AUSTRALIA - UPDATE - Employee Share Schemes - Submission To Treasury - 24 June 2009
Article by Michael Van Schaik, Moore Stephens
The Government proposes to modify the Budget measure as
announced to:
- introduce a limited deferral of the taxing point for schemes
where there is a 'genuine risk of forfeiture', to protect
employees who have a real risk of being taxed on a share or right
that they might never get full title to;
- modify the taxing point ('deferred taxing point') for
shares, stapled securities and rights;
- introduce an annual reporting requirement and associated
withholding arrangements;
- review the existing valuation rules;
- modify the rules relating to the refund of income tax for
forfeited benefits.
The Government proposes that these new arrangements will apply
to shares or rights acquired on or after 1 July 2009. The existing
law apply to all shares and rights acquired before 1 July.
Moore Stephens in its submission to Treasury proposed the ESS
provisions be revised as follows;
- Removal of the existing section139E election provision;
- Insertion of default taxation at grant on all schemes;
- Insertion of an Election to defer tax on qualifying
schemes;
- Expansion of the existing PAYG Reporting System to include the
value of any discount provided to an employee under an ESS on the
PAYG Payment Summary in a similar manner to Reportable Fringe
Benefits;
- Functionality in an individual's tax return to capture the
PAYG Payment Summary data and notate it as income in a similar
manner to allowances and certain lump sum payments;
- Functionality within the taxation return to elect for taxation
deferral and subsequently remove the discount from assessable
income;
- No alteration to the existing cessation time provisions for
determining the deferred taxing point;
- No new withholding tax measures;
Furthermore we support the initiative to expand the valuation
options available to entities, and a further widening of access to
tax refunds where shares are forfeited as a result of subsequent
conditions.
We have outlined our specific issues in more detail in our
Submission to Treasury,
click here to view.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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UPDATE: 1 July 2009 - Deloitte
Global Rewards Update:
Australia
July 2009
EMPLOYEE SHARE PLANS - FINAL PROPOSED CHANGES
POLICY STATEMENT ANNOUNCEMENT
This is a further update to our Global Rewards Updates of May
and June 2009. On July 1, 2009 the Federal Government released its final
position on the proposed changes to the tax treatment of Employee Share
Schemes (ESSs), following significant feedback from business and unions to
the consultation paper and amending legislation issued on June 5, 2009.
The new statement confirms
most of the positions outlined in the consultation paper, most notably that
the proposed new measures will apply to shares and rights (such as options)
acquired on or after July 1, 2009. As previously announced, the existing law
will apply to all shares and rights acquired before July 1, 2009.
Some important
modifications have been made to the positions outlined in the consultation
paper in response to concerns raised by industry, advisors and stakeholder
groups as follows:
·
The most typical
“deferred taxing point” will arise:
o
For qualifying shares:
When there is no longer a real risk of forfeiture and no disposal
restrictions (set at acquisition) attached to the shares.
o
For qualifying rights:
When there is no longer a real risk of forfeiture and no restrictions (set at
acquisition) preventing the disposal or exercise of the rights. If the shares
acquired upon exercise of a right are subject to both a real risk of forfeiture
and disposal restrictions (set at acquisition), the taxing point will be
deferred until there are no forfeiture conditions and no disposal
restrictions attached to the shares.
·
The income threshold to
access the tax exemption of up to A$1,000 on discounts for broadly based
employee share plans that satisfy certain conditions will be increased to an
adjusted taxable income of A$180,000. The previous proposed threshold was
A$150,000.
·
Reporting by an employer
will still require disclosure of the number of shares and rights acquired
under an ESS at both grant and the taxing point, however, the employer will
only be required to estimate the market value of the awards at the
employee’s taxing point, not upon grant.
·
The ability to obtain a
refund of tax paid at grant will be extended to cover forfeited shares.
ADDITIONAL MEASURES
The Federal Government
announcement also addressed the following as part of its proposed final
framework for the taxation of ESSs:
·
The Board of Taxation will
be asked to consider how best to determine the market value of ESS benefits
and whether shares and rights provided to start-up, research and development
and speculative-type companies should be subject to a tax deferral
arrangement.
·
Explanatory materials,
including specific illustrations, will be developed to provide further
clarity on the meaning of “real risk of forfeiture”. Notably, the
announcement suggests the test to determine whether a real risk of forfeiture
exists is to consider the judgment of a reasonable person.
The Federal Government will introduce the new legislation
effecting the ESS changes into Parliament in August 2009.
ACTION
·
Companies should review
share plan arrangements immediately to assess the likely impact of the tax
changes on future awards to Australian participants.
People to Contact
For assistance in this
matter or any other issue related to the operation of your global rewards
plans, please contact your local Deloitte global rewards consulting services
advisor or email us at: globalequity@deloitte.com and a global rewards consultant will contact you.
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