Australia ruling on income from share scheme transaction

• N/A

Subject References:

Employee Share Schemes

Précis

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.

Brief Summary 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.

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

We invite you to advise us if you feel this decision has
consequences we have not identified, or if a precedential decision such
as a Public Ruling or an ATO ID requires reconsideration or amendment.
Please forward your comments to the contact officer by the due date.

After that date any comments on the consequences of this case for any ATO publication should be sent to the following mail box:

ato.coenmt@ato.gov.au

Legislative References:
Income Tax Assessment Act 1936
Division 13A