In a decision handed down on Wed 8.8.2012, the Full Federal Court has dismissed the Commissioner’s appeal against an earlier AAT decision and held that the taxpayer had applied the correct acquisition date in relation to share options and was therefore not subject to shortfall penalties that had been imposed.
The taxpayer was granted options to purchase shares in Seven Network Limited as a part of his negotiated employment conditions. On 1 July 2003, the taxpayer commenced employment with the company as a Commercial Director. On 28 November 2003, a resolution approving the issue of options to the taxpayer was passed by the shareholders of the company at the AGM. On 22 December 2003, the taxpayer and the company executed an option deed. The appeal concerned the now repealed Div 13A of the ITAA 1936.
The taxpayer adopted 1 July 2003 as the acquisition date for the options. The Commissioner contended the correct acquisition date was 22 December 2003 or alternatively 28 November 2003. An amended assessment was therefore issued to the taxpayer including an additional $443,500 in his taxable income for the year ended 30 June 2004 and the Commissioner further imposed a tax shortfall penalty of 5%.
The Full Federal Court said the statutory language did not support the Commissioner’s distinction between an interest in the relevant right (the right to acquire shares) and an interest in an anterior right (the right to require the employer to provide the shares). No uncertainty as to the taxing point thereby arose, the Court said.
The Court said the Commissioner accepted in argument that on 1 July 2003 the taxpayer had a contractual right to have the options issued to him. Once the construction of s 139G is rejected that the legal interest or the beneficial interest has to separately exist in the person creating the right before that right can be acquired by, in this case, the taxpayer, the Court said it must follow that that right was created in the taxpayer by Seven Network Limited and, by virtue of s 139G(c), the taxpayer acquired that right, on 1 July 2003. The Court dismissed the Commissioner’s appeal.
(FCT v McWilliam [2012] FCAFC 105, Full Federal Court, Edmonds, Jagot and Robertson JJ, 8 August 2012.)
[LTN 152, 8/8]