ABB v Comptroller of Income Tax: Taxability of Share Option Gains by Deceased Employee's Estate
In ABB v Comptroller of Income Tax, the High Court of Singapore heard an appeal by ABB, the executrix of a deceased employee's estate, against the Comptroller of Income Tax's decision to tax gains derived from the exercise of share options. The share options were granted to the deceased employee as part of his remuneration. The court, presided over by Chao Hick Tin JA, dismissed the appeal, holding that the retention of the share options by the estate constituted a benefit arising from the deceased employee's employment and was therefore subject to income tax.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Appeal Dismissed
1.3 Case Type
Tax
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
The High Court held that gains from share options exercised by a deceased employee's estate are taxable, as the benefit arose from employment.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Comptroller of Income Tax | Respondent | Government Agency | Judgment for Respondent | Won | Joyce Chee of Inland Revenue Authority of Singapore Joanna Yap of Inland Revenue Authority of Singapore |
| ABB | Appellant | Individual | Appeal Dismissed | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Chao Hick Tin | Justice of the Court of Appeal | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Joyce Chee | Inland Revenue Authority of Singapore |
| Joanna Yap | Inland Revenue Authority of Singapore |
| Tan Kay Kheng | WongPartnership LLP |
| Tan Shao Tong | WongPartnership LLP |
4. Facts
- The Taxpayer was a senior executive granted share options as part of his remuneration.
- The Share Option Plans stated that options would lapse upon death unless the Committee determined otherwise.
- After the Taxpayer's death, the Committees allowed the Estate to retain and exercise the Share Options.
- The Estate exercised the Share Options in 2006, deriving gains of over $8m.
- The Comptroller of Income Tax assessed the Estate's tax liability at about $1.7m.
- The Income Tax Board of Review held that the gains were subject to income tax.
- The Executive Resource Compensation Committee is responsible for administering the Company’s share option plan.
5. Formal Citations
- ABB v Comptroller of Income Tax, Income Tax Appeal No 1 of 2009, [2010] SGHC 46
6. Timeline
| Date | Event |
|---|---|
| Share options granted to the Taxpayer | |
| Share options granted to the Taxpayer | |
| Share options granted to the Taxpayer | |
| Taxpayer's death | |
| Share Options exercised by the Estate | |
| Year of Assessment | |
| Income Tax Board of Review Appeal No 32 of 2007 | |
| Income Tax Appeal No 1 of 2009 | |
| Appellant’s Core Bundle of Documents filed | |
| Judgment reserved | |
| Decision Date |
7. Legal Issues
- Taxability of Share Option Gains
- Outcome: The court held that the gains derived from the exercise of share options by the estate of a deceased employee were subject to income tax.
- Category: Substantive
- Sub-Issues:
- Benefit arising from employment
- Application of Income Tax Act to deceased employee's estate
- Related Cases:
- [2006] 2 SLR(R) 405
8. Remedies Sought
- Appeal against the decision of the Income Tax Board of Review
9. Cause of Actions
- No cause of actions
10. Practice Areas
- Tax Litigation
11. Industries
- No industries specified
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Comptroller of Income Tax v HY | Court of Appeal | Yes | [2006] 2 SLR(R) 405 | Singapore | Cited to establish that s 10(5) of the Income Tax Act is a deeming provision that includes gains from share options as taxable income. |
| JD Ltd v Comptroller of Income Tax | Court of Appeal | Yes | [2006] 1 SLR(R) 484 | Singapore | Cited to caution against the blind use of foreign case law in elucidating tax principles. |
| Hochstrasser (Inspector of Taxes) v Mayes | Chancery Division | Yes | [1959] Ch 22 | England and Wales | Cited for the principle that whether a payment is a profit arising from employment depends on the facts of each case and must be a reward for services. |
| Hochstrasser (Inspector of Taxes) v Mayes | House of Lords | Yes | [1960] AC 376 | England and Wales | Cited for the principle that the test of taxability is whether the profit accrues to the recipient by virtue of their office. |
| Hamblett v Godfrey (Inspector of Taxes) | Unknown | Yes | [1987] 1 WLR 357 | England and Wales | Cited to affirm the principle that gains from employment are not restricted to payments received as a reward for services. |
| Wilcock (H M Inspector of Taxes) v Eve | Unknown | Yes | (1994) 67 TC 223 | England and Wales | Cited to affirm the principle that gains from employment are not restricted to payments received as a reward for services. |
| Seymour v Reed | House of Lords | Yes | [1927] AC 554 | England and Wales | Cited for the principle that gains from employment include payments made as remuneration for services but do not include mere gifts made on personal grounds. |
| Calvert (Inspector of Taxes) v Wainwright | King's Bench Division | Yes | [1947] KB 526 | England and Wales | Cited to illustrate the distinction between a gain from employment and a mere gift. |
| Hayes v Federal Commissioner of Taxation | Australian High Court | Yes | (1956) 96 CLR 47 | Australia | Cited for the principle that a voluntary payment may be income if related to employment or services rendered. |
| Inland Revenue Commissioners v Wesleyan and General Assurance Society | House of Lords | Yes | [1948] 1 All ER 555 | England and Wales | Cited for the principle that the court should look at the true nature of the payment and not the parties’ description of it. |
| Pinetree Resort Pte Ltd v Comptroller of Income Tax | High Court | Yes | [2000] 1 SLR(R) 275 | Singapore | Cited for the application of the principle that the court should look at the true nature of the payment and not the parties’ description of it. |
| Cowan v Seymour (Surveyor of Taxes) | English Court of Appeal | Yes | [1920] 1 KB 500 | England and Wales | Cited to show that a payment made after the employment had ended and from the shareholders was not taxable. |
| Bridges (Inspector of Taxes) v Hewitt | English Court of Appeal | Yes | [1957] 1 WLR 674 | England and Wales | Cited to show that a payment made by someone other than the employer may indicate that the payment is not remuneration. |
| Moorhouse (Inspector of Taxes) v Dooland | Unknown | Yes | [1955] Ch 284 | England and Wales | Cited to show that if the contract of employment entitles the recipient to receive the voluntary payment, it accrues to him by virtue of his employment. |
| Ball (H M Inspector of Taxes) v Johnson | Unknown | Yes | (1971) 47 TC 155 | England and Wales | Cited to show that a one-off payment is more likely to be considered not to be a payment arising from employment if its purpose was to congratulate the taxpayer for a personal achievement rather than to reward him for his work. |
| Laidler v Perry (Inspector of Taxes) | House of Lords | Yes | [1966] AC 16 | England and Wales | Cited to show that a gift voucher given regularly at Christmas to every qualifying member of the staff constituted a profit from employment. |
| Moore v Griffiths (Inspector of Taxes) | Unknown | Yes | [1972] 1 WLR 1024 | England and Wales | Cited to show that a bonus received from the English Football Association for being a member of the English team which won the World Cup in 1966 had the quality of a testimonial rather than the quality of remuneration for services rendered. |
| Brumby (Inspector of Taxes) v Milner | House of Lords | Yes | [1976] 1 WLR 1096 | England and Wales | Cited to show that distributions to the employees were taxable as profits from employment. |
| Commissioner for Inland Revenue v Shell Southern Africa Pension Fund | Supreme Court of South Africa | Yes | (1983) 46 SATC 1 | South Africa | Cited to show that the exercise of discretion by the Fund’s committee constituted an intervening event that broke the chain of causation between a male pensioner’s death and the recoverability of the lump sum benefit by that pensioner’s widows or dependants. |
| Income Tax Case No 1386 | Unknown | Yes | (1984) 46 SATC 116 | South Africa | Cited to show that the payments in these three cases were held not to be taxable in circumstances which, he submitted, were indistinguishable from those in the present case. |
| Secretary for Inland Revenue v Watermeyer | Unknown | Yes | (1965) 4 SA 431 | South Africa | Cited to show that the payments in these three cases were held not to be taxable in circumstances which, he submitted, were indistinguishable from those in the present case. |
| Turner (Surveyor of Taxes) v Cuxon | Queen's Bench Division | Yes | (1889) 22 QBD 150 | England and Wales | Cited to show that the payments in these three cases were held not to be taxable in circumstances which, he submitted, were indistinguishable from those in the present case. |
| Laidler v Perry (Inspector of Taxes) | English Court of Appeal | Yes | [1965] Ch 192 | England and Wales | Cited to show that the value of the gift was also significant. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Income Tax Act (Cap 134, 2004 Rev Ed) s 10(1)(b) | Singapore |
| Income Tax Act (Cap 134, 2004 Rev Ed) s 10(6) | Singapore |
| Income Tax Act (Cap 134, 2001 Rev Ed) s 10(5) | Singapore |
| Income Tax Act (Cap 134, 2004 Rev Ed) s 10(2)(a) | Singapore |
| Income Tax Act (Cap 134, 2004 Rev Ed) s 10(6)(d) | Singapore |
| Income Tax Act (Cap 134, 2004 Rev Ed) s 10(6)(e) | Singapore |
| Interpretation Act (Cap 1, 2002 Rev Ed) s 9A(1) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Share options
- Estate
- Employment income
- Taxability
- Benefit from employment
- Deceased employee
- Income Tax Act
- Year of Assessment
- Executive Resource Compensation Committee
- Share Option Plans
15.2 Keywords
- Income Tax
- Share Options
- Employment
- Singapore
- Tax
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Income taxation | 95 |
| Taxation | 90 |
| Share Options | 70 |
| Employee Benefits | 60 |
| Employment Law | 50 |
| Corporate Law | 30 |
16. Subjects
- Taxation
- Employment Law
- Share Options