those conditions do not prevent the interests being at a real risk of forfeiture provided that the scheme is operated in accordance with the conditions. Furthermore, employees must not routinely receive the interests regardless of their reason for ceasing employment.
44. We consider that the reasons specified in paragraph 66 do not prevent the Rights from being at a real risk of forfeiture provided the scheme is operated in accordance with the conditions. We do not consider the availability of a discretion that will only be exercised in 'exceptional circumstances' to prevent the Rights from being at a real risk of forfeiture.
45. Therefore, there is a real risk that an Employee will forfeit or lose their Rights, other than by disposing of them, exercising them or letting them lapse.
46. As a result, Subdivision 83A-C of the ITAA 1997 applies to the Rights (which are treated as ESS interests).
When the ESS deferred taxing point occurs
47. Section 83A-120 of the ITAA 1997 contains the rules for determining when the "ESS deferred taxing point" occurs for rights to acquire shares. This will be the earlier of the following times:
· when the employee ceases the employment in respect of which they acquired the rights within the meaning of section 83A-330 of the ITAA 1997;
· seven years after the employee acquired the rights;
· when there is no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of right;
· when there is no real risk of forfeiting the right or underlying share, and the scheme no longer genuinely restricts exercise of the right or disposal of the resulting share.
48. However, if the Employee disposes of the right (or the share acquired on exercise of the right) within 30 days of the abovementioned deferred taxing point, the deferred taxing point will instead be the time of disposal (subsection 83A-120(3) of ITAA 1997). An employer must take account of this 30 day rule for reporting purposes only if they know that the ESS interests were disposed of by the employee, see subsection 392-5(6) of Schedule 1 to the TAA.
49. Subject to the following paragraphs and subsection 83A-120(3) of the ITAA 1997, the "ESS deferred taxing point" for the Rights will be at the time of making the Determination. It is only once the vesting condition has been satisfied and the Determination has been made that an Employee is able to exercise their Rights and receive the relevant number of shares. Hence this is the earliest time when there is no real risk that the Employee will forfeit or lose their Rights (other than by disposing of or exercising them, or letting them lapse) and the scheme no longer genuinely restricts exercise of the rights.
Reporting obligations
50. Therefore, subject to the following paragraphs, taxpayer will be required to give a statement under section 392-5(1)(b) of Schedule 1 to the TAA to the Commissioner and Employee for Rights that are treated as ESS interests to which Subdivision 83A-C of the ITAA 1997 applies for the financial year in which the Determination is made. As explained in the answer to question 3, the giving of these statements also satisfies the requirement under paragraph 392-5(1)(a) of the TAA.
51. In certain situations, an Employee can leave employment with the taxpayer and still retain their Rights. If an Employee ceased employment within the meaning of section 83A-330 of the ITAA 1997 in an earlier financial year, and retained their Rights, the time of ceasing employment will be the deferred taxing point for that Employee's Rights.
52. For these Employees the timing aspect in relation to the deferred taxing point combines with the retrospective treatment of having provided rights that are ESS interests to which Subdivision 83A-C of the ITAA 1997 applies upon the making of the Determination. As a result taxpayer will retrospectively meet the requirements of paragraph 392-5(1)(b) of Schedule 1 to the TAA for the earlier financial year in which the Employee has ceased employment.
53. Subsection 392-10 of Schedule 1 to the TAA requires a provider who becomes aware or any material change or omission in any information given to the Employee or Commissioner under Division 392 of Schedule 1 to the TAA tell the individual or Commissioner of the change, or to give the omitted information, in the approved form within 30 days of becoming aware of the change or omission.
54. Taxpayer will not have previously given any information to the Commissioner or the Employee under Division 392 of Schedule 1 to the TAA in relation to these particular Rights. As a result taxpayer will not be required to provide a statement to the Commissioner and to the Employees for the financial year in which the Employee's employment ceased giving the omitted information in relation to the Rights pursuant to subsection 392-10(1) of Schedule 1 to the TAA.
55. Nevertheless, there remains an obligation to provide the statement pursuant to paragraph 392-5(1)(b) of Schedule 1 to the TAA. As previously explained in Question 3, the Commissioner has power to defer the time to lodge an approved form required under subsection 392-5(1) of Schedule 1 to the TAA. The Commissioner has, in these particular circumstances, exercised his power under section 388-55 of Schedule 1 to the TAA to defer the time to lodge the statements for himself and the Employees in relation to paragraphs 392-5(1)(a) and 392-5(1)(b) of Schedule 1 to the TAA to 30 days after the making of the Determination.
56. If at the time the Determination is made, an Employee is restricted under the taxpayer's Trading Policy from exercising the rights, the "ESS deferred taxing point" will not occur at the time the Determination is made, but rather at the time those restrictions first cease to apply, by virtue of subsection 83A-120(7) of the ITAA 1997 (unless they cease employment after the Determination is made and before the restrictions are lifted in which case the ESS deferred taxing point will occur when they cease employment).
57. In circumstances where the restrictions under the taxpayer's Trading Policy in respect of the Rights first cease to apply in a financial year after the financial year in which the Determination is made, Taxpayer is not required to give a statement under paragraph 392-5(1)(b) of Schedule 1 to the TAA for the financial year in which the Determination is made because no deferred taxing point has occurred. Taxpayer will be required under paragraph 392-5(1)(b) to give a statement to the Commissioner and to the Employees in respect of those Rights following the financial year in which the restrictions first cease to apply. As explained in the answer to question 3, the giving of these statements will also satisfy the requirement of paragraph 392-5(1)(a) of Schedule 1 to the TAA.
Conclusion
58. Accordingly, taxpayer will be required under paragraph 392-5(1)(b) of Schedule 1 of the TAA to give a statement to the Commissioner and to the Employees for the financial year in which the deferred taxing point occurs in respect of the Rights provided to Employees as:
(i) taxpayer will have provided Rights (being treated as "ESS interests") to the Employees during an earlier year;
(ii) subdivision 83A-C of the ITAA 1997 applies to the "ESS interests"; and
(iii) the "ESS deferred taxing point" for the Rights occurs during the financial year in which the Determination is made.
59. However:
(i) if an Employee is treated as ceasing employment within the meaning of section 83A-330 of the ITAA 1997 in an earlier financial year, and retained their Rights, taxpayer will be required to give a statement to the Commissioner and to the Employees for the financial year in which that employment ceased, following the making of the Determination, pursuant to section 392-5 of Schedule 1 to the TAA; and
(ii) if at the time the Determination is made, an Employee is subject to restrictions imposed under the taxpayer's Trading Policy in respect of their Rights, and those restrictions first cease to apply in a financial year after the financial year in which the Determination is made, taxpayer will be required to give a statement to the Commissioner and to the Employees following the financial year in which those restrictions first cease to apply (unless the Employee ceases employment in a financial year after the Determination is made but before the restrictions are lifted, in which case taxpayer will provide the statement following the financial year in which the Employee ceases employment).
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 83A-10 (1)
Income Tax Assessment Act 1997 subsection 83A-10 (2)
Income Tax Assessment Act 1997 subsection 83A-25 (1)
Income Tax Assessment Act 1997 section 83A-35
Income Tax Assessment Act 1997 section 83A-105
Income Tax Assessment Act 1997 section 83A-110
Income Tax Assessment Act 1997 section 83A-120
Income Tax Assessment Act 1997 section 83A-330
Income Tax Assessment Act 1997 section 83A-340
Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Taxation Administration Act 1953 section 392-5
Taxation Administration Act 1953 section 392-10
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
60. Taxpayer is proposing to offer "Rights" to certain key employees as a new form of long-term incentive award currently intended to be offered on an annual basis.
61. The Employees to whom Rights would be granted perform the majority of their functions for taxpayer.
62. The Plan Rules describes the purpose of the Plan in the clause as follows:
i) The purpose of the Plan is to provide Eligible Employees with an opportunity to share in the growth and value of the Group and to encourage them to improve the longer-term performance of the Company and its return to shareholders. It is intended that the Plan will enable the Group to attract skilled and experienced employees and provide them with the motivation to make the Group more successful.
63. Each Right gives the holder the right to acquire shares. The number of shares which can be acquired will be determined in accordance with a specified formula.
64. The Employees have no interest in any shares by virtue of holding Rights unless the applicable vesting condition is met, the Determination is made by the Taxpayer and shares have been allocated to participants after the exercise of their Rights. In particular, the Employee is not entitled to receive any dividends or distributions until Rights have been exercised and a share has been acquired by the Employee.
65. Rights are non-transferable and unable to be dealt with in any way.
66. The vesting condition for Rights is that the holder's employment with the taxpayer has not been terminated for a reason other than:
i) Resignation where the notice period expires after the Vesting Date (whether or not the Participant is required to serve out the notice period);
ii) Retrenchment;
iii) Retirement (resignation in circumstances where the Taxpayer is satisfied that the participant intends to leave the workforce permanently in the sense that the participant intends never to again become gainfully employed for 10 hours or more per week)
iv) The sale of all, or substantially all of the shares, or all, or substantially all of the assets of a member of the taxpayer to a party other than the taxpayer,
v) Termination by agreement or termination of employment by the Participant under a provision of the Participant's contract of employment where there has been a change in the Participant's duties or responsibilities, without the Participant's agreement, which has the effect of materially changing the Participant's status or authority;
vi) Death; or
vii) Total and Permanent Disablement;
on or before the Vesting Date.
67. If an Employee ceases to be employed by the taxpayer on or before the Vesting Date for a reason other than those specified in paragraph 66, the Rights will lapse unless the taxpayer determines otherwise in its discretion. This discretion will only be exercised in exceptional circumstances.
68. A Right that has not lapsed becomes a Qualifying Right and entitles the holder to acquire the number shares determined by the Taxpayer.
69. The number of shares that an Employee is entitled to receive if the Vesting Condition is met is determined by the taxpayer according to a specified formula, subject to an overriding maximum number of shares to be fixed at the time of grant. The maximum number fixed will be unlikely to be reached. The determination of the number of shares the participant is entitled to receive is called the Determination. The formula operates in such a way that, at the time the Rights are granted to Employees, it is not possible to determine the precise number of shares that they may ultimately be entitled to receive.
70. The Rights can only be exercised once:
i) the taxpayer has determined that the Vesting Condition has been met and the Rights have become Qualifying Rights; and
ii) the taxpayer has made the Determination.
71. Immediately after acquiring the Rights, no Employee holds a beneficial interest in more than 5% of the shares and is in no position to cast, or control the casting of, more than 5% of the maximum number of votes that might be cast at general meeting.
72. Employees must comply with the taxpayer's Trading Policy (including restrictions under the insider trading laws). Employees who possess inside information must not trade in taxpayer's securities (including exercising options or performance rights over shares). Additionally, designated persons can only trade in designated trading windows. Breaches of the taxpayer's Trading Policy will be treated seriously and may lead to disciplinary action being taken including dismissal in serious cases. Breaches of the policy may also involve breaches of the insider trading laws.
73. For Employees who are subject to the restrictions imposed under the taxpayer's Trading Policy at the time the Determination is made, the Rights will lapse in the unlikely event that these restrictions are not lifted on or before the end of the exercise period.
74. Shares acquired on exercise of the rights are not subject to forfeiture conditions and are not subject to disposal restrictions.
75. Taxpayer may not know when an Employee disposes of any shares acquired on exercise of the Rights.
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