Employee share schemes
The Treasurer's announcement on 12 May 2009 of 2 changes to employee share scheme tax concessions has created a lot of publicity suggesting a winding-down of these schemes.
The changes (which will apply to shares and options acquired after 7.30pm on 12 May 2009, but not shares or options already held by employees) are:
- all discounts on shares and options provided under an employee share scheme will be assessed in the income year in which they are acquired. That is, employees acquiring shares or options under qualifying employee share schemes will no longer be able to elect to defer taxation on their discount to a later time. There was no announced change to the current 3 year holding lock on these shares.
- The $1,000 upfront tax exemption will be limited to those employees with a taxable income of less than $60,000 after adjustment for fringe benefits, salary sacrifice and negative gearing losses.
There was also no announced change to the relief that is currently provided from certain of the licensing and hawking restrictions of the Corporations Act for employee share schemes for both listed and unlisted companies. This relief has been given subject to the condition that employee share schemes must be accompanied by a disclosure document such as an Offer Information Statement or a prospectus.
UPDATE 24 May:
The Government has announced a consultation process on the Budget measure that deals with the taxation arrangements surrounding employee share schemes. It will release a policy options paper in the next fortnight on the most efficient way of protecting the tax base and cutting down on potential avoidance while maintaining the current support for employee share ownership schemes particularly for low and middle income workers.
The policy options paper will canvass options that include:
- the reporting requirements which should be applied to address tax avoidance concerns, such as the application of withholding arrangements or enhanced Tax File Number (TFN) reporting.
- the level of the income threshold for accessing the $1,000 tax exemption for upfront taxation, which would ensure the continued availability of employee share schemes for low and middle income employees;
- whether there are circumstances under which it may be appropriate to provide for the deferral of taxation, the period of deferral and what those limited circumstances would be (such as when there is a real risk of forfeiture); and
- whether the tax law provisions which determine the market value of discounted and deferred shares or rights result in undervaluation.
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