ATO ID 2002/542: Employee Share Scheme - Late section 139E Election request - not within a reasonable time
Date of decision: 28 March 2002
Business line: Private Groups and High Wealth Individuals

Issue
Will the Commissioner exercise his discretion under subsection 139E(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to allow the taxpayer to make a late election where a taxpayer only became aware of section 139E of the ITAA 1936 some time after the lodgement of the taxpayer's tax return?

Decision
No. The Commissioner will not exercise his discretion under subsection 139E(2) of the ITAA 1936 to accept the taxpayer's late election, where a taxpayer only became aware of section 139E of the ITAA 1936 some time after the lodgement of the taxpayer's tax return.

Facts
The taxpayer was granted rights to acquire shares from their employer (an overseas company) through an employee share scheme. The rights were 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. Twelve months after lodging their income tax return, the taxpayer requested that the Commissioner exercise his discretion and accept a late election as that was when the taxpayer was made aware that an election could have been made for the rights. The taxpayer's grounds for extension were:

Reasons for decision
Summary: 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). A 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 to include the discount in assessable income in the year of acquisition. 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: When the rights were granted, international employees were provided with information that indicated that they seek advice on the taxation treatment for the rights in their country of residence. The taxpayer's explanation of the time delay between the date of lodgement of the income tax return and the date of the late election was that the taxpayer was unaware of the Australian taxation treatment of the rights. The taxpayer did not seek Australian taxation advice as suggested in the material provided by the employer, but rather assumed that the tax treatment would be the same as in the overseas country. Based on the taxpayer's explanation for the 12 month time delay between lodgement of the return and the request for the late election, the Commissioner does not consider the explanation warrants an extension of time to make a late election. The discount given on the qualifying rights, calculated under either subsections 139CC(3) or 139CC(4) of the ITAA 1936, needs to be included in the taxpayer's assessable income in the income year in which the cessation time occurs (subsection 139B(3) of the ITAA 1936).

Legislative references: Income Tax Assessment Act 1936 Division 13A subsection 139B(2) subsection 139B(3) subsection 139CC(3) subsection 139CC(4) section 139 CD subsection 139E(1) subsection 139E(2)
Related ATO interpretative decisions: ATO ID 2001/402 | ATO ID 2001/607
Subject references: Employee share schemes & options Commissioner's discretion