Australian Regulatory Compliance Review

Employee share scheme taxation bills introduced

The Government has introduced into Parliament the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 and the Income Tax (TFN Withholding Tax (ESS)) Bill 2009 to reform the taxation of employee share schemes.(Background here)

When passed, the legislation (which will apply from 1 July 2009) will assess all discounts on shares and rights provided under an employee share scheme in the income year in which the shares and rights are acquired

Changes since the exposure draft include:

• widening the exposure draft refund provisions to ensure that a refund will not be denied when employee share scheme benefits are forfeited as a result of leaving employment;
• including additional guidance and examples of the real risk of forfeiture test, including when forfeiture conditions relating to retirement would constitute a real risk;
• providing transitional arrangements for shares and rights acquired before 1 July 2009;
• adjusting the exposure draft provisions related to salary sacrifice arrangements to make it administratively easier to offer complex schemes involving both shares or rights with a real risk of forfeiture, and salary sacrifice arrangements;
• exempting employee share trusts from capital gains tax over shares acquired to satisfy the exercise of rights provided under an employee share scheme; and
• amending certain tests in the exposure draft package, such as the tests requiring schemes to be offered to a broad cross-section of employees, to make the rules easier to comply with.

Tax on employee share scheme benefits cannot be deferred beyond the time when an employee ceases employment with their employer.

The Assistant Treasurer has previously asked the Board of Taxation to consider two further issues raised in consultation:

• how to best determine the market value of employee share scheme benefits; and
• whether shares and rights under an employee share scheme at a start-up, R&D or speculative focused company should have separate tax deferral arrangements, despite not being subject to a real risk of forfeiture.

The Board of Taxation will report their findings in relation to these issues to the Government by February next year.

Draft GST administration simplification rules

The Assistant Treasurer has released draft legislation, regulations and explanatory material to implement the following announced GST administration measures:

• Limiting claims for input tax and fuel tax credits to four years
• Introducing a bulky goods export refund scheme for Australian External Territory residents
• Expanding the GST rules for transactions undertaken by agents
• Clarifying how the GST law applies to offshore gambling transactions
• Clarifying the Commissioner's power to recover overpaid refunds
• Clarifying the interaction of the GST associate provisions
• Increasing the adjustment note threshold.

Submissions close on 27 October 2009.

Employee Share Schemes: Application and Transitional Provisions

Treasury is consulting until 22 September on the application and transitional provisions for the proposed employee share scheme changes, which were not included in the exposure draft bill.

GST administration changes

Assistant Treasurer, Senator Nick Sherry, has released a second consultation paper on reforms to goods and services tax (GST) administration.

The announced measures implement recommendations made by the Board of Taxation in a report to the Government last year.

The key components of the package of reforms include:

• harmonising the GST law and the income tax self-assessment and rulings regimes;
• adopting more principled and flexible GST grouping rules;
• simplifying the GST adjustment provisions; and
• reforming the GST treatment of sales of going concerns and farmland.

The second discussion paper includes GST self-assessment, adjustments, general law and tax law partnerships, bare trusts and running balance accounts.

The majority of the measures will apply from 1 July 2010.

Consultation closes on 9 October 2009.

Tax changes

The Tax Laws Amendment (2009 Measures No. 4) Bill 2009 has been passed by the Commonwealth Parliament.

The Bill contains:

• reforms to the regulation of philanthropic funds, now called private ancillary funds (previously prescribed private funds)
• changes to the Research and Development (R&D) Tax Offset
• capital gains tax (CGT) relief to certain demutualising friendly societies.

Company losses

The Assistant Treasurer, Senator the Hon Nick Sherry, has released exposure draft legislation to improve the income tax company losses regime and associated explanatory material.

The exposure draft legislation implements announced changes to the company loss recoupment rules to improve the operation of the continuity of ownership test where a company has an unfixed share structure, modify the definition of voting power and clarify the operation of the same business test for consolidated groups (Treasurer's Media Release No 53 of 13 May 2008 ).

TOFA changes

The Assistant Treasurer, Senator Nick Sherry,has announced several amendments to the income tax law relating to the Taxation of Financial Arrangements, (TOFA).

The changes include:

• the interaction of TOFA and the pay as you go (PAYG) instalments system.
• clarify that a dividend paid on a share that is a debt interest may be deductible
• Modify the assets threshold test that applies to regulated superannuation funds so that it also applies to unregulated superannuation funds on the same basis

Taxation treatment of employee share schemes

Treasury has released an exposure draft package of the new taxation treatment of share and rights acquired under employee share schemes for comment. The package includes:

• an exposure draft version of Schedule 1 to Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009;
• an exposure draft version of Income Tax (TFN Withholding Tax (ESS)) Bill 2009;
• explanatory materials in support of those exposure draft Bills; and
• associated regulations (with some explanatory materials).

The exposure draft does not yet include application and transitional provisions. That part of the Bill is still under development and will be released as soon as it is complete.

Board of Taxation Discussion Paper on GST and cross‑border transactions

The Board of Taxation has released a discussion paper on the Board’s review of the application of GST to cross‑border transactions.

The Government has asked the Board to consult widely with relevant stakeholders and report to the Government on improvements to the design of the GST system necessary to ensure that cross‑border transactions are treated in an efficient and effective manner. A particular focus will be those design features underpinning the involvement of non‑residents in the Australian GST system with a view to simplifying the design.

The closing date for submissions is 4 September 2009.

Further consultation on employee share schemes

The Assistant Treasurer, Senator Nick Sherry, has released the timeframes for the final round of industry consultations on reforms to the taxation of employee share schemes, including releasing the Terms of Reference for the Board of Taxation review component.

As set out in the final Policy Statement of 1 July 2009, the Government will undertake a three-stage consultation process.

The three stages are:

• a two-week consultation period on a draft Exposure Bill beginning in August;
• a Board of Taxation consultation on technical issues to report to the Assistant Treasurer within approximately one month of the release of the draft Exposure Bill; and
• a comprehensive Board of Taxation review on two further substantive issues to report to the Assistant Treasurer by 28 February, 2010.

Following the first two stages of this consultation process, it is envisaged legislation based on the policy statement will be introduced into Parliament in the Spring sittings.

The Board of Taxation's review is the third stage of the consultation process. The issues before the Board are:

• how to best determine the market value of employee share scheme benefits; and
• whether shares and rights under an employee share scheme at a start-up, R&D or speculative focused company should have separate tax deferral arrangements.