The Government has today outlined the key principles that will underpin the consultation process on the Budget measure that deals with the taxation arrangements surrounding employee share schemes.
The Budget measure was designed to deal with the current tax arrangements applying to employee share schemes which involve excessive concessionality and provide scope for revenue losses through avoidance or for confusion as to the taxpayer's obligations.
Business, tax profession and interest groups have acknowledged that there is an important tax integrity issue to be addressed with this measure.
Nevertheless, concerns have been expressed that the $60,000 income cap for access to the $1,000 tax exemption is too low. Concerns have also been expressed about the removal of the tax deferral option for higher value schemes.
Given the community concerns with the proposed changes and the possible unintended adverse impacts on employee share scheme arrangements for ordinary employees, the Government will be fast-tracking the consultation process, beginning with the release of a policy options paper in the next fortnight.
The government always consults on the detailed design of its tax measures and this measure will be no different.
As part of that consultation process the Government will be taking on board some of the concerns raised and examining the most efficient way of protecting the tax base and cutting down on potential avoidance and confusion at the higher end while maintaining the current support for employee share ownership schemes particularly for low and middle income workers.
The consultation process will seek submissions on concerns with both the existing and announced arrangements, and on proposed alternative solutions to address the identified problems. The consultation process will allow the wider public to provide the Government with comprehensive feedback on the new framework for the taxation of employee share schemes.
Bearing in mind the policy objectives outlined in the Budget measure, 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.