ATO Interpretative Decision

ATO ID 2002/887

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will the Commissioner exercise his discretion and allow a taxpayer to make late elections under section 139E of the Income Tax Assessment Act 1936 ('ITAA 1936') where the taxpayer made conscious decisions not to make those elections prior to lodgment of the relevant taxation returns?

Decision

No. The Commissioner will not exercise his discretion under section 139E of the ITAA 1936 as the taxpayer was aware of the consequences of not making the elections at the required time.

Facts

The taxpayer acquired shares at a discount under an employee share scheme over a number of years.

The taxpayer made elections under section 139E of the ITAA 1936 in their taxation returns for shares acquired under the employee share scheme in all but three years of participation in the scheme.

Between 24 and 40 months after lodging the income tax returns for these three years, the taxpayer requested the Commissioner exercise his discretion and accept late elections. The taxpayer's grounds for the late elections were, at the time the first of these elections should have been made:

(i)

there were long term job uncertainties, retrenchments and mergers surrounding the company;

(ii)

the taxpayer thought the future job security for the next few years was very uncertain; and

(iii)

the taxpayer did not fully comprehend the consequences of not making an election at the required time.

These factors contributed to the taxpayer's conscious decision not to make an election prior to lodgment of the returns.

The taxpayer did not provide any explanation as to why there was a delay between the lodgment of the relevant returns and the date they made the late election request.

The request was made after the lodgment of the tax returns for the last two years of participation in the scheme.

Reasons for Decision

A taxpayer who acquires qualifying shares may make an election to include the discount in their assessable income in the year of acquisition (subsections 139B(2) and 139E(1) of the ITAA 1936). The written election must be made before the taxpayer lodges their return of income for that year, or within such further time as the Commissioner allows (subsection 139E(2) of the ITAA 1936).

When considering whether to exercise the discretion contained in subsection 139E(2) of the ITAA 1936, the Commissioner considers the following factors:

•

the circumstances which led to the taxpayer not making the election prior to lodging their income tax return for the relevant income year;

•

the taxpayer's explanation of the time delay between lodging their income tax return and the date of the taxpayer's late election; and

•

whether it would be fair and equitable in the taxpayer's circumstances for the Commissioner to exercise his discretion.

For the years the late elections were requested the taxpayer did not make elections as they were uncertain about the long term future of their job. Whilst they were aware elections could be made, the taxpayer consciously chose not to make the elections.

The taxpayer was aware of their options regarding the tax consequences when participating in an employee share scheme. The taxpayer included the discount at cessation time where an election was not made, and included the discount in the income year of acquisition where an election was made (on time).

The taxpayer has not provided a satisfactory explanation for the delay in lodging their elections.

The taxpayer has not provided evidence to suggest there were circumstances which prevented the making of the election prior to the lodging of the relevant year taxation returns.

Based on the taxpayer's explanation, the Commissioner does not consider that the explanation warrants the exercise of his discretion to allow an extension of time for the taxpayer to make a late election under section 139E of the ITAA 1936.

Accordingly, the discount on the shares will need to be included in the taxpayer's assessable income under subsection 139B(3) of the ITAA 1936 in the income years in which the cessation times occur.

Year of income:  Year ended 30 June 1997 Year ended 30 June 1998 Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1936
   subsection 139B(2)
   subsection 139B(3)
   section 139E
   subsection 139E(1)
   subsection 139E(2)

Keywords
Taxpayer elections
Employee share schemes & options
Share discounts on employee share schemes

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  31 August 2002

ISSN: 1445-2782