FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v McWilliam [2012] FCAFC 105 Citation: Commissioner of Taxation v McWilliam [2012] FCAFC 105 Appeal from: Taxpayer v Commissioner of Taxation [2012] AATA 142 Parties: COMMISSIONER OF TAXATION v BRUCE MCWILLIAM File number: NSD 511 of 2012 Judges: EDMONDS, JAGOT AND ROBERTSON JJ Date of judgment: 8 August 2012 Catchwords: TAXATION – employee share schemes – employee acquired options to purchase shares – date on which employee acquired options – nature of right acquired – whether rights anterior – meaning of "right" in Division 13A of the Income Tax Assessment Act 1936 (Cth) – whether s 139G(a) to (e) established mutually exclusive categories PRACTICE AND PROCEDURE – competency of appeal – whether appeal on a question of law Legislation: Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1936 (Cth) ss 139B, 139C, 139CD, 139DD, 139FC, 139FF, 139G, Cases cited: ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533 referred to Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 applied Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12 applied Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592 applied Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627; (1974) 74 ATC 4192 referred to Fraunschiel v Federal Commissioner of Taxation [1989] FCA 236; (1989) 89 ATC 4616; (1989) 20 ATR 955 referred to Industry Research & Development Board v Bridgestone Australia Ltd (2001) 109 FCR 564 applied Meagher R, Heydon D and Leeming M, Meagher, Gummow and Lehane's Equity, Doctrines and Remedies (4th ed, Butterworths LexisNexis, 2002) Date of hearing: 30 July 2012 Date of last submissions: 3 August 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 88 Counsel for the Applicant: Ms J Needham SC with Mrs M Hirschhorn Solicitor for the Applicant: Australian Taxation Office, Legal Services Branch Counsel for the Respondent: Dr AS Bell SC with Mr BL Jones Solicitor for the Respondent: Munro Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 511 of 2012 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: COMMISSIONER OF TAXATION Applicant AND: BRUCE MCWILLIAM Respondent JUDGES: EDMONDS, JAGOT AND ROBERTSON JJ DATE OF ORDER: 8 AUGUST 2012 WHERE MADE: Melbourne (via video link to Sydney) THE COURT ORDERS THAT: 1. The appeal be dismissed, with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 511 of 2012 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: COMMISSIONER OF TAXATION Applicant AND: BRUCE MCWILLIAM Respondent JUDGES: EDMONDS, JAGOT AND ROBERTSON JJ DATE: 8 AUGUST 2012 PLACE: Melbourne (via video link to Sydney) REASONS FOR JUDGMENT THE COURT Introduction 1 This is an appeal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) and is on, and limited to, a question of law. 2 The appeal concerns Division 13A of the Income Tax Assessment Act 1936 (Cth) (ITAA), which has since been repealed but which had as its subject "employee share schemes". 3 The Commissioner had concluded that Mr McWilliam adopted the wrong date as the date on which he acquired certain options to purchase shares in Seven Network Limited, a public company, and hence the date at which the "discount" included in his assessable income ought to have been calculated under s 139CC of Division 13A. Mr McWilliam's position was that the relevant date was 1 July 2003, whereas the Commissioner considered the correct date was 22 December 2003 or alternatively 28 November 2003. 4 The Commissioner issued an amended assessment which included an additional $443,500.00 in Mr McWilliam's taxable income for the year ended 30 June 2004 and imposed a tax shortfall penalty of five per cent. The additional tax was attributable to a movement in the share price of Seven Network Limited between the date asserted as the date of acquisition by Mr McWilliam and the date adopted by the Commissioner. 5 By its decision dated 7 March 2012, the Administrative Appeals Tribunal (Tribunal) set aside the decision under review and allowed Mr McWilliam's objection in full "on the basis that the relevant date was 1 July 2003 for the purposes of s 139B of the ITAA. Consequently, the Applicant is not liable to pay penalty for shortfall." 6 There were two main issues before the Court: first, whether the Tribunal had decided that Mr McWilliam acquired a right to acquire shares in Seven Network Limited on 1 July 2003; second, in the alternative, whether, on the proper construction of the relevant provisions of Division 13A, the rights Mr McWilliam had acquired on 1 July 2003 were not rights to acquire shares in Seven Network Limited. The Tribunal's findings 7 The findings as made by the Tribunal were as follows. 8 In about May 2003 Mr McWilliam, then a partner in the law firm Gilbert and Tobin, was approached by Mr Gammell, a director of Seven Network Limited, who proposed to him that he accept employment with Seven Network Limited. Discussions and negotiations with Mr Gammell, a director of Seven Network Limited and later Mr Stokes, the Executive Chairman of the Board of Seven Network Limited, occurred on 8 and 9 May 2003. One of the subjects of discussion was Mr McWilliam being granted options in Seven Network Limited as one of the components of his remuneration as an employee of Seven Network Limited. 9 On 9 May 2003 Mr McWilliam sent an email to Mr Gammell recording the proposed terms of the contract of employment between himself and Seven Network Limited. The email relevantly stated: Re SNL options I have requested 1 million at $5 strike price (up from your ½ million offer), ½ million at $6 strike price and ½ million at $7 million [sic] strike price but obviously I would accept more. 10 On 13 May 2003 Mr McWilliam sent a further email to Mr Gammell to confirm "everything was agreed". He asked whether Mr Gammell was going to send him a letter or email or whether he could "take it that everything is settled". Mr McWilliam asked for "details of the vesting etc of the options". 11 On 13 May 2003 Mr Gammell replied to Mr McWilliam's email of earlier that day and said "yes we are settled". He commented that "[y]our options [are] starting to look good after today's move". 12 On 15 May 2003 Seven Network Limited announced Mr McWilliam's appointment as a Commercial Director. That same day Mr Gammell emailed to Mr McWilliam a draft contract of employment with Seven Network Limited (the draft contract). 13 The agreement reached by the parties was that Mr McWilliam would have the options at the specified strike prices on assuming office. 14 By clause 3(c) of the draft contract Seven Network Limited agreed to provide "those further benefits specified in Item 8 of the Schedule". Item 8 of the Schedule to the draft provided as follows: Subject to approval by the Seven Network Limited Board (and any shareholder approvals that may be necessary) Seven will provide you with the following benefits: … B. participation in a company share option scheme as set out in the annexure to this Agreement marked "Annexure". The Annexure provided as follows: It is proposed that [Seven Network Limited] issue 2,000,000 share options to [Mr McWilliam], Commercial Director. [Seven Network Limited] will seek shareholder approval for the issue of options, and subsequent share issues on exercise, in accordance with Australian Stock Exchange Listing Rules 7.1 and 10.11. If shareholder approval is obtained, it is proposed that the options will be issued no later than one month following the Annual General Meeting. The draft was never executed by either party. 15 On 1 July 2003 Mr McWilliam commenced employment in the position of Commercial Director. On 7 July 2003 Mr McWilliam sent to Mr Gammell an email asking him: Can I trouble you please to now email contracts(s) as my wife's computer has been on [the] blink? Sorry have not even looked at them but I am sure they are fine. 16 On 3 September 2003 Mr McWilliam was appointed a director of Seven Network Limited. 17 It was common ground that until 3 September 2003 Mr McWilliam was not a "director" of Seven Network Limited and up to that time he simply held a position with the title of "Commercial Director", and that there was therefore no requirement that shareholder approval was necessary in accordance with the Australian Stock Exchange Listing Rules. 18 Nevertheless, on 11 September 2003 the Company Secretary lodged with the Australian Stock Exchange Limited (ASX) a form entitled "Appendix 3X Initial Director's Interest Notice". Pursuant to that notice, Seven Network Limited gave to the ASX certain information concerning Mr McWilliam's interest in securities of and contracts with Seven Network Limited. That information was given "as agent for the director for the purposes of section 205G of the Corporations Act". Part 3 of that document was entitled "Director's interests in contracts". The "Nature of interest" was recorded as follows: Right, conditional on shareholders approval, to be granted options over un-issued shares in [Seven Network Limited]. The document then stated the strike price of the options and said: The grant of these options is subject to the approval of ordinary shareholders in general meeting. 19 The Tribunal said that Mr McWilliam had not seen this notice until recently and he had not authorised sending off the notice. It was not made "as agent" for Mr McWilliam. 20 On 28 October 2003 Seven Network Limited issued a Notice of Annual General Meeting. Under the heading "Special Business". The Notice included the following proposal: To consider and, if thought fit, pass the following resolution as an ordinary resolution: 'That [Seven Network Limited] approve for all purposes acquisition by [Mr McWilliam] of up to 2,000,000 options and, in consequence of exercise of those options, fully paid ordinary shares in [Seven Network Limited], on the basis described in the Explanatory Notes, which accompany this Notice of Annual General Meeting.' The Explanatory Notes to the Notice of Annual General Meeting contained the following: It is proposed that [Seven Network Limited] issue … 2,000,000 share options to [Mr McWilliam], Executive Director. Shareholder approval is required under ASX Listing Rules for the issue of options to Directors of [Seven Network Limited], and the subsequent issue of ordinary shares in the capital of [Seven Network Limited] ("Shares") on exercise of those options. The options will be issued immediately following the Annual General Meeting and, in any event, no later than one month after the Annual General Meeting, if approved. … There is no option issue fee … … The terms of the options for [Mr McWilliam] were agreed on 9 May 2003, the date of his appointment, when [Seven Network Limited]'s share price was $4.37. 21 On 18 November 2003 a further draft contract for Mr McWilliam's employment was brought into existence. That contract did not refer to the options. It was never executed by Mr McWilliam. 22 On 28 November 2003, the Annual General Meeting of the shareholders of Seven Network Limited passed the resolution approving the issue of the options for Mr McWilliam. 23 The shareholders' approval was obtained in the interest of transparency. 24 On 22 December 2003 Mr McWilliam and Seven Network Limited executed an Option Deed. Clause 1 of the Option Deed provided as follows: 1 Grant of Options 1.1 Number of Options The Company grants the Optionholder 2,000,000 Options on the terms of this deed. There is no option issue fee. 1.2 Issue Date The issue date of the Options will be 22 December 2003. Clause 3 of the Option Deed made provision for the options to vest in three tranches: 1 million options with an exercise price of $5.00 on 9 May 2004 if certain conditions as to Seven Network Limited's share price were satisfied; 500,000 options with an exercise price of $6.00 on 9 May 2005 if certain other conditions as to its share price were satisfied; and 500,000 options with an exercise price of $7.00 on 9 May 2006, again, if certain further conditions as to its share price were satisfied. 25 On 7 October 2005 Mr McWilliam made elections under s 139E of Division 13A to the effect that s 139B(2) was to apply to the options for the year of income ending 30 June 2004. Each election related to a different tranche of the three separate tranches of the options. 26 The objective facts were consistent with the conclusion that the parties intended in May-June 2003, to enter into binding legal relations whereby Mr McWilliam would resign from a partnership in Gilbert and Tobin in order to take up the new position, as a result of which he acquired the options. 27 The options were objectively an important ingredient in Mr McWilliam's remuneration, and this reinforced the conclusion that the exchange of emails and the discussions conferred an immediate binding legal right on Mr McWilliam to the acquisition of shares upon exercise of the options. It would be contrary to reasonable commercial expectations that Mr McWilliam, in the circumstances of taking up employment for a three-year period, after careful negotiations to secure the options in a quantity and at the strike price he wanted, would have entered into the employment arrangement in the absence of having such an immediate legally enforceable entitlement. If steps had been taken to obtain a declaration as to his entitlement on 1 July 2003, his entitlement to then acquire the options and the shares would have been recognised by a declaration of right or an order for specific performance. 28 There was an acquisition of options, pursuant to the discussions and emails of May 2003, whereby the taxpayer agreed to accept the options and this was agreed to by Seven Network Limited. The statutory provisions 29 Section 139B provided: 139B(1) If a taxpayer has acquired a share or right under an employee share scheme, the assessable income of the taxpayer includes the discount given in relation to the share or right. Note: Employee share scheme is defined in section 139C. When the discount is to be included (2) Unless subsection (3) applies, the discount is included in the taxpayer's assessable income of the year of income in which the share or right is acquired. (3) If the share or right is a qualifying share or right and the taxpayer has not made an election under section 139E for the year of income in which the share or right is acquired, the discount is included in the taxpayer's assessable income of the year of income in which the cessation time (see sections 139CA and 139CB) occurs. 30 Broadly speaking, by s 139CC, the discount was the market value of the share or right at the time when it was acquired by the taxpayer less any consideration paid or given by the taxpayer as consideration for the acquisition of the share or right. 31 Section 139C defined employee share scheme: 139C(1) A taxpayer acquires a share or right under an employee share scheme if the share or right is acquired by the taxpayer in respect of, or for or in relation directly or indirectly to, any employment of the taxpayer or an associate of the taxpayer. (2) A taxpayer acquires a share or right under an employee share scheme if the share or right is acquired by the taxpayer in respect of, or for or in relation directly or indirectly to, any services provided by the taxpayer or an associate of the taxpayer. (3) The taxpayer does not acquire a share or right under an employee share scheme if the consideration for the acquisition is equal to, or more than, the market value of the share or right at the time that it is acquired. (4) The taxpayer does not acquire a share under an employee share scheme if the taxpayer acquires the share as the result of exercising a right that the taxpayer acquired under an employee share scheme. (5) The taxpayer does not acquire a share or right under an employee share scheme if the taxpayer is the trustee of a trust whose sole activities are obtaining shares, or rights to acquire shares, and providing those shares or rights to employees of a company or to associates of those employees. 32 Section 139CD defined qualifying shares and qualifying rights: 139CD(1) For the purposes of this Division: (a) a share in a company is a qualifying share if the 6 conditions below are satisfied; and (b) a right to acquire a share in a company is a qualifying right if the first, second, third, fifth and sixth of the 6 conditions below are satisfied. Note: Section 139DF excludes certain shares from being qualifying shares. (2) The first condition is that the share or right is acquired by a taxpayer under an employee share scheme. (3) The second condition is that the company is the employer of the taxpayer or a holding company of the employer of the taxpayer. (4) The third condition is that all the shares available for acquisition under the scheme are ordinary shares and all the rights available for acquisition under the scheme are rights to acquire ordinary shares. (5) The fourth condition is that, at the time the share was acquired, at least 75% of the permanent employees of the employer were, or at some earlier time had been, entitled to acquire: (a) shares or rights under the scheme; or (b) shares or rights in the employer, or a holding company of the employer, under another employee share scheme. (6) The fifth condition is that, immediately after the acquisition of the share or right, the taxpayer does not hold a legal or beneficial interest in more than 5% of the shares in the company. (7) The sixth condition is that, immediately after the acquisition of the share or right, the taxpayer is not in a position to cast, or control the casting of, more than 5% of the maximum number of votes that might be cast at a general meeting of the company. (8) The Commissioner may determine that the fourth condition (see subsection (5)) is taken to have been satisfied in relation to a share if the Commissioner considers that the employer has done everything reasonably practicable to ensure that the condition was satisfied. 33 Section 139DD provided: 139DD(1) For the purposes of this Division, a right to acquire a share in a company is never acquired by a taxpayer if the following 2 requirements are satisfied. (2) The first requirement is that the taxpayer loses the right without having exercised it. (3) The second requirement is that the company is the employer of the taxpayer or a holding company of the employer of the taxpayer. (4) Section 170 does not prevent the amendment of an assessment at any time for the purpose of giving effect to this section. 34 Subdivision F contained special provisions about the market value of a share or right and set out how to determine the market value of a share or right to acquire a share on a particular day. In the case of unlisted rights, s 139FC provided: 139FC(1) If the right is not quoted on an approved stock exchange on that day, the market value is the greater of: (a) the market value, on the particular day, of the share that may be acquired by exercising the right, less the lowest amount that must be paid to exercise the right to acquire the share; and whichever of the following applies: (b) if the right can not be exercised more than 10 years after the day when the right was acquired—subject to section 139FE, the value determined in accordance with regulations for the purpose of this paragraph or, if no such regulations are in force, the value determined in accordance with sections 139FJ to 139FN; (c) if the right can be exercised more than 10 years after the day when the right was acquired—the greater of: (i) the arm's length value of the right as specified in a written report, in a form approved by the Commissioner, given to the person from whom the taxpayer acquires the right by a suitably qualified valuer; and (ii) the value that would have been determined under paragraph (b) if the right could be exercised 10 years after the particular day. (2) In calculating, for the purpose of subsection (1), the market value of the share that may be acquired by exercising the right, subsection 139FAA(1) applies as if the share were acquired on the particular day. 35 Section 139FF dealt with the value of legal and beneficial interests: 139FF To avoid doubt, if a person acquires either the beneficial interest or the legal interest in a share or right, the value that is applicable for the purposes of this Division is the value of the share or right, not the value of the interest in the share or right. Notes: 1. It is the value of the share or right that is relevant because the taxpayer is taken to have acquired the share or right—see section 139G. 2. Double taxation is avoided by section 139DA. 36 Section 139G defined acquiring or providing a share or right: 139G A person acquires a share or right if: (a) another person transfers the share or right to that person (other than, in the case of a share, by issuing the share to that person); or (b) in the case of a share—another person allots the share to that person; or (c) in the case of a right—another person creates the right in that person; or (d) the person otherwise acquires a legal interest in the share or right from another person; or (e) the person acquires a beneficial interest in the share or right from another person. In those circumstances, the other person provides the share or right. The reasoning of the Tribunal 37 On the question of construction, the Tribunal reasoned that s 139B(1) referred to the acquisition of a right, not simply to the acquisition of a share. By s 139C the taxpayer acquired a right if a right was acquired by the taxpayer "in respect of, or for or in relation directly or indirectly to, any employment". Under the agreement evidenced by the email exchanges and the oral evidence, the right to options was a "qualifying right" within s 139CD. This was because the right to the options was acquired under an employee share scheme, Seven Network Limited was the employer of Mr McWilliam and the rights were rights to acquire ordinary shares (the first, second and third conditions). The reference to rights to acquire ordinary shares was sufficiently wide to include a right to be granted an option and was not restricted, as contended by the Commissioner. Immediately after the acquisition Mr McWilliam did not hold an interest in more than 5 per cent of the shares in Seven Network Limited (the fifth condition). Nor could he control more than 5 per cent of the votes (the sixth condition). On a proper analysis, the right to acquire ordinary shares included a right to obtain options which, when exercised, resulted in the acquisition of ordinary shares. 38 The Tribunal accepted the submission that the right to obtain options was a relevant right within the meaning of s 139B, and was not a form of anterior entitlement which did not come within that provision. The Tribunal said the expression "right" was not limited in its terms and should be given a practical operation. 39 The Tribunal was not persuaded that the agreement in force as at July 2003 was conditional upon approval or a formal deed or upon shareholder approval. In terms, the exchange of emails, together with the oral evidence from Mr McWilliam, established that there was no reference in discussions or written reference to any such condition, and the Tribunal did not consider there was any such condition which could be implied in the email agreement of May 2003. The draft agreement sent on 16 May 2003 was in error in referring to the need for shareholder approval. Notice of appeal 40 The single question of law set out in the Commissioner's notice of appeal was as follows: Whether an employee under an employee share scheme acquires a "right" within the meaning of Division 13A of the Income Tax Assessment Act 1936 (Cth) (1936 Act) upon acquiring a right to require the employer to issue options to purchase shares or whether the employee acquires that right only upon the issue of the options under the employee share scheme. 41 The single ground there set out was as follows: The Applicant will contend that the Tribunal erred in concluding that the Respondent acquired a "right" within the meaning of Division 13A of the 1936 Act on 1 July 2003 and not, as the Applicant contended, on 22 December 2003, because the Respondent's right after 1 July 2003 and prior to 22 December 2003 was merely a right to require his employer to issue him with options under an employee share scheme and that right is not a relevant "right" within the meaning of Division 13A of the 1936 Act. Submissions before the Court 42 The Commissioner submitted that the relevant right for the purposes of s 139B(1) was a right to acquire shares and not just any right, legal or equitable, that might arise prior to the creation or grant of a right to acquire shares. 43 It followed that the right in the present proceedings was Mr McWilliam's right to acquire shares in Seven Network Limited, which right arose on the grant of the options by the company to Mr McWilliam on 22 December 2003 pursuant to the Option Deed of the same date as opposed to any anterior right that may or may not have been recognised at the discretion of a court of equity on 1 July 2003, that is, by declaration of right or an order for specific performance requiring Seven Network Limited to issue the options to Mr McWilliam. According to the Commissioner, this right, created by Mr McWilliam's contract of employment and which the Commissioner acknowledged existed as at 1 July 2003, was not a right to acquire shares within the meaning of Division 13A. 44 The Tribunal's error was shown by its reasons at [29] as follows: [29] For the above reasons, the Tribunal accepts the submission that the right to obtain options is a relevant right within the meaning of s 139B, and is not a form of anterior entitlement which does not come within that provision. The expression "right" is not limited in its terms and should be given a practical operation. 45 The Commissioner submitted that the terms of s 139G supported his position. Under s 139G a person acquired a share or right in the circumstances specified. Insofar as the acquisition of a beneficial interest in the share or right was concerned (the Commissioner apparently acknowledging that Mr McWilliam had a beneficial interest in the right to acquire shares given to him by his contract on 1 July 2003), the Commissioner submitted the person acquired a right only if that beneficial interest was acquired from another person (see s 139G(e)). In the present case, no other person transferred the beneficial interest to Mr McWilliam; such an interest was created in Mr McWilliam, but not acquired from another person as required by s 139G(e). 46 It was submitted that the methodology of calculation of the discount to be included in a taxpayer's assessable income plainly assumed that there was a right to acquire a share. Reference was made to what was submitted to be an implicit assumption in s 139FC(1)(a) that on the day the right was being valued there had to be in existence a right that might be exercised to acquire a share at an agreed exercise price. It was submitted that there was no provision in the legislation for the valuation of a right to be granted an option or right to obtain options or a declaration of right or an order for specific performance for an employer to issue options to an employee. It was also submitted that s 139FC(1)(b) and s 139FC(1)(c) implicitly assumed that the right being valued was capable of exercise at a point in the future. 47 It was submitted that a definite acquisition date needed to be established with a degree of certainty for the employee and from the perspective of the employer. 48 Because Mr McWilliam did not yet own the options as at 1 July 2003, the right was not capable of exercise to acquire shares in Seven Network Limited and thus could not have been properly valued using the methodology set out in s 139FC. 49 Further, it was only possible for Mr McWilliam to make an election under s 139E if the rights acquired by him satisfied the necessary conditions for qualifying rights. Section 139CD(1)(b) clearly indicated that for there to be a qualifying right there must first be a right to acquire a share in a company as well as the satisfaction of the relevant specified conditions in the section. It was also submitted that the third condition in s 139CD(4) required that all the rights available for acquisition under the scheme were rights to acquire ordinary shares. 50 The Commissioner also submitted that s 139DD was a crucial relieving provision which operated where a taxpayer was subject to tax in respect of the acquisition of a right to acquire a share but later lost that right without having exercised it. It was submitted that the relieving provision only applied to a right to acquire a share in a company. The right to require a company to issue options would not satisfy the plain words of the provision. 51 The Commissioner also referred to how the interpretation of the meaning of "rights" would affect the taxation of "shares" acquired by employees under an employee share scheme. It was submitted that there should be a harmonious construction given to the Division in respect of both "shares" and "rights to acquire shares". In relation to shares it was submitted that an employee may have a contractual right to shares under an employee share scheme well before the time that a share was actually allotted or transferred and if a mere contractual right to require the share to be provided was a right for the purposes of the Division then a taxing point would arise on the creation of that right. Further, the "discount" would be calculated under the provisions for an "unlisted right" rather than the specific provisions that applied to calculate the discount for "shares". Later, when the share was actually allotted to the employee, there would be an acquisition of shares and a new taxing point. 52 The Commissioner also relied on a number of other provisions within Division 13A which indicated that a "right" meant a "right to acquire a share". 53 Mr McWilliam submitted, relevantly, that the appeal was moot because there were unchallenged findings that he relevantly acquired a right to acquire shares in Seven Network Limited on 1 July 2003. On this basis he submitted that the appeal was incompetent as not being on a question of law. Mr McWilliam also submitted that the distinction which the Commissioner sought to draw between the alleged "anterior" right to acquire options to be issued and the grant of options themselves was artificial and of no consequence in the context of s 139B. 54 As to the first of these submissions Mr McWilliam referred to paragraphs [27] and [32] of the reasons of the Tribunal: [27] The agreement reached by the parties was that the taxpayer would have the options at the specified strike prices on assuming office, and such a binding agreement was specifically enforceable. The evidence is that he was appointed as Commercial Director on or about 15 May 2003. [32] In the present case the Tribunal concludes that there was an acquisition of options, pursuant to the discussions and emails of May 2003, whereby the taxpayer agreed to accept the options and this was agreed to by the Company. 55 Mr McWilliam submitted that these unchallenged findings were to the effect that Mr McWilliam had already acquired the options, and thus a right to acquire shares in Seven Network Limited, on 1 July 2003, the day on which he commenced employment with the company. The fact that Mr McWilliam could have gone to court on 1 July 2003 was simply demonstrative of the fact that the relevant right, the options to acquire shares, had been acquired by him on that day. 56 Mr McWilliam submitted there was nothing "anterior" or preliminary about those rights. They were rights, at his option, to acquire shares at certain exercise prices. Those rights did not depend upon him making an application to a court for a declaration or for an order for specific performance and they were not discretionary. As at 1 July 2003, Mr McWilliam was legally entitled, without more, to exercise his rights upon the vesting dates and acquire Seven Network Limited shares. He did not need to be "issued" with options by Seven Network Limited in the form of an Option Deed or otherwise. The Option Deed merely formalised the right Mr McWilliam acquired on taking up employment on 1 July 2003 and was not the source of any new right or rights to which Mr McWilliam was not previously entitled. Thus Mr McWilliam rejected the Commissioner's proposition that the 2,000,000 options had not yet been granted as at 1 July 2003. Mr McWilliam submitted that an option was nothing more nor less than a binding or enforceable contractual right to acquire something in accordance with the terms and conditions of the contractual agreement in the event that the optionee exercised the option: Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 72-75; David Deane & Associates Pty Ltd v Bonnyview Pty Ltd [2005] QCA 270 at [22]-[23]. 57 It followed that because the right acquired on 1 July 2003 was a right to acquire shares under an employee share scheme, being a right to acquire shares on the exercise of options, it was a "qualifying right" and Mr McWilliam could make an election under s 139E. 58 As to the second of Mr McWilliam's main submissions, it was submitted that, even if the right Mr McWilliam was granted on 1 July 2003 was merely a right to be issued with options, the Tribunal correctly concluded that such a right would be a relevant right for the purposes of s 139B. 59 The exercise of such a right would have enabled Mr McWilliam immediately to obtain options whose exercise in turn would result in the acquisition of shares in Seven Network Ltd. Such a right could, therefore, properly be characterised in substance as a "right to acquire shares" within Division 13A. There was nothing in that Division which required a right to be one the exercise of which directly resulted in the acquisition of shares. The exercise of the right which indirectly resulted in the acquisition of shares was just as much a "right to acquire shares" as was a right the exercise of which directly led to that result. 60 Mr McWilliam submitted that the Commissioner's submission that a right to be issued options could not be properly valued was not justified. As the substance of the right was to acquire shares there was no difficulty in valuing it in accordance with the statutory formula. 61 In reply, as to the nature of the rights as at 1 July 2003, the Commissioner submitted that there would have been no need for the Tribunal to refer to the remedy of specific performance if the Tribunal had found that Mr McWilliam actually had the option as at 1 July 2003. The Commissioner rejected Mr McWilliam's submission that the Tribunal found that Mr McWilliam had the options themselves at 1 July 2003 as distinct from the right to obtain them. The Commissioner submitted that Mr McWilliam's right as at 1 July 2003 was a right to approach a court to seek a discretionary remedy which was not the same as a right that may itself be exercised to acquire shares. Mr McWilliam had the latter right only when it was issued on 22 December 2003. 62 Further, as to the scheme of Division 13A, as the only right on 1 July 2003 was Mr McWilliam's right to approach the court for a discretionary remedy that particular right could not be exercised to acquire a share in Seven Network Limited and thus could not be valued using the valuation methodology in Division 13A. The Commissioner repeated his earlier written submissions. 63 The Commissioner took issue with the contention of Mr McWilliam that the option deed of 22 December 2003 was an act of supererogation. The Commissioner submitted that the finding of the Tribunal at [45] that the agreement in force as at July was not conditional upon approval or a formal deed or upon shareholder approval did not amount to a finding that the Option Deed did actually formalise whatever rights Mr McWilliam had on 1 July 2003, much less did it amount to a finding that the Option Deed was not a source of any new right or rights. Consideration 64 The starting point in an appeal under s 44 must be the findings of fact made by the Tribunal. We note that the Commissioner does not challenge those findings of fact. 65 If the correct conclusion is that as at 1 July 2003 Mr McWilliam had the options then the question of law and the ground set out in the notice of appeal do not arise. The Commissioner accepted that an acquisition of options to acquire shares is an acquisition of rights for the purposes of Division 13A. 66 We have set out those findings of fact above at [27] and [54]. Centrally relevant to the first issue agitated on this "appeal" were the additional references in the Tribunal's reasons to Mr McWilliam's entitlement to "then acquire the options and the shares" and to "the right to options" and "a right to be granted an option" and "a right to obtain options" and to "an immediate contractual right to obtain the options". 67 We accept Mr McWilliam's submission that the appeal begins and ends with the Tribunal's unchallenged findings that Mr McWilliam had acquired the options themselves as at 1 July 2003. 68 Although the Tribunal also used other language as described above, which was not expressed in the alternative, we accept that the Tribunal made a finding that Mr McWilliam had acquired the options themselves as at 1 July 2003. The reasons of the Tribunal should not be construed hypercritically: Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271-272. Further, that other language, which we have set out at [66] above, was used in the context of the question of construction raised by the Commissioner. 69 The effect of this finding is to defeat the Commissioner's appeal by rendering the construction question immaterial. This also involves the consequence that the appeal is incompetent as not being on a question of law. 70 Assuming that to be wrong, the Commissioner takes issue with the alternative finding of the Tribunal at [29] of its reasons "that the right to obtain options is a relevant right within the meaning of s 139B, and is not a form of anterior entitlement which does not come within that provision". According to the Commissioner, anything less than a right which confers an immediate entitlement on the taxpayer to the acquisition of shares upon exercise of the right is not a relevant right for the purpose of Division 13A. Thus, so the argument goes, if the right which the respondent had on 1 July 2003 was no more than a contractual right to require Seven Network Limited to grant or issue options to acquire shares, it was not a relevant right. 71 It is difficult, indeed impossible, to discern from the text of Division 13A (see Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47]) any legislative policy manifest in a construction which includes as rights options to acquire shares, but excludes contractual rights to acquire such options, particularly where such contractual rights are, as here, fully executed by the respondent's performance of the contract. 72 The Commissioner accepted that the word "right" in Division 13A carried the same meaning as the expression "right to acquire a share in a company" in s 26AAC of the ITAA, the precursor to Div 13A. When s 26AAC was inserted into the ITAA in 1974 to remove the taxation of such benefits from the ambit of s 26(e), the difficulties of application of which had been recently illustrated in the decision of the Supreme Court of NSW (Bowen CJ in Eq) in Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627; (1974) 74 ATC 4192, the Treasurer of the day (the Hon. Frank Crean MP) said: The new provision will apply to options or other rights acquired after 17 September 1974 and to shares acquired after that date unless acquired as a result of the exercise or operation of rights acquired on or before that date. (Emphasis added.) 73 In other words, the concept of "right to acquire a share in a company" extended to rights, other than options, which operated to give rise to an acquisition of shares, rather than being confined to the acquisition of shares by the exercise of options. 74 This does not mean that all entitlements which may lead to an acquisition of shares are "rights" for the purpose of Division 13A. For example, a right to accept an offer will not be such a right (see Fraunschiel v Federal Commissioner of Taxation [1989] FCA 236; (1989) 89 ATC 4616; (1989) 20 ATR 955 per Lee J) nor, if it be different, will a pre-emptive right to be offered shares to buy if the prospective vendor is desirous of selling. More difficult issues arguably arise in the case of conditional rights such as those that arose under the "Savoy Clause" in ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533, but the present case is a long way from that factual context. 75 The construction point seemed to be that Division 13A did not treat as a right a right which was merely enforceable or was enforceable only by a court of equity. This appeared to be the point dividing the parties as the Commissioner accepted that if Mr McWilliam had the options as at 1 July 2003, as we have concluded the Tribunal found, then the Tribunal would not, on the Commissioner's view, have erred in law. 76 But, in any event, if the true position is that as at 1 July 2003 Mr McWilliam obtained a right to acquire the options which was not conditional on future events why does not that also answer the statutory language? 77 Section 139FF referred, relevantly, to a person acquiring the beneficial interest or the legal interest in a right and goes on to say that the value that is applicable for the purposes of the Division is the value of the right, not the value of the interest in the right. The note to the section said it is the value of the right that is relevant because the taxpayer is taken to have acquired the right: reference was made to s 139G, which we have set out at [36] above. 78 Section 139G does not support the Commissioner's position. It is artificial to read s 139G as establishing mutually exclusive categories. Regard must be had to the substance of the paragraphs. The fact that s 139G uses the disjunctive "or" does not establish that the categories are mutually exclusive and incapable of overlap. Accordingly, if a person creates a legal or beneficial interest in the relevant right (that is, the right to acquire shares), s 139G(c) was satisfied. The fact that legal or beneficial interests were expressly dealt with in s 139G(d) and s 139G(e) in the context of acquisition from another person, in contrast to the creation of such rights, does not support reading s 139G(c) more narrowly than its language suggests. The fact that "right" itself is not a defined term supports this conclusion. 79 This construction is supported by the reasoning in Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592 at [30] that the assumption that the law of property requires the location at all times and in all circumstances of distinct legal and beneficial ownership was exploded by Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12. We refer also to the earlier discussion in [7-065] of Meagher R, Heydon D and Leeming M, Meagher, Gummow and Lehane's Equity, Doctrines and Remedies (4th ed, Butterworths LexisNexis, 2002) where the learned authors say, with reference to Livingston and other authorities, that where A owns property legally and beneficially, it appears to be wrong to say that he has two estates in the property, one legal and the other equitable. The learned authors say that where A equitably assigns the property to B while retaining the legal title, the correct analysis seems to be that A has not disposed of an equitable interest subsisting at the time of the disposition but he has created (out of, but distinct from his legal and beneficial ownership) an equitable interest which did not previously subsist. 80 Thus, in our view, s 139G(c) applied to the creation of a legal or beneficial interest in the right and ss 139G(d) and (e) did not deal exclusively with a legal interest in the right or with the beneficial interest in the right, respectively. 81 The Commissioner accepted in argument that on 1 July 2003 Mr McWilliam 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, Mr McWilliam, it must in our view follow that that right was created in Mr McWilliam by Seven Network Limited and, by virtue of s 139G(c), Mr McWilliam acquired that right, on 1 July 2003. 82 Although it is true to say, as the Commissioner submitted, that Division 13A did not define the word "right", it did by s 139G nevertheless define the meaning of a person acquiring a right and a person providing a right, that provision being in Subdivision G, headed "Definitions". On the present alternative, Mr McWilliam, as at 1 July 2003, had at least a beneficial interest in the relevant right, being the right to acquire shares. The interest was vested in Mr McWilliam by his contract of employment. The fact that the source of Mr McWilliam's interest in the right was vested by his contract of employment is immaterial. Nothing in the statutory scheme supports the Commissioner's contrary proposition that something more "immediate", "formal", "concluded" or "coalesced" is required. 83 Our emphasis has been on s 139G rather than on s 139C because, in our view, the latter section was addressed to the nature of the relationship between the right and the employment rather than to the nature of the right itself. 84 The statutory language does 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 arises. No difficulty with valuation arises: see s 139FF. Nor does any policy consideration assist the Commissioner. By virtue of s 139C(4) no double liability arises because a taxpayer does not acquire a share under an employee share scheme if the taxpayer acquired the share as the result of exercising a right the taxpayer acquired under such a scheme. 85 In our opinion, these provisions have the consequence that the Commissioner's appeal must fail. 86 It is not necessary to deal separately with the question of when the right was acquired under the employee share scheme. The parties proceeded on the view that the relevant time was when Mr McWilliam acquired his rights, the dispute being as to the nature of the rights on which Division 13A operated. It follows from our analysis that, as the Tribunal found, Mr McWilliam acquired the rights on 1 July 2003. 87 We have referred above to Mr McWilliam's submission that the Commissioner's appeal was not on a question of law. We accept that the question in the appeal does not arise on the Tribunal's unchallenged finding that Mr McWilliam acquired the options themselves on 1 July 2003 and the appeal is not on a question of law. On this basis, we uphold Mr McWilliam's objection to competency. In the alternative, because it would have been necessary to construe the legislation and because the facts were fully found, the Commissioner's appeal would have been on a question of law: see Industry Research & Development Board v Bridgestone Australia Ltd (2001) 109 FCR 564 at [50]-[62]. However we have rejected the Commissioner's submissions on that question of construction. Either way, the appeal does not succeed. Conclusion 88 The appeal should be dismissed with costs. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds, Jagot and Robertson. Associate: Dated: 8 August 2012