Were the shares acquired by exercising the options during the 2020-21 income year subject to genuine selling restrictions at the exercise date?
No. The Commissioner accepts that in the circumstances of your case, the requirement to obtain Board approval to sell the shares acquired by exercising the options were not genuine selling restrictions. We think your circumstances are consistent with example one of TD 2022/4 Income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? This ruling applies for the following periods : The 2020-21 Income Year The 2021-22 Income Year The scheme commenced on: 29 July 2020
You commenced employment with Company A (the Employer) in 20xx. As part of your remuneration package, the Employer granted you numerous options to purchase shares of Common Stock of the Company. During the 20xx income year, xx,xxx of your options vested. The Employer did not report any income from ESS during that income year. When you asked the Employer why they did not report any income from ESS, the Employer explained that following the ATO regulations, the deferred taxing point for a right is the earliest of several factors which included when there was no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right. You were advised that the shares could not be sold during a "Lock-Up Period" because they were subject to a real risk of forfeiture until this Lock-Up Period was lifted. The Option Agreement granted outlines the rules for the Lock-Up Period. Clause 7 states: 7. Lock-Up Agreement. If so requested by the Company or the underwriters in connection with the initial public offering of the Company's securities registered under the Securities Act of 1933
, as amended, Optionee shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (except for those being registered) without the prior written consent of the Company or such underwriters, as the case may be, for 180 days from the effective date of the registration statement, plus such additional period, to the extent required by FINRA rules, up to a maximum of 216 days from the effective date of the registration statement, and Optionee shall execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of such offering. The Option Agreement includes a section pertaining to the tax implications of the Options in Australia which states: Australia Statement under Section 83A-105 of the Income Tax Assessment Act 1997 (Cth) Subdivision 83A-C of the Income Tax Assessment Act 1997
(Cth) (the "Act") applies to the Plan and this Option, subject to the requirements of the Act. Accordingly, it is intended for income tax in relation to the Option to be deferred until exercise, unless Optionee's employment is terminated for any reason prior to exercise. However, the Company is not providing tax advice, and Optionee should consult his personal advisor for the precise tax treatment of the option." You have received additional Option Agreements since which have identical wording in the Agreements. Your Employer has noted that once the Initial Public Offering (IPO) of the Company occurred in the following income year and the Lock-Up Period lifted, the shares could then be sold because the Lock-Up Period had ceased. Your Employer has reported income from Discount from Deferral Schemes (label 12F) in the later income year on the basis that the date of IPO would be the taxing point. This figure included discounts from options which vested (and some were also exercised by yourself) during that income year, and the earlier income year.
The Company's Board has approved sales for other employees/shareholders that received grants under the same plan before the IPO was completed.
Income Tax Assessment Act 1997 Division 83A Income Tax Assessment Act 1997 section 83A-120