The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

12 May 2009


Better Targeting the Employee Share Scheme Tax Concessions

The Rudd Government today announces new measures to help ensure everyone pays their fair share of tax by better targeting eligibility for the employee share scheme tax concessions.

The new measures will also protect Commonwealth revenues needed to support jobs and invest in vital nation-building in the face of the global recession.

The new measures are expected to provide an additional $200 million over the forward estimates.

The new measures will remove the inconsistency which currently exists between the two types of employee share schemes: qualifying shares schemes and non-qualifying share schemes. The measures will maintain the incentives for low and middle-income earners to access such schemes.

Under the current arrangements, employees who take part in employee share schemes are required to pay tax on any discount on the full value of a share or option they receive from their employer. This is currently the case in relation to both qualifying shares schemes and non-qualifying share schemes.

The tax law currently provides two ways for an employee in a qualifying share scheme to have tax on the discount assessed:

  1. The employee can elect to be assessed in the income year the shares or options are acquired. If so, the employee can access an upfront tax exemption of up to $1,000 on discounts received each year.
  2. If an election is not made, taxation of the discount is deferred until a later time (such as when the employee disposes of the share).

In comparison, if the shares or options are issued under a non-qualifying scheme, the employee is taxed on the discount when he or she acquires the shares or options. This means they do not enjoy the tax benefits associated with qualifying employee share schemes.

Further, it appears that some taxpayers are able to avoid paying tax on the discount by using the deferral method of assessment and then not declaring the discount at the appropriate time.

Under the new arrangements announced today, all discounts on shares and options provided under an employee share scheme – either qualifying or non-qualifying – 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.

This will ensure that all forms of remuneration are taxable in the year the remuneration is received.

The Government fully appreciates the benefits provided by employee share scheme arrangements, however these benefits must be balanced against the need to provide equitable outcomes for all employees.

The Government will also limit access to the $1,000 upfront concession. 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.

This will help ensure that tax concessions better achieve their objective of boosting the availability and take-up of employee share schemes by low and middle income employees.

All of these measures will apply to shares and options acquired after 7.30pm today. The measures will not affect shares or options already held by employees.

12 May 2009