Income: Employee share scheme (assessability of options received prior to redundancy)

Is a discount given, in relation to options acquired under an employee share scheme, excluded from assessable income under section 139DD of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer, upon redundancy, loses the right to exercise those options?

Yes. The discount is excluded from assessable income as the requirements of section 139DD of the ITAA 1936 have been satisfied.

The taxpayer acquired options under an employee share scheme within the meaning of section 139C of the ITAA 1936.

The taxpayer elected under section 139E of the ITAA 1936 to include the discount given in relation to the options, in his assessable income in the year the options were acquired.

The taxpayer was made redundant by his employer, being the company which issued the options. As a result, the taxpayer lost the right to exercise the options.

The options were acquired before 1 July 2009.

Section 139E of the ITAA 1936 allows a taxpayer to elect to include the discount given, in relation to a share or right acquired under an employee share scheme, in the taxpayer's assessable income in the year the share or right was acquired.

Section 139DD of the ITAA 1936 provides that a right to acquire a share in a company is never acquired by a taxpayer if both of the following two requirements are satisfied: (1) The taxpayer loses the right without having exercised it. (2) The company is the employer of the taxpayer or a holding company of the employer of the taxpayer at the time the right is acquired.

In this case, as the taxpayer has lost the right to exercise the options, and the company which issued the options was the employer of the taxpayer at the time the options were acquired, the conditions in section 139DD of the ITAA 1936 are satisfied.

Therefore, the discount is excluded from assessable income. The taxpayer's assessment is amended under section 170 of the ITAA 1936 to exclude the discount from assessable income. Subsection 139DD(4) of the ITAA 1936 allows an assessment to be amended at any time for the purpose of giving effect to section 139DD of the ITAA 1936.

Note: Division 13A of the ITAA 1936 (about employee share schemes) was repealed by Act No. 133 of 2009 and replaced by Division 83A of the Income Tax Assessment Act 1997 which applies in full to 'ESS interests' acquired on or after 1 July 2009. The Income Tax (Transitional Provisions) Act 1997 extends the application of Division 83A to ESS interests acquired before 1 July 2009 in certain cases on which tax was deferred beyond that date under the former Division 13A regime.

Date of amendment Part Comment 17 July 2014 Facts Updated to improve clarity. Reasons for Decision Updated to improve clarity and to insert note about the transitional application of the new rules in Division 83A of the ITAA 1997. Legislative references and Related ATO Interpretative Decisions Updated references to improve clarity and completeness and to include a related ATO Interpretative Decision.

Date of amendment | Part | Comment

17 July 2014 | Facts | Updated to improve clarity.

Reasons for Decision | Updated to improve clarity and to insert note about the transitional application of the new rules in Division 83A of the ITAA 1997.

Legislative references and Related ATO Interpretative Decisions | Updated references to improve clarity and completeness and to include a related ATO Interpretative Decision.