5 June 2009

Employee Share Schemes - Consultation Paper

The Government today invited public comment on its consultation paper and draft legislation on the tax treatment of Employee Share Schemes in line with its commitment to fast-track consultation.

The Government is committed to ensuring that low and middle income earners can access the $1,000 tax concession for discounted shares or rights offered by their employee under an employee share scheme.

The fundamental principle that is driving the Government's approach to the tax treatment of employee share schemes is to improve the fairness and integrity of the tax system.

There has been an acknowledgement by industry and tax stakeholders of the need to address the tax integrity issue surrounding the tax treatment of employee share schemes.

The Budget arrangements were designed to deal with the current tax arrangements applying to employee share schemes which involve excessive concessionality and provide scope for losses to Commonwealth revenue through avoidance or confusion as to the taxpayer's obligations.

Discussions with key stakeholders have revealed that the tax avoidance problems associated with employee share schemes may be larger than was first anticipated.

The Government proposes to modify the Budget measure as announced to:

  • raise the income threshold for the $1,000 tax exemption up to $150,000;
  • introduce a limited deferral of the taxing point for schemes where there is a 'genuine risk of forfeiture', to protect employees who have a real risk of being taxed on a share or right that they might never get full title to;
  • modify the taxing point ('deferred taxing point') for shares, stapled securities and rights;
  • introduce an annual reporting requirement and associated withholding arrangements;
  • review the existing valuation rules;
  • modify the rules relating to the refund of income tax for forfeited benefits.

The Government proposes that these new arrangements will apply to shares or rights acquired on or after 1 July 2009. The existing law apply to all shares and rights acquired before 1 July.

Interested stakeholders can obtain a copy of the options paper from www.treasury.gov.au.

5 June 2009