Another take on when options are granted under an employee share scheme

The question of when options are acquired under an employee share scheme (under the old Division 13A of the Income Tax Assessment Act 1936) has again been considered by the Full Court of the Federal Court of Australia, this time in Fowler v Commissioner of Taxation [2013] FCAFC 69 (3 July 2013).


Mr Fowler acquired 742,500 options in respect of his services as a non-executive director of Nexus Energy Limited; the issue was whether he acquired the options when the board resolved to grant them on 14 September 2006, subject to shareholder approval (when the options had a value of $31,928), or whether he only acquired the options after shareholders approved the grant at the AGM on 30 November 2006 (when the options value was $415,800).


The Full Court confirmed the decision of the primary judge, who supported the Tax Commissioner’s view that the options were only acquired after shareholders had approved the options grant.  Before that, Mr Fowler did not have a right for the purposes of Division 13A because he did not have an enforceable right directly or indirectly to acquire shares in the company.


Fowler may by contrasted with the 2012 decision of the Full Court of the Federal Court in Commissioner of Taxation v McWilliam [2012] FCAFC 105; (2012) 204 FCR 478 (“McWilliam”). The primary judge in Fowler concluded that McWilliam is authority for the proposition that a right to a right to acquire shares was an enforceable right within Division 13A (at [103]). However, her Honour distinguished Fowler from McWilliam on the grounds that the only right Mr Fowler obtained when the board resolved to grant the options was conditional on a future event i.e. approval of the grant by shareholders. A further distinction drawn by her Honour was that it was not within the taxpayer’s own power directly or indirectly to acquire a right to shares, whereas in McWilliam the taxpayer was not a director when agreement was reached on the grant of the options, so the grant was not conditional on shareholder approval.


The decision of the Full Court in Fowler is available HERE.



The primary judgment in the case is available HERE.



Our newsletter article on the Administrative Appeals Tribunal decision in McWilliam is available HERE.

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