Payment Deferral

Deferral of Payment of Income Tax under Section 128A TCA, 1997

Section 128A TCA 1997 makes provision for a taxpayer to elect to defer payment of the income tax payable on the gain arising on the exercise of a share option.

The income tax payable may be deferred until the earlier of:

• The year of assessment in which the shares acquired by the exercise of the right are disposed of, or
• The year of assessment which is 7 years after the year of assessment in which the exercise took place.

Where a charge to income tax has been deferred under Section 128A TCA 1997, it is necessary to identify the actual date of sale of the shares, on which the income tax has been deferred. This is the date used to establish when the deferred income tax charge becomes due and payable and is also the date from which interest runs, if the shares are disposed of before the year of assessment which is 7 years after the year of assessment in which the exercise took place.

The first in first out basis will apply to shares acquired as a result of the exercise of a share option on which the individual has elected to defer the income tax under Section 128A TCA 1997.

This does not apply if the relevant shares are disposed of in the same year of assessment in which the option is exercised in respect of those relevant shares.

For identification purposes all the provisions in relation to capital gains tax will apply.

Previous articles are contained in Tax Briefing, Issues 40, 41 and 46.