Currently an employee under a qualifying share scheme can elect to be assessed on discounts provided on shares or rights in the income year the shares or rights are acquired. If no election is made, the discount (which includes gains on shares or rights) is taxed at a later time (such as when restrictions on the shares or rights are lifted). If an employee elects to be taxed upfront they receive a tax exemption of up to $1,000 on the discount.
In comparison, if the shares or options are issued under a non-qualifying scheme, the employee is taxed on the discount when he or she acquires the shares or options. This means they do not enjoy the tax benefits associated with qualifying employee share schemes.
Under the new arrangements announced today, all discounts on shares and options provided under an employee share scheme - either qualifying or non-qualifying -will be assessed in the income year in which they are acquired. That is, 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. This will ensure that all forms of remuneration are taxable in the year the remuneration is received.
The Government will also limit access to the $1,000 upfront concession. The $1,000 upfront 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.
The measure will take effect with respect to shares and rights acquired after 7:30pm (AEST) on 12 May 2009.
For more information, see the Treasurer's media release, No 2009/65, 12 May 2009