Upcoming Mallesons seminarsAnyone who operated employee rights based schemes (e.g. option or performance right plans) through an employee share trust prior to 13 May 2008. The proposed amendments affect both participants who receive shares under such schemes through an employee share trust, as well as the trustee and administrators of the relevant employee share trusts.
What do you need to do?If you did not recognise a capital gain on the transfer of shares in satisfaction of exercised rights or options prior to 13 May 2008, then no further action is needed. If you did recognise a capital gain on the transfer of shares by an employee share trust prior to 13 May 2008, you may be able to amend your prior tax returns.
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Proposed amendments introduced to Parliament on 3 December 2008 will extend the tax relief granted earlier this year to the transfer of shares from employee share trusts to employees in satisfaction of rights or options granted under employee share schemes.
In broad terms, the tax relief granted earlier this year only applied if the transfer of the relevant shares happened after 13 May 2008. The proposed amendments seek to extend the tax relief so that it may also apply to the transfer of shares before 13 May 2008.
Prevention of double taxation for shares held in trust to satisfy options
A number of employee option schemes involve an employee share trust holding shares to provide to employees in satisfaction of the exercise of options granted to employees.
Under these schemes, the disposal of a share by the employee share trust to an employee in satisfaction of an exercised right or option may give rise to a capital gain for the trustee or the employee beneficiary.
Amendments enacted earlier this year by the Tax Laws Amendment (Budget Measures) Act 2008 sought to clarify that a capital gain does not arise for the trustee of the employee share trust or the employee in these circumstances (“section 130-90 amendments”).
Following the section 130-90 amendments, there had been some concern that the amendments did not apply to Capital Gains Tax (“CGT”) events that happened before 13 May 2008. This concern arose out of views expressed by the Australian Taxation Office that double taxation could arise where shares were provided by an employee share trust in satisfaction of rights or options that had been exercised.
Proposed amendments prevent double taxation for CGT events happening before 13 May 2008
On 3 December 2008, the Tax Laws Amendment (2008 Measures No. 6) Bill 2008 (“Bill”) was introduced to Parliament. The Bill includes proposed amendments which allow the trustee of an employee share trust and an employee beneficiary to avoid double taxation in respect of a share transferred before 13 May 2008 from an employee share trust to an employee.
Specifically, if an entity chooses, the proposed amendments may apply to a CGT event that happened after the start of the entity’s 1998-99 income year and before 7:30pm on 13 May 2008 (subject to the application of the usual amendment periods).
What action do trustees need to take?
If enacted in its current form, the Bill should clarify that trustees of employee share trusts that did not recognise a capital gain on the provision of shares in satisfaction of exercised rights or options prior to 13 May 2008 do not need to amend their tax returns.
If, on the other hand, a trustee of an employee share trust did recognise a capital gain on the provision of shares in satisfaction of exercised rights or options prior to 13 May 2008, then the Bill may provide the trustee with the opportunity to amend their returns (subject to the application of the usual amendment periods).