ATO Interpretative Decision

ATO ID 2001/607

Income Tax

Employee Share Scheme - Late 139E election - uncertainty of issue date of rights
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Will the Commissioner exercise his discretion under subsection 139E(2) of the Income Tax Assessment Act 1936 (ITAA1936) to allow the taxpayer to make a late election?

Decision

Yes. The Commissioner will exercise his discretion in subsection 139E(2) of the ITAA 1936 to accept the taxpayer's late election, as the Commissioner:

•: is satisfied with the taxpayer's explanation for the delay, and
•: considers that it is fair and equitable to allow the late election in the circumstances.

Facts

The taxpayer was granted rights to acquire shares from their employer through an employee share scheme. The taxpayer did not pay any consideration for the rights. The rights are qualifying rights under section 139CD of the ITAA 1936 and were issued at a discount.

The taxpayer did not make an election under subsection 139E(1) of the ITAA 1936 to include the discount on the qualifying rights in assessable income of the year the qualifying rights were acquired.

Seventeen months after lodging the income tax return, the taxpayer requested that the Commissioner exercise his discretion and accept a late election. The taxpayer's grounds for extension are:

•: due to substantial business changes within the employer company, there was considerable uncertainty as to the date the rights were acquired;
•: a delay occurred between the rights being formally granted, entered on the register, and the issue of certificates;
•: a general information memorandum from the employer company, which addressed taxation implications of the rights, was issued to employees three months prior to confirmation of the issue date of the rights; and
•: the late election was requested shortly after the issue date of the rights was confirmed by the employer as the date the rights were entered on the register.

Reasons for Decision

A taxpayer who acquires qualifying rights may make an election to include the discount in 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 the return of income for that year, or within such further time as the Commissioner allows (subsection 139E(2) of the ITAA 1936).

The taxpayer did not make an election in respect of the qualifying rights in the relevant income year. The taxpayer requested that the Commissioner's discretion be exercised to accept a late election.

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 the lodgment of their income tax return for the relevant income year;
•: the taxpayer's explanation of the time delay between the date of lodgment of the income tax return and the date of the late election; and
•: whether it would be fair and equitable in the circumstances for the Commissioner's discretion to be exercised.

The Commissioner accepts that the taxpayer is unable to make an election until the employer company advised the date of acquisition of the qualifying rights. This advice was not available when the relevant income tax return was lodged. The Commissioner noted that the taxpayer requested a late election shortly after the employer company advised the issue date of the qualifying rights. Accordingly, the Commissioner considers it appropriate to exercise his discretion and accept the late election under subsection 139E(2) of the ITAA 1997.

The discount given on the rights will be included in the taxpayer's assessable income for the relevant income year.

Note: If a taxpayer has a knowledge of the operation of Division 13A of the ITAA 1936, the uncertainty of the issue date of the rights is a mistake of fact and the Commissioner will also exercise his discretion to allow a late election under subsection 139E(2) of the ITAA 1936.

Date of decision: 23 July 2001

Legislative References:
Income Tax Assessment Act 1936
   Division 13A
   section 139CD
   subsection 139E(1)
   subsection 139E(2)

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

Siebel/TDMS Reference Number: DW207264

Business Line: Private Groups and High Wealth Individuals

Date of publication: 22 November 2001
Date reviewed: 18 March 2014

ISSN: 1445-2782

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