ACCA Advanced Taxation (ATX) Practice Exam

Is income tax payable upon the grant of share options?

1. Yes, immediately upon the grant

2. No, there is no income tax payable

3. Only if shares are sold

4. Only if the value increases

The correct answer is: No, there is no income tax payable

When it comes to the taxation of share options, income tax is generally not payable at the time of the grant of the option. Share options grant an employee the right to purchase shares in the future at a predetermined price, and there is typically no value realized at the moment they are granted. Instead, tax liability typically arises when the options are exercised, and the employee acquires the shares. At that point, if the shares are purchased at a lower price than their market value, the difference between the exercise price and the market value at exercise is treated as income and is subject to income tax. This aligns with the nuanced tax treatment whereby the income tax implications are deferred until there is a realized benefit from the share options, hence the correct understanding is that there is no income tax payable immediately upon the grant of the share options.