Employee Share Scheme - Late Section 139E Election

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?

Yes, the Commissioner will exercise his discretion under 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.

The taxpayer was granted rights to acquire shares from their employer through an employee share scheme. The taxpayer did not pay any consideration for those 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 have the discount on the qualifying rights included in assessable income prior to the lodgment of their income tax return for the relevant income year, being the year in which the rights were acquired.

Two years after lodging their income tax return, the taxpayer requested that the Commissioner exercise his discretion and accept a late election. The taxpayer's grounds for extension are: • the taxpayer's work commitments caused the taxpayer to travel constantly overseas with their young family (two children under 3 years of age), • the taxpayer provided medical evidence showing that the taxpayer was constantly sick and suffering exhaustion, and • the taxpayer returned to Australia to obtain medical help for a condition that requires long term management.

These circumstances commenced prior to the taxpayer lodging their income tax return and continued until after their request for the late election.

A taxpayer who acquires qualifying rights may make an election to include the discount in their 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 their 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 their qualifying rights prior to the lodgment of their income tax return for the relevant income year. Accordingly, the taxpayer requested the Commissioner to exercise his discretion under subsection 139E(2) of the ITAA 1936 to accept their 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 lodging their income tax return for the relevant income year, • the taxpayer's explanation of the time delay between lodging their income tax return and the date of the taxpayer's late election, and • whether it would be fair and equitable in the taxpayer's circumstances for the Commissioner's to exercise his discretion.

At the time when the election should have been made, the taxpayer was experiencing health and family difficulties. In addition, the taxpayer was regularly travelling overseas. The Commissioner accepts that these circumstances led to the taxpayer failing to make an election in the relevant income year.

Since the time that the taxpayer lodged their income tax return, the taxpayer has been suffering from a serious health problem, in addition to managing a young family. The Commissioner accepts that the ongoing health problems and family circumstances led to a substantial delay between the time they lodged their income tax return and the time of the late election.

The Commissioner considers that it would be fair and equitable to grant the extension of time to make the election as it puts the taxpayer in an equivalent position to that which the Commissioner may have expected under normal circumstances. Accordingly, the Commissioner will exercise his discretion and accept the late election. The discount given on the rights will be included in the taxpayer's assessable income for the relevant income year.