Edited version of private ruling

Authorisation Number: 1011628274907

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Ruling

Subject: Employee share scheme - Options to acquire shares in a private company

Question 1: Will the actual book value be considered to be an acceptable market value for the purposes of calculating the discount under section 83A-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer: No.

Question 2: Will the actual book value be acceptable for determining the market value of the capital proceeds received (being the actual book value) under Part 3-1 of the ITAA 1997, on disposal of some of your acquired shares?

Answer: No.

Question 3: Will the actual book value be acceptable for determining the market value of the capital proceeds received (being the actual book value) under Part 3-1 of the ITAA 1997, on disposal of some of the options granted under the plan?

Answer: No.

Question 4: Will you be assessed under section 6-5 of the ITAA 1997 on the payments you receive on the surrender of some of your options or the disposal of some of your acquired shares?

Answer: No.

Question 5: Will any part of the discretionary cash payments received upon the lapse of options be included in your assessable income by either section 6-5 or section 15-2 of the ITAA 1997?

Answer: Yes.

Question 6: Will you be entitled to the capital gains tax discount on the options that you hold for at least 12 months prior to their surrender?

Answer: Yes.

Question 7: Will you be entitled to the capital gains tax discount on the acquired shares that you hold for at least 12 months prior to their disposal?

Answer: Yes.

This ruling applies for the following period<s>:

2010-11 income year

2011-12 income year

2012-13 income year

The scheme commences on:

1 July 2010

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.

You are an Australian resident who is employed in Australia in a private company.

You do not carry on a business of share trading, and you are not acquiring options or shares as part of such a business.

Your principal source of income is as an employee of the company.

You will be granted options under the plan and, subject to certain specified exceptions, will not forfeit them if you cease employment. The options will only lapse if they are not exercised or surrendered by the exercise/surrender deadline.

The only circumstance in which you could forfeit your options is if your employment is terminated on a summary basis because you have engaged in fraud or illegal activity.

The plan

Under the plan, certain employees will receive part of their remuneration in the form of options and part in the form of cash Though the future value of the options is uncertain, the number of options would generally not exceed 20% of an employee's total remuneration package if valued for a two year horizon with annual growth.

Each option shall entitle the holder to acquire one share of common stock.

Options granted under the plan shall be acquired for no consideration.

Options shall be capable of exercise or surrender on the exercise/surrender date. The employee must notify the company whether they wish to exercise or surrender the option by this date.

If an employee chooses to exercise an option, their future remuneration will be reduced in two ways as a result. Firstly, the value of future remuneration will be reduced by the annual increase in actual book value of the acquired shares. Secondly, the value of future remuneration is reduced to reflect the fact that the company will not receive a corporate tax deduction for the annual increase in annual book value in respect of the acquired shares. This reduction is calculated as a set percentage of the gross remuneration.

Shares, including acquired shares, are not listed. The company can choose to buy back the acquired shares at any time for their actual book value.

The company typically retains sufficient earnings each year to ensure that actual book value increases each year, although there is no guarantee that actual book value will increase in any particular year. The company does not guarantee the payment of any component of any particular remuneration to any employee.

Once the exercise/surrender date has been reached, the employee may, instead of exercising an option, elect to surrender the option for a cash payment. The cash payment will be equal to the number of options so surrendered multiplied by the difference between:

· the actual book value on the exercise/surrender date of one share, and

· the exercise price.

If an option is not exercised or surrendered by its exercise/surrender deadline, it lapses.

If an option lapses due to circumstances beyond the employee's control (for example.: they are incapacitated and unable to provide written notice by the exercise/surrender deadline), The company, in its sole discretion, may make a cash payment to the employee equal to the amount of the option-surrender proceeds that would have been delivered to the employee if the option had not lapsed but had been surrendered on the exercise/surrender date. The cash payment will be equal to the number of options so lapsed multiplied by the difference between:

· The actual book value of one share as of the exercise/surrender date, and

· The exercise price.

If the employee ceases employment with the company prior to the exercise/surrender date, options must be surrendered on the termination date and the company shall make a surrender payment to the employee in cash. If the holder fails to surrender by the termination date then it shall be deemed to have been surrendered as on the termination date. The surrender payment per option will be equal to the actual book value as at the termination date less the exercise price.

If the employee's employment with the company is terminated on a summary basis because the employee has engaged in fraud or illegal activity, then all options shall be immediately forfeited by the employee effective from the termination date with no compensation or payment due or payable from the company.

If the employee dies, options are deemed to have been automatically surrendered and a cash surrender payment will be made to the employee's estate.

If an offer event occurs, the company shall repurchase the acquired shares at the actual book value per share.

Options granted under the plan and acquired shares may not be transferred, assigned or encumbered except as otherwise expressly provided in the plan and the incorporation document.

All transactions in options and acquired shares under the plan shall be subject to the terms and provisions of the incorporation document.

The Incorporation document

The incorporation document and certain other documents were submitted, and are to be read with, and form part of the description of the scheme for the purpose of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-25

Income Tax Assessment Act 1997 Section 83A-5

Income Tax Assessment Act 1997 Section 83A-20

Income Tax Assessment Act 1997 Section 83A-105

Income Tax Assessment Act 1997 Section 83A-125

Income Tax Assessment Act 1997 Section 83A-310

Income Tax Assessment Act 1997 Section 83A-315

Income Tax Assessment Act 1997 Section 109-10

Income Tax Assessment Act 1997 Section 115-5

Income Tax Assessment Act 1997 Section 115-10

Income Tax Assessment Act 1997 Section 115-15

Income Tax Assessment Act 1997 Section 115-20

Income Tax Assessment Act 1997 Section 115-25

Income Tax Assessment Act 1997 Section 116-20

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Section 960-410

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Regulations 1997 Regulation 83A-315

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

The actual book value will not be considered to be an acceptable market value for the purpose of calculating the discount under section 83A-25 of the ITAA 1997.

Detailed reasoning

The market value of the options that will be granted to you under the plan is a fundamental component of the process of determining whether you will need to include an amount in your assessable income under Division 83A of the ITAA 1997

Subdivision 83A-B or Subdivision 83A-C of the ITAA 1997 will apply to the options granted to you by your employer if:

· the options are ESS interests

· the options are granted under an employee share scheme, and

· the options are granted at a discount.

We accept that the options will be 'ESS interests' for the purpose of subsection 83A-5(1) of the ITAA 1997 and that they are granted to you under an 'employee share scheme' for the purpose of subsection 83A-5(2) of the ITAA 1997.

Subsection 83A-20(1) of the ITAA 1997 states that Subdivision 83A-B of the ITAA 1997 only applies if the ESS interest is acquired by you at a discount. Paragraph 83A-105(1)(a) of the ITAA 1997 includes a similar requirement before Subdivision 83A-C of the ITAA 1997 can apply.

The options will be granted to you for no consideration, therefore, they will be granted at a discount if their market value is greater than $nil.

Section 83A-315 of the ITAA 1997 states that the market value of an ESS interest is the amount specified in regulations.

Income Tax Assessment Regulations 1997 Division 83A prescribes regulations for the purpose of section 83A-315 of the ITAA 1997.

Income Tax Assessment Regulations 1997 subregulation 83A-315.01(1) states that the amount, in relation to unlisted rights with an exercise period of less than 10 years from the date of grant is, at the choice of the individual:

· the market value of the right, or

· the amount determined by regulations 83A-315.02 to 83A-315.09.

Section 960-410 of the ITAA 1997 states that when working out the market value of a non-cash benefit, disregard anything that would prevent or restrict conversion of the benefit to money.

Subsection 995-1(1) of the ITAA 1997 defines 'non-cash benefit' to be property or services in any form except money.

Using the definition in subsection 995-1(1) of the ITAA 1997, the options that you will receive will be a non-cash benefit for the purpose of section 960-410 of the ITAA 1997.

You could directly work out the market value of the options using an accounting methodology, however, we would not accept that the value of the options was simply the difference between the exercise price and the market value of the underlying share that you will acquire by exercising the option.

Alternatively, you could work out the market value of the options using the valuation rules in Income Tax Assessment Regulations 1997 regulations 83A-315.02 to 83A-315.09.

Under both of the alternatives listed in Income Tax Assessment Regulations 1997 subregulation 83A-315.01(1), the options will derive their value from the market value of the underlying shares. Therefore, the market value of the shares as at the date of grant must be determined first.

Determining the market value of shares in the company

Section 83A-315 of the ITAA 1997 again refers to the regulations, but Income Tax Assessment Regulations 1997 Division 83A prescribes rules for rights only, not shares. Therefore, the market value of the shares is worked out using the ordinary definition of the term 'market value'.

However, as we are using the market value of the shares to determine the market value of a non-cash benefit (the options), section 960-410 of the ITAA 1997 again applies so that anything that would prevent or restrict conversion of the benefit to money is ignored.

The ATO has produced a document titled Market valuation for tax purposes to assist taxpayers to determine the market value of certain assets.

It provides the following statements under the heading 'What 'market value' means':

Although the law frequently refers to market value, the meaning of that term will depend on its statutory context. In each instance you need to take into account the context in which the term is used, and pay particular attention to its definition and any specific requirements in that context. Where a statutory definition is provided for a particular context, it must be used.

Current tax law does not define market value in any general provision. It is defined in the 'Definitions' part at the end of the Income Tax Assessment Act 1997 (ITAA 1997), but not in a way that fixes its meaning in all contexts (section 995-1). As a result, 'market value' usually takes the ordinary meanings given below, unless specially defined or qualified in a particular provision.

Valuers of real property adopt the definition used by the International Valuation Standards Committee (IVSC):

... the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

Business valuers in Australia typically define market value as:

the price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm's length.

Market value is not to be taken to mean simply any value. The term 'value' is used in a number of contexts, for example, community values, scientific value, heritage value and cultural value. Such terms tend to be intangible and thus difficult to measure.

Market value can be more readily measured. It reflects a market's measure of the benefits enjoyed by someone that uses an item or receives a service, at a nominated date.

'Value' is described in the International Valuation Standards as:

… an economic concept referring to the monetary relationship between goods and services available for purchase and those who buy and sell them (General valuation concepts and principles 4.5).

Conceptually, market value is quite distinct from 'price' and 'cost'.

'Price' is defined in the International Valuation Standards as:

… the amount asked, or offered, for goods or services.

and 'cost' as:

… the price that is paid for goods or a service, or the amount paid to produce the goods or services (General valuation concepts and principles 4.2 and 4.3).

Cost refers to the result of a historic transaction, set in time and amount, whereas market value varies through time and circumstances. Further, although the cost of an item might be consistent with its market value at the time of purchase, there are a number of situations where this may not be the case. For example, the cost of constructing a building in a remote Australian community may be greater than the building's market value on the limited local market.

Depending on the financial strengths, special needs or the interests of the parties, the cost or price of goods and services may or may not be the same as their market value.

It provides the following statements under the heading 'Valuing unlisted shares:

Where an ordinary share is held privately by an individual or group of shareholders, applying the appropriate valuation method (or methods) may be more complex.

When you value an unlisted share, we would expect you to take into account a number of factors that may affect its market value, including:

· many of the factors described in Valuation of a business (accounting for the specific interest)

· adjustments - you need to adjust for factors such as liquidity (at the holdings level) and degree of control (actual or effective) and show that these adjustments are appropriate (for instance, you could benchmark a minority interest in an unlisted investment company against a listed investment company operating in a similar environment), and

· the rights of other equity and debt holders (which may influence the market value of an ordinary share).

It provides the following statements under the heading 'Valuation of a business':

What is a business?

In this guide, we use 'business' in a way consistent with usual valuation industry descriptions and definitions, applied within the context of Australian federal tax law.

Business is defined in the International glossary of business valuation terms as meaning 'business enterprise' and is defined as: 'a commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity.'

Section 995-1 of the ITAA 1997 defines 'business' as including 'any profession, trade, employment, vocation or calling, but does not include an occupation as an employee'.

We have also provided some guidance in relation to the meaning of 'business'. Refer to Taxation Ruling TR 1999/16: Income tax: Capital gains: goodwill of a business.

Valuation methods

The valuation of a business is usually based on a number of established valuation methods built around the market-based, income-based and asset-based approaches.

These methods include:

· comparable transactions

· comparable trading

· capitalisation of earnings

· discounted cash flow, and

· calculation of net assets on a going-concern basis.

A significant amount of published material is available regarding these (and other) methods. Accordingly, the mechanics of these methods are not covered in this guide other than to note their application within the context of existing legislation, our publications and established industry approaches (for instance, refer to the appendix, table 3).

In valuing a business, we would expect to see that you have considered a number of factors that may affect the market value and produced a reasonable and defensible view of the market value.

These factors may include:

· valuation methods - you would need to explain your choices and demonstrate why they are appropriate

· valuation metrics - you would need to explain your choice and demonstrate that you have applied them appropriately; for instance, you would need to show how you derived a company weighted average cost of capital (WACC)

· valuation date

· purpose of the valuation

· basis or premise of your valuation - for example, valuation of the business on a going-concern basis

· description of the business

· a summary of the corporate structure and management of the business - including such details as the operating history, management and board, capital structure, company constitution, board minutes, shareholder agreements, business and strategic plans, marketing plans and operating plans

· market information - including key customers and spread, customer lists, sales pipeline, barriers to entry, competitors, alternative products, market size and growth

· operations - including information such as manufacturing and production, service delivery, research and development capability/plans, fixed asset details, key suppliers, intellectual property protection and utilisation, resourcing, risk identification and management and regulatory issues

· products or services - including information such as product description, product pipeline, pricing and the basis of pricing (for example, market or cost-plus)

· financial requirements and financial structure - including information such as current and historical financial statements, budgets, forecasts, key operating metrics, funding details and terms (equity, hybrid and debt funding - existing and planned), off-balance-sheet structures, capital expenditure requirements and operating cash flows

· strategic and corporate development initiatives - including information such as previous and planned acquisitions, previous and planned divestments, corporate restructures, corporate actions, strategic alliances and joint ventures

· sales and marketing strategies - including information such as target markets (existing and planned), direct or channel strategies, reseller or supplier agreements, compensation strategies and product and brand awareness strategies

· adjustments for items such as non-operating assets (for example, investments) and excess cash, and

· adjustments for factors such as control and liquidity or marketability (at the company or business level).

The actual book value as a valuation method

The actual book value, and the book value is defined in the incorporation document.

The actual book value changes as a time-based progression from the book value as calculated at the end of one fiscal year to the book value as calculated at the end of the next fiscal year. As such, it is not actually a direct calculation of the market value of the company's Shares as at the valuation date.

The book value may not necessarily include all of the company's assets within its valuations (for example - internally generated goodwill).

The book value also incorporates a number of adjustments and there is no indication that they are all truly reflective of the market value of the items concerned. There is also some scope for the board of directors to influence the values attached to these adjustments.

There is thus no evidence to support the conclusion that either the actual book value or the book value reflects the value of the company's Shares in an unrestricted market.

Therefore, we cannot accept that the actual book value represents the market value of the company's shares for the purpose of valuing your options.

Question 2

Summary

The actual book value will not be acceptable for determining the market value of the capital proceeds received (being the actual book value) under Part 3-1 of the ITAA 1997, on disposal of some of your acquired shares.

Detailed reasoning

Subsection 116-20(1) of the ITAA 1997 defines your capital proceeds from a capital gains tax (CGT) event to be the total of:

· the money you have received, or are entitled to receive in respect of the event happening, and

· the market value of any other property you have received, or are entitled to receive in respect of the event happening.

Section 116-30 of the ITAA 1997 provides for the market value of an asset to be substituted as the capital proceeds in certain situation including where the dealing is not at arm's length.

You will receive a payment from the company on the disposal of your shares equal to the actual book value as calculated at the time of the disposal.

We conclude that the disposal of the shares will be an arm's length transaction, so the market value substitution rule in section 116-30 of the ITAA 1997 will not apply.

Consequently, your capital proceeds from the disposal of the shares will be the amount of the payment that you receive from the company in accordance with subsection 116-20(1) of the ITAA 1997.

Note: This answer does not consider how the cost base of the shares that you will dispose of are to be calculated. That will depend on whether the options were granted at a discount for the purpose of Division 83A of the ITAA 1997.

Question 3

Summary

The actual book value will not be acceptable for determining the market value of the capital proceeds received (being the actual book value) under Part 3-1 of the ITAA 1997, on disposal of some of your options granted under the plan.

Detailed reasoning

Subsection 116-20(1) of the ITAA 1997 defines your capital proceeds from a CGT event to be the total of:

· the money you have received, or are entitled to receive in respect of the event happening, and

· the market value of any other property you have received, or are entitled to receive in respect of the event happening.

Section 116-30 of the ITAA 1997 provides for the market value of an asset to be substituted as the capital proceeds in certain situation including where the dealing is not at arm's length.

You will receive a payment from the company on the disposal of your options equal to the actual book value as calculated at the time of the disposal less the exercise price.

We conclude that the disposal of the options will be an arm's length transaction, so the market value substitution rule in section 116-30 of the ITAA 1997 will not apply.

Consequently, your capital proceeds from the disposal of the options will be the amount of the payment that you receive from the company in accordance with subsection 116-20(1) of the ITAA 1997.

Note: This answer does not consider how the cost base of the options that you will dispose of are to be calculated. That will depend on whether they were granted at a discount for the purpose of Division 83A of the ITAA 1997.

Question 4

Summary

You will not be assessed under section 6-5 of the ITAA 1997 on the payment received on the surrender of some of your options or the disposal of some of your acquired shares.

Detailed reasoning

Section 6-5 of the ITAA 1997 includes amounts of ordinary income in your assessable income. This includes most forms of employment related receipts.

Section 6-5 of the ITAA 1997 does not apply to capital receipts or to amounts that are included in your assessable income by another provision outside Part 1-3 of the ITAA 1997.

This distinction raises the issue of whether the payment that you will receive due to the surrender of the options represents part of your remuneration package or the return to you from the growth in value of the options.

We generally treat the grant of options to be the reward under a remuneration package with the taxing point only being altered because of specific legislation. Any later payment received from selling them, surrendering them, or exercising them and selling the resultant shares is then considered to be a return on the investment represented by the options (or shares).

This means that the 'remuneration' provisions only apply once, and the capital gains provisions apply at subsequent taxing points.

We accept that the payment that you will receive due to the surrender of some of your options will be a return to you on your investment in the options and not be assessable as ordinary income.

Question 5

Summary

The discretionary cash payments received upon the lapse of options will be included in your assessable income by either section 6-5 or section 15-2 of the ITAA 1997.

Detailed reasoning

Section 6-5 of the ITAA 1997 includes amounts of ordinary income in your assessable income. Section 15-2 of the ITAA 1997 includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums in your assessable income where they relate directly or indirectly to your employment.

The discretionary payment that will be made to you in relation to the lapse of some of your options can be sufficiently related to your employment to bring it within these provisions.

Consequently, the whole of the amount of the discretionary payments will be included in your assessable income by either section 6-5 or section 15-2 of the ITAA 1997.

We would not accept that the discretionary payments represent a 'return on investment' to you on your options.

Question 6

Summary

You will be entitled to the capital gains tax discount on the options that you hold for at least 12 months prior to their surrender.

Detailed reasoning

You have stated that for the purpose of this ruling, you will have held the options that you surrender for more than 12 months and will receive a payment that exceeds their cost base - therefore, you will make a capital gain due to their surrender.

Your capital gain must be a discount capital gain for you to be entitled to discount it by the discount percentage - 50% for individuals.

Section 115-5 of the ITAA 1997 states that a discount capital gain is a capital gain that meets the requirements outlined in sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997.

Section 115-10 of the ITAA 1997 provides that a capital gain made by an individual can be a discount capital gain.

Section 115-15 of the ITAA 1997 requires the capital gain to be made after 21 September 1999 if it is to be a discount capital gain.

Section 115-20 of the ITAA 1997 requires the capital gain to be worked out using a cost base that has not been indexed at any time.

Subsection 115-25(2A) and (3) of the ITAA 1997 provide that capital gains from certain CGT events cannot be discount capital gain.

CGT event C2 will happen due to the surrender of some of your options. The surrender is not excluded from being a discount capital gain by either of these subsections.

Subsection 115-25(1) of the ITAA 1997 requires the acquisition date of the asset to be at least 12 months before the time of the CGT event.

Determining the acquisition date of the options

The method that is used to determine the acquisition date of the options will depend on whether the provisions of Subdivision 83A-C of the ITAA 1997 apply to them.

If Subdivision 83A-C of the ITAA 1997 applies, then the acquisition date is determined in accordance with section 83A-125 of the ITAA 1997, otherwise, the acquisition date is determined in accordance with Subdivision 109-A of the ITAA 1997.

Subsection 83A-105(1) of the ITAA 1997 states that a number of conditions must be met for Subdivision 83A-C of the ITAA 1997 to apply to the options including that subsection 83A-105(3) of the ITAA 1997 applies to them - that is that there is a real risk of the forfeiture or loss of the options (otherwise than by disposing of it, exercising it or allowing it to lapse), or that there is a real risk of the forfeiture or loss of the shares acquired by exercising the options (other than by disposing of them).

The rules of the plan provide very limited instances where you will lose the entitlement to exercise the options and acquire shares. All of those instances are related to acts or omissions that are within your control. As such, there is not a real risk that you will forfeit the options that will be granted to you.

As there is not a real risk of forfeiture of the options, subsection 83A-105(3) of the ITAA 1997 does not apply to the options and neither does Subdivision 83A-C of the ITAA 1997.

Consequently, the acquisition date is determined in accordance with Subdivision 109-A of the ITAA 1997.

Item 2 of the Table in section 109-10 of the ITAA 1997 states that the acquisition date of the options will be when the contract is entered into or, if none, when they are issued or allotted. We would not consider the options to be granted under a contract, therefore, the acquisition date will be their grant date.

Question 7

Summary

You will be entitled to the capital gains tax discount the acquired shares that you hold for at least 12 months prior to their disposal.

Detailed reasoning

You have stated that for the purpose of this ruling, you will have held the shares that you sell for more than 12 months and will receive a payment that exceeds their cost base - therefore, you will make a capital gain due to their sale.

Your capital gain must be a discount capital gain for you to be entitled to discount it by the discount percentage - 50% for individuals.

Section 115-5 of the ITAA 1997 states that a discount capital gain is a capital gain that meets the requirements outlined in sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997.

Section 115-10 of the ITAA 1997 provides that a capital gain made by an individual can be a discount capital gain.

Section 115-15 of the ITAA 1997 requires the capital gain to be made after 21 September 1999 if it is to be a discount capital gain.

Section 115-20 of the ITAA 1997 requires the capital gain to be worked out using a cost base that has not been indexed at any time.

Subsection 115-25(2A) and (3) of the ITAA 1997 provide that capital gains from certain CGT events cannot be discount capital gain.

CGT event A1 will happen due to the disposal of some of your acquired shares. The disposal is not excluded from being a discount capital gain by either of these subsections.

Subsection 115-25(1) of the ITAA 1997 requires the acquisition date of the asset to be at least 12 months before the time of the CGT event.

Determining the acquisition date of the shares

The method that is used to determine the acquisition date of the shares can depend on whether the provisions of Subdivision 83A-C of the ITAA 1997 apply to them or the options.

If Subdivision 83A-C of the ITAA 1997 applies, then the acquisition date may be determined in accordance with section 83A-125 of the ITAA 1997, otherwise, the acquisition date is determined in accordance with Subdivision 109-A of the ITAA 1997.

Subsection 83A-105(1) of the ITAA 1997 states that a number of conditions must be met for Subdivision 83A-C of the ITAA 1997 to apply to the options including that subsection 83A-105(3) of the ITAA 1997 applies to them - that is that there is a real risk of the forfeiture or loss of the options (otherwise than by disposing of it, exercising it or allowing it to lapse), or that there is a real risk of the forfeiture or loss of the shares acquired by exercising the options (other than by disposing of them).

The rules of the plan provide very limited instances where you will lose the entitlement to exercise the options and acquire shares or lose the shares. All of those instances are related to acts or omissions that are within your control. As such, there is not a real risk that you will forfeit the shares that you acquire by exercising the options that will be granted to you.

As there is not a real risk of forfeiture of the options or the shares, subsection 83A-105(3) of the ITAA 1997 does not apply to them and neither does Subdivision 83A-C of the ITAA 1997.

Consequently, the acquisition date is determined in accordance with Subdivision 109-A of the ITAA 1997.

Item 2 of the Table in section 109-10 of the ITAA 1997 states that the acquisition date of the options will be when the contract is entered into or, if none, when they are issued or allotted. We consider the grant of the options, their exercise and the payment of the exercise price to be components of a contract; therefore, the acquisition date of the shares will be the exercise date as the date the contract was entered into.

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