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29 May 09 Submission on Employee Shares Schemes – consultation

The Taxation Institute has lodged its submission on Employee Shares Schemes with the Business Tax Division of the Commonwealth Treasury. The submission responds to the joint Media Release of 24 May 2009 (No. 074, Employee Share Schemes) by the Treasurer and the Assistant Treasurer. Although the Taxation Institute understands from the joint Media Release that a "policy options paper" will be released in the next fortnight, the Taxation Institute believes it is important to provide initial comments on the four options referred to in the Media Release.

Key points raised by the Taxation Institute on the options referred to in the Media Release include:
  • The Taxation Institute submits that specific legislation is not required to address tax avoidance concerns in relation to employee share schemes. The Taxation Institute believes that the Commissioner of Taxation already has extensive powers to obtain the information required and to identify those individuals who have a vested interest under an employee share scheme (and hence a potential tax liability). Further, targeted information gathering powers would merely increase the length and complexity of the law without notable enhancement and could even fetter the Commissioner's existing powers.
  • The Taxation Institute recommends that the Government abandon the announced $60,000 income threshold for accessing the $1,000 tax exemption as it is too low and is inconsistent with the income thresholds of a number of other recent tax measures such as the tax bonus and the proposed paid maternity leave. The Taxation Institute submits that the $60,000 income threshold will discourage participation in employee share plans across the workforce. Further, the Taxation Institute believes that this cap may not affect high income earners who would typically be expected to receive shares or rights under employee share schemes with a discount in excess of $1,000 and would be expected to defer their taxing point. Therefore, this measure does not appear to deal with the high income earners who appear to be the target of the proposed changes. An alternative to the $60,000 income threshold which could be considered is increasing the income threshold for accessing the $1,000 tax exemption to an amount that is consistent with other recent tax measures such as the tax bonus and the proposed paid maternity leave (ie, to at least $150,000).
  • The Taxation Institute submits that the abolition of deferral of the taxing point will affect low and middle income earners in particular rather than the high income earners, which appear to be the target of the proposed changes announced in the Budget. Therefore, the Taxation Institute believes that the deferral of the taxing point needs to be restored. If not, the underlying policy objective of employee share schemes (ie, encouraging an alignment of the interests of companies and their employees through continuing share ownership by employees) will be significantly discouraged.
  • As to whether the tax law provisions which determine the market value of discounted and deferred shares or rights result in undervaluation, the Taxation Institute submits that, in the absence of empirical evidence establishing that the current approach results in over or undervaluations, the current approach should be retained. If it is established to the reasonable satisfaction of all concerned that the current approach results in over or undervaluations, then alternatives should be considered.
For a copy of the Taxation Institute's submission go here.

For a copy of the Taxation Institute's Media Release go here.

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