9 June 2009 - 14 September 2010
Legislation Introduced to Reform the Taxation of Employee Share Schemes
The Rudd Government has today introduced into Parliament the final form of the legislation to reform the taxation of employee share schemes, an important integrity measure contained in the 2009-10 Budget which will deliver a $135 million boost to the Budget bottom line.
The Assistant Treasurer, Senator Nick Sherry, highlighted the Government's strong support for employee share schemes.
"The Rudd Government believes employee share schemes align the interests of employees and employers, boost productivity and encourage good corporate governance," the Assistant Treasurer said.
"These reforms will better target the employee share scheme tax concessions and improve corporate governance outcomes by encouraging schemes to offer genuine loyalty or performance conditions to gain access to the deferred tax concession."
"The Government has consulted widely with industry experts, including with the Board of Taxation, and with the Australian community to develop the most effective and workable reforms possible."
"I thank the Board of Taxation and the range of stakeholders with whom I have met and received advice during the several stages of this consultation."
As a result of consultation undertaken by both the Government and the Board of Taxation, the legislation and explanatory materials introduced today:
- widen 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;
- include significant additional guidance and examples of the real risk of forfeiture test, including when forfeiture conditions relating to retirement would constitute a real risk;
- provide clear transitional arrangements for shares and rights acquired before 1 July 2009;
- adjust 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;
- exempt employee share trusts from capital gains tax over shares acquired to satisfy the exercise of rights provided under an employee share scheme; and
- amend 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.
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.
Consistent with the current law, tax on employee share scheme benefits cannot be deferred beyond the time when an employee ceases employment with their employer. This has been a feature of the law since 1995.
"I have considered stakeholder requests for the removal of the cessation of employment as a taxing point, but to do this would raise significant tax integrity issues, and punch a major hole in the revenue base, and that is untenable at this time," said the Assistant Treasurer.
As previously announced, the changes to the taxation of employee share schemes will apply from 1 July 2009.The legislation and explanatory materials are available at www.aph.gov.au.
21 October 2009