Issue
Does former section 139DD of the Income Tax Assessment Act 1936 (ITAA 1936) treat options as if they were never acquired by a director if the options were provided as the director's sole remuneration but were subsequently lost without being exercised?
Decision
No. Where a director's only remuneration was in the form of options issued by the company, former section 139DD of the ITAA 1936 does not apply to treat those options as if they were never acquired where those options are subsequently lost without being exercised.
Facts
An Australian listed company issued options to acquire shares in the company to a director of the company as a reward and incentive for their services.
The options were issued prior to 1 July 2009 and were rights provided under an employee share scheme within the meaning of former Division 13A of Part III (Division 13A) of the ITAA 1936.
The director did not pay anything for the options.
The options entitled the director, on payment of an exercise price, to acquire a corresponding number of shares in the company.
The options were issued with a life of 3 years and expired at the end of that time without being exercised.
The director was assessed on the value of the options in the year of acquisition.
Neither the director nor any associated entity received, or was entitled to receive, any other remuneration for the director's services.
The director was at all relevant times an Australian resident within the meaning of subsection 6(1) of the ITAA 1936.
Neither former section 26AAC of the ITAA 1936, nor Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997) applies in relation to the receipt of the options.
Reasons for Decision
Former Division 13A of the ITAA 1936 provided for the taxation treatment of shares and rights acquired prior to 1 July 2009 under employee share schemes.
Former 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: • the taxpayer loses the right without having exercised it; and • the company was, at the time the right was acquired, the employer of the taxpayer or a holding company of the employer of the taxpayer.
'Employer' is relevantly defined by former subsection 139GA(3) of the ITAA 1936 to be a person who pays, or is liable to pay work and income support related withholding payments and benefits.
'Work and income support related withholding payments and benefits' are in turn relevantly defined in subsection 6(1) of the ITAA 1936 to include: • payments from which an amount must be withheld under a provision of Subdivision 12-B in Schedule 1 (other than section 12-55) to the Tax Administration Act 1953 (TAA); and • certain non-cash benefits in relation to which an amount must be paid to the Commissioner under Division 14 in Schedule 1 to the TAA.
As the director's only remuneration from the company was in the form of options provided under an employee share scheme, no payment was made to the director from which an amount must be withheld under a provision of Subdivision 12-B in Schedule 1 to the TAA.
The options granted to the director are rights acquired under an employee share scheme within the meaning of former Division 13A of the ITAA 1936. While they are non-cash benefits, former paragraph 14-5(3)(d) of Division 14 in Schedule 1 to the TAA (as applicable at the time the director received the options) specifically excludes such employee share scheme benefits from the operation of that Division.
Thus, at the time the options were provided, the company was not the employer of the taxpayer or a holding company of the employer of the taxpayer.
Accordingly, although the options were lost without being exercised, the director is not able to treat the options as if they had never been acquired under former section 139DD of the ITAA 1936. Nor can they request an amendment to have the value of the options excluded from their assessment for the year the options were acquired.