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Edited version of your written advice
Authorisation Number: 1012751822509
Ruling
Subject: Employee share scheme
Question
Will the Commissioner exercise the discretion under subsection 139E(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to allow you to make a late section 139E election for the shares received in the xxxx to xxxx income years?
Answer
Yes
Relevant facts and circumstances
You were an employee of X and participated in their employee share scheme.
You were granted qualifying shares in the following tranches:
In each of the above years the total value of the shares granted was $1,000 or less.
You did not lodge a section 139E election when you lodged the relevant income tax returns.
The relevant employee share scheme satisfied the exemption conditions under section 139CE of the ITAA 1936. Consequently you will not need to amend your income tax returns to give effect to a grant of the discretion.
You have provided the following reasons for requesting the late election:
• You did not understand the taxation of employee share schemes when you received the shares.
• You forgot about the shares over time.
• You have been psychologically unwell for a number of years and have been unable to attend to financial dealings.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 139B
Income Tax Assessment Act 1936 section 139BA
Income Tax Assessment Act 1936 section 139CE
Income Tax Assessment Act 1936 section 139E
Income Tax Assessment Act 1936 subsection 139E(2)
Reasons for decision
An election under section 139E of the ITAA 1936 can be made by an employee in respect of the qualifying shares and rights. The effect of making an election is that the discount given in respect of the qualifying share shares and rights is included in the employee's assessable income in the year of acquisition.
The written election must be made before, or at the time of lodgement of the tax return of the relevant year of income, however subsection 139E(2) of the ITAA 1936 gives the Commissioner the discretion to allow a taxpayer to make a late election.
When considering if an extension of time should be granted, the Commissioner will treat each case on its own merits and consider the following factors:
• the circumstances which led to the taxpayer not making the election prior to the lodgement of their income tax returns for the relevant income year
• the taxpayers explanation of the time delay between the date of lodgement of income tax return and the date of the late election; and
• whether it is fair and equitable in the circumstance for the Commissioner discretion to be exercised.
Even in the absence of a reasonable explanation, the Commissioner must still look at all the circumstances in deciding whether it would be fair and equitable the discretion (Comcare v Ahearn (1993) 119 ALR 85). That involves balancing all the relevant factors on the basis that the legislation gives the Commissioner discretion to accept a late election in certain circumstances (Brown v FCT (1999) 42 ATR 118).
In your circumstances there was a significant delay between the lodgement of the relevant income tax returns and the request to allow a late election. The Commissioner does not accept that not understanding how ESS interests are taxed or forgetting about the shares are valid reasons for allowing the election.
However we do accept that serious mental health problems would be a valid reason for the delay of requesting the late election. Further we consider that it would be fair and equitable to allow the late election as the relevant ESS interest would satisfy the exemption conditions and therefore you need not amend any of your previous income tax returns to give effect to the grant of the discretion.
Having reviewed your circumstance, we consider it would be fair and equitable to allow you to make the later section 139E election. Accordingly, the Commissioner will exercise his discretion and accept your late section 139E election for the xxxx to xxxx income years.
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