Taxpayer and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2010/4609)
Judgment date: 25 July 2011
Date published: 22 December 2011

Summary of decision:
This case concerned whether discounts arising from the acquisition of shares under an employee share scheme are assessable income and not subject to the capital gains tax provisions.

Overview of facts:
The applicant, an employee of a multi-national corporation, exercised options as part of the company's employee share scheme to acquire 11,000 shares at a price below market value. | The Commissioner assessed the discount, being the difference between the market price of the share and the strike price of the option, as assessable income of the applicant in accordance with Division 13A of the Income Tax Assessment Act 1936. An administrative penalty was imposed at the rate of 25% for lack of reasonable care. | Issues decided by the tribunal | The Tribunal found the amount of the discount was assessable as income under Division 13A of the Income Tax Assessment Act 1936 , and a capital loss or gain did not arise. In the circumstances, the discount would be included in the income year in which the cessation time occurred, being the date the shares were acquired. The Tribunal accepted that for the purposes of ascertaining the market value of the share, exchange rate data from the company's website could be used, and that the foreign currency calculation required by the legislation need only occur once the weighted average share price had been determined. The Tribunal allowed a recalculation of the discount to permit the use of the most favourable exchange rates. | The administrative penalty had been correctly imposed as the applicant was experienced in financial matters as a result of his occupation and experience, and ought to have obtained advice given the amount of money involved.

Issues decided:
The Tribunal found the amount of the discount was assessable as income under Division 13A of the Income Tax Assessment Act 1936 , and a capital loss or gain did not arise. In the circumstances, the discount would be included in the income year in which the cessation time occurred, being the date the shares were acquired. The Tribunal accepted that for the purposes of ascertaining the market value of the share, exchange rate data from the company's website could be used, and that the foreign currency calculation required by the legislation need only occur once the weighted average share price had been determined. The Tribunal allowed a recalculation of the discount to permit the use of the most favourable exchange rates. The administrative penalty had been correctly imposed as the applicant was experienced in financial matters as a result of his occupation and experience, and ought to have obtained advice given the amount of money involved.

ATO view of decision:
The ATO considers that the case was decided on its facts. The decision confirms a discount arising from shares acquired under employee share schemes is to be included as assessable income of the taxpayer, and the methodology to be applied in ascertaining the value of the discount.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None

Legislative references: Income Tax Assessment Act 1936 Division 13A
Subject references: Employee Share Schemes