The AAT has found that stapled securities acquired by a taxpayer under a Senior Executive Option Plan (SEOP) were not assessable income, although it did confirm that the taxpayer was taxable on a discount of id=”mce_marker”52,400 that arose under s 139CC(4) of the ITAA 1936 in respect of the shares acquired under the SEOP. The Tribunal also upheld a tax shortfall penalty to 25%, albeit on a reduced amount.
The taxpayer acquired 60,000 options in the parent company of his employer organization: Toll Holdings Ltd, in 2004 pursuant to Toll’s SEOP. He exercised those options in 2007, and became a shareholder in Toll able to participate in a Toll Scheme under which he was entitled to dividends and capital distributions through which he became an Asciano Stapled Securities holder. The Scheme involved 2 dividends and 2 reductions of capital in association with transfers of assets by Toll entities to Asciano entities.
The Commissioner argued that, in relation to exercise of the options, the taxpayer had Toll shares that had a right to the Asciano Stapled Securities and that a Div 13A taxable amount should be determined accordingly ie the Div 13A amount should include the value of the stapled securities, which was $647,310.
The taxpayer disagreed arguing that the Div 13A rules were definitive and, in his circumstances, they provide that the taxable amount is determined by reference to the weighted average of prices at which Toll shares traded on the ASX over the prescribed period, whatever the result of that calculation would be.
The AAT said the Commissioner conceded the availability of franking credits to the taxpayer and, as a consequence, an amount of id=”mce_marker”4,571 was to be included in assessable income and franking credits of $4,371.43 were to be allowed.
The AAT addressed the Commissioner’s 4 arguments as follows:
- the shares acquired on exercise of the SEOP options were the Toll Shares and the Asciano Stapled Securities and both needed to be valued and that aggregate value brought to account – the AAT did not accept this argument;
- in the alternative, if it was only the value of the Toll shares that was to be brought to account, the proper Toll share to value was a Toll share cum entitlements under the Scheme which would need to be calculated pursuant to s 139FB and not s 139FA of the ITAA 1936 (the separate class of shares argument) – the AAT did not accept this argument, saying that the “touch stone used in the statutory scheme of Division 13A indicates that ordinary shares cum and ex entitlements are to be regarded as a single class of share”;
- in the alternative, if it was only the value of the Toll shares that was to be brought to account and the proper Toll share to value was a Toll share ex entitlements under the Scheme, then the there was a separate and distinct employee share scheme that provided for Asciano shares. It would then be the value of those shares that needed to be included in the taxpayer’s assessable income as well under ss 139B(1) and (2), and 139FB – the AAT disagreed, saying that the value of the Asciano Stapled Securities was not assessable “on the footing that they were rights within the meaning of Div 13A”;
- to the extent that Div 13A did not apply, then either ss 6-5 or 15-3 of the ITAA 1997 would bring to account the value of the Asciano Stapled Securities – the AAT also disagreed with this argument.
The taxpayer had received dividends and franking credits in respect of his shares, although neither were included in his 2007 tax return. The Commissioner initially denied the franking credit tax offset but subsequently conceded the taxpayer was entitled to it. The AAT also found the taxpayer had omitted id=”mce_marker”52,400 from his 2007 return as a taxable discount under Div 13A.
The 25% shortfall penalty imposed was upheld by the AAT as it considered that while the taxpayer had taken reasonable care (in seeking advice from his tax agent, who then referred him to a financial planner, as to the tax consequences of participating in the SEOP), the taxpayer had not discharged the onus of showing that both he and his tax agent took reasonable care in preparing his 2007 tax return.
(AAT Case [2013] AATA 845, Re Stewart and FCT, AAT, Middleton J and O’Loughlin SM, AAT Ref: 2012/1439, 28 November 2013.)
[LTN 232, 29/11/13]