The Federal Government's 2009/10 Budget contained new measures with respect to shares and rights acquired after 7:30pm (AEST) on 12 May 2009. All discounts on shares and options provided under an employee share scheme (whether qualifying or non-qualifying) will be assessed in the income year in which they are acquired.

Specifically this means 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.

The Government will also limit access to the $1,000 upfront concession (for exempt plans). The $1,000 upfront tax exemption will now 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).

The changes will impact both broad based employee share plans, and selectively offered share and option/rights style plans.

Implications for existing share plans

Whilst the amendments have prospective effect, it may adversely impact any participants within existing deferred plans that are salary sacrificing (and having shares acquired on their behalf) monthly. On a strict interpretation of the above, this would mean that participants will be taxed up-front for any deferral plan acquisitions that may routinely occur at the end of May and June of this financial year (as the shares and rights are acquired post-Budget night).

What is being done to oppose the legislation?

With an estimated three million eligible employees affected by these changes, lobbying efforts are currently underway from industry representative groups, large and small employers, specialist advisors, and the trade union movement to oppose the Government’s changes.

While we expect to face a period of uncertainty over the coming months as the lobbying continues, we are confident that some form of discussion paper or consultative process may occur prior to the preparation of the legislation required.

22 May 2009

There has been a huge response of opposition to the Government's proposed changes. The opposition has been both consistent and widespread, from industry representative groups, large and small employers, specialist advisors, and the trade union movement. It is reasonable to think that the Government has met with far more opposition than it was expecting, with responses from key ministers becoming increasingly inconsistent over this past week.

At a meeting of the Employee Ownership Group (EOG) on 21 May the Chairman, Martin Morrow, provided an update on the current position and the discussions held in Canberra on Wednesday between key Treasury Officials, Prime Ministerial advisors, and Business Council of Australia and Corporate Tax Association representatives. It would appear the Government is looking for some kind of compromise.

At this stage, it would seem that the proposed measures in their current form will probably not materialise. Some form of discussion paper or consultative process may occur prior to the preparation of the legislation required.

 

10 June 2009

The Government has issued an announcement including a consultation paper and draft legislation for changes to the taxation of employee share schemes.

There are some definite positives in the announcement; however there are some changes that will require the terms of some plans to be changed, as well as some of our processes. We believe some plans will be affected more than others.

While this is welcome news, and is a big improvement from the Budget Announcement, there will be an adjustment period as the effect of the changes are properly digested, and ultimately finalised.

The Government has allowed for another short consultation process prior to the legislation being introduced into Parliament. There may be further changes resulting from that process.

 

3 July 2009

The Government has announced a third version of changes to the taxation of employee share schemes. This was reported in detail in the Australian Financial Review on 2 July 2009. 

After seven long weeks of extensive lobbying efforts the Government has significantly revised their initial position, which would have largely taxed most legitimate employee share plans out of existence. Computershare Plan Managers was actively involved in the lobbying efforts, along with many major industry representative groups and leading companies. These efforts have in effect salvaged legitimate employee equity remuneration practices in Australia. 

The Government received over 70 submissions in response to their second version, a huge response that reflects how far and wide employee equity remuneration has spread since the introduction of enabling employee tax legislation in Australia in 1995.  We estimated that close to one million employee plan participants were affected by these proposed changes.

• The changes can now be summarised as follows:
  

• • • •

Introduction of a means test to qualify for the $1,000 tax exemption, aligned to the top marginal tax rate of $180,000 Recognition of salary sacrifice funded share plans, allowing for a total of $5,000 per annum worth of shares which can be tax deferred for up to seven years, without the requirement of a substantial risk of forfeiture.  Salary sacrifice share plans must be run as a separate plan from a qualifying tax exempt plan Shares and rights not acquired by salary sacrifice will only be tax deferred if there is a substantial risk of forfeiture.  This requirement is aimed at all genuine performance based or incentive based plans Reporting requirements introduced for employer plan sponsors to provide plan participant details and plan securities to the ATO , and a tax statement for participants each year

The last seven weeks of uncertainty have served to highlight the important role employee equity remuneration now plays in our economy –  increasing both awareness and understanding.  Many myths have been exposed and it would also appear the Government is going to provide some ongoing consultative processes for dealing with current and future technical issues. We now appear to have a more acceptable scenario, however there are some residual concerns and some plans may still require some fine tuning and amendment.