Upcoming Mallesons seminarsParticipants and administrators of employee share and option schemes.
What do you need to do?Consider impact of proposed changes.
David Anderson
Solicitor
Andrew Clements
Partner
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Sydney
Michael Barker
Brian Murphy
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Melbourne
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Diana Nicholson
As part of the 2009/10 Federal Budget announcements on Tuesday 12 May, the Treasurer issued a press release indicating that new measures would be introduced to remove some tax concessions, and limit others, for employees who acquire shares and options under employee share schemes.
What concessions are currently available?
Under the current law, an employee may be assessed on any “discount” in relation to a share or option they acquire under an employee share scheme. There are two primary concessions under the existing rules:
- Tax deferral: employees who acquire “qualifying” shares or options may seek to defer taxation until a later time (e.g. the exercise of the options) rather than being assessed upfront, and
- $1,000 tax exemption: employees who acquire “qualifying” shares and rights that satisfy the $1,000 tax exemption conditions may exclude up to $1,000 of any “discount” from their assessable income - if they elect to be taxed upfront.
Removal of tax deferral concession
The press release indicates that tax deferral will no longer be available for employees acquiring shares and options under an employee share scheme. Rather, employees will be assessed upfront. This is irrespective of whether the shares or options are “qualifying” shares or rights. The new measures will not take into account whether the shares are subject to a restriction on transfer or a forfeiture condition.
$1,000 tax exemption only available to employees with adjusted taxable income of less than $60,000
The press release also indicates that the $1,000 tax exemption will 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.
When do the new measures take effect?
These new measures will apply to shares and options acquired after 7:30 pm on 12 May 2009. The measures will not affect shares or options already held by employees.
What are the consequences of the new measures?
The new measures will have a significant impact on the manner in which equity-based remuneration is offered to employees. They will substantially change the way employee equity offers are made in Australia.
The new measures may effectively remove the benefits of salary sacrifice share plans. They are also likely to make it more difficult for overseas equity offerings - where the ability to accommodate the Australian tax rules is more limited - to be extended to Australian participants.
It is possible that we will see the re-emergence of loan based schemes for deferred equity and also schemes involving a combination of equity and cash bonuses.
There is potential for significant adverse tax treatment for employees who are assessed upfront. For example, where shares are forfeited.
It is critical that all current offers be reviewed to take into account the impact of the proposed new measures. In particular, if invitations have been made to employees prior to 7.30pm on 12 May 2009, and the relevant shares or rights have not yet been acquired by participants. It may be appropriate to make submissions to Treasury regarding the start date for the proposed new measures to deal with shares or rights acquired under offers before the Treasurer’s announcement.