Edited version of private advice

Authorisation Number: 1052103519171

Date of advice: 31 March 2023

Ruling

Subject: Employee share scheme

Question

Will the Commissioner exercise his discretion under paragraph 83A-45(5)(a) of the Income Tax Assessment Act 1997, to allow the minimum holding period for securities held by the Relevant Optionholders to end on the date of completion of the Share Sale?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Company was registered on XXXX.

Prior to you ceasing to be a member of the Company, the Company was in the business of providing asset management solutions for power distribution networks.

On XXXX, the Company adopted an Employee Option Plan (ESOP) pursuant to which the Company could, at its discretion, issue options to acquire shares in the Company to employee or an associate of the employee (such as a discretionary trust controlled by the employee).

The Company made these offers to yourself and a number of other employees (the Relevant Optionholders).

A nominee, of which you are a beneficiary, purchased options on your behalf pursuant to the terms of the ESOP on four separate occasions. Pursuant to the terms of the ESOP, the Relevant Optionholders were prevented from disposing of their interests for a period of at least 3 years from issue.

On XXXX, the Company entered into a Share Sale and Purchase Agreement pursuant to which the shareholders of the Company were to dispose all of their shares (Transaction) to the Purchaser. The Transaction was completed on XXXX (Completion).

At Completion, you had held all your options issued under the ESOP for less than 3 years.

Pursuant to the terms of the Transaction, the Company waived:

              i.                The 3-year minimum holding period for the Relevant Optionholders; and

             ii.                Any vesting conditions for options issued pursuant to the ESOP to the Relevant Optionholders and permitted such shares acquired by way of exercise of the options to be sold as part of the Transaction.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 83A-25

Income Tax Assessment Act 1997 section 83A-33

Income Tax Assessment Act 1997 subsection 83A-45(4)

Income Tax Assessment Act 1997 subsection 83A-45(5)

Reasons for decision

Summary

The Commissioner will exercise his discretion under paragraph 83A-45(5)(a) of the ITAA 1997 to allow the minimum holding period for securities held by the Relevant Optionholders to end on the date of completion of the Share Sale.

Detailed reasoning

Section 83A-25 of the ITAA 1997 includes an amount in an employee's assessable income, equal to the discount on an ESS interest they receive under an employee share scheme (ESS). However, this amount can be reduced to the extent that ESS interests meet the start-up conditions in section 83A-33 and the further conditions in section 83A-45.

Subsection 83A-45(4) states that every acquirer of an ESS interest under a scheme is not permitted to dispose of their interest during the scheme interest's minimum holding period.

Subsection 83A-45(5) outlines the length of an ESS interest's minimum holding period:

(5) An *ESS interest's minimum holding period is the period starting when the interest is acquired under the *employee share scheme and ending at the earlier of:

(a) 3 years later, or such earlier time as the Commissioner allows if the Commissioner is satisfied that:

(i) the operators of the scheme intended for subsection (4) to apply to the interest during the 3 years after that acquisition of the interest; and

(ii) at the earlier time that the Commissioner allows, all *membership interests in the relevant company were disposed of under a particular *scheme; and

(b) when the acquirer of the interest ceases being employed by the relevant employer.

The Commissioner is satisfied that the Company intended for the scheme to apply for 3 years. This is evidenced by the ESOP Rules which prohibited you and the other Relevant Optionholders from disposing your options for 3 years after the issue of the options

The Commissioner is also satisfied that all membership interests in the Company were disposed of in the Transaction.