Employee Share Scheme: late section 139E election - within a reasonable time

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 the taxpayer's request was made one month after the lodgement of the income tax return?

Yes. The Commissioner will exercise his discretion under subsection 139E(2) of the ITAA 1936 to accept the taxpayer's late election where the taxpayer's request was made one month after the lodgement of the income tax return.

The taxpayer was granted shares from their employer through an employee share scheme. The taxpayer did not pay any consideration for those shares. The shares were qualifying shares 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 shares in assessable income for the income year the shares were acquired.

One month after lodging the income tax return, the taxpayer requested that the Commissioner exercise his discretion and accept a late election.

A taxpayer who acquires qualifying shares 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 to include the discount in assessable income in the year of acquisition. 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 circumstances for the Commissioner's to exercise his discretion.

Whilst the taxpayer did not make an election prior to lodgement of the income tax return, by requesting the late election within one month of lodgement, the taxpayer has acted promptly to remedy the situation.

The Commissioner considers that it would be fair and equitable to grant the extension of time to make the election in the taxpayer's circumstances as it was made within a reasonable time of the lodgement of the return. Accordingly, the Commissioner will exercise his discretion and accept the late election.

The discount given on the qualifying shares, calculated under subsection 139CC(2) of the ITAA 1936, will be included in the taxpayer's assessable income for the relevant income year.