Income tax: where a right to acquire a beneficial interest in a share is granted subject to shareholder approval, is the right an 'indeterminate right' within the meaning of subsection 83A-340(1) of the Income Tax Assessment Act 1997 ?

The Determination addresses the question of whether a right to acquire a beneficial interest in a share that is granted subject to subsequent shareholder approval is a right covered by section 83A-340 of the ITAA 1997 ('indeterminate rights'). The Commissioner ruled that, where the employee acquires only a right to have the matter put to shareholders and nothing more, that right was not a right covered by section 83A-340 of the ITAA 1997 or section 83A-15 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA).

The Federal Court in Davies v FC of T [2015] FCA 773; 2015 ATC 20-520 held that a right created in contract to a share or a right to shares, which was subject to shareholder approval was a right which became a right to acquire a beneficial interest in a share for the purposes of section 83A-15 of the ITTPA. The reasoning in this decision concerning the existence of a right covered by section 83A-15 of the ITTPA is inconsistent with the approach taken in the Determination.

The Determination does not apply to schemes entered into after its withdrawal. The Commissioner is reconsidering the position with a view to issuing a replacement product.